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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
_ X _ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT Of 1934
For the fiscal year ended December 31, 1999
OR
_ _ _ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________ to ________
Commission File Number 1-13732
SHARED TECHNOLOGIES CELLULAR, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1386411
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Great Meadow Road, Suite 104
Wethersfield, Connecticut 06109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(860) 258-2500
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes_ _X_ _ No _ _ _ _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's Common Stock held by
nonaffiliates as of March 10, 2000 was approximately $49,565,000 based on the
average of the closing bid and asked prices as reported on such date in the
over-the-counter market.
As of March 10, 2000, there were 8,819,806 shares outstanding of the
registrant's Common Stock, $.01 par value.
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PART I
ITEM 1. BUSINESS.
(a) General Development of Business - Shared Technologies Cellular, Inc. ("STC"
or the "Company"), a Delaware corporation incorporated in 1989, is a national
telecommunications product and services provider, offering prepaid wireless,
paging, long distance and local services through various national distribution
channels in over 690 of approximately 750 Cellular Geographical Service Areas
("CGSA") within the United States. The Company also rents cellular telephones to
business and leisure travelers and to individuals at sporting events. As a
reseller or agent for cellular and PCS carriers, the Company offers cellular
service to approximately 98% of the U.S. population. STC also performs
nationwide cellular activation services through a variety of retail and
commercial outlets. Under its wholly-owned subsidiary, CellEase.com, Inc.
("CellEase"), the Company has expanded the scope of its prepaid cellular
services. CellEase is primarily a business-to-business information technology
("IT") services company providing back-office service bureau functions, advanced
platform, and integrated e-commerce and direct marketing solutions to the
telecommunications industry. Utilizing proprietary systems developed over
several years, CellEase offers carriers and distribution partners an array of
services including: an universal prepaid redemption platform, interactive voice
response ("IVR") facilities, point-of-sale activation ("POSA") card services,
inter-carrier communications services and one-stop shopping, e-commerce and
direct marketing programs that offer multiple telecommunications services.
Through the acquisitions of certain assets from Road and Show Cellular East,
Inc., Road and Show South, Ltd. and Road and Show Pennsylvania, Inc.
(collectively "Road and Show"), in December 1993, the Company obtained a
national distribution network, including relationships with national car rental
companies and hotels. As of December 31, 1999, the Company had approximately
3,500 cellular telephones available to rent at approximately 300 distribution
outlets.
In April 1995, the Company completed its initial public offering, pursuant to
which the Company sold 950,000 shares of its Common Stock, $.01 par value
("Common Stock"). Prior to the offering, the Company was an approximately
86%-owned subsidiary of Shared Technologies Fairchild Inc. ("STFI").
In May 1995, the Company commenced management of, and subsequently acquired the
outstanding capital stock of The Cellular Hotline, Inc., ("Hotline"), a cellular
telephone activation service provider for a purchase price of $1,329,000.
In November 1995, the Company completed its acquisition of substantially all of
the assets of PTC Cellular, Inc. ("PTCC"), one of the largest in-car cellular
telephone providers in the United States for a purchase price of $3,725,000.
In December 1995, the Company sold its resale business to SNET Mobility, Inc.
The sale included the Company's customer accounts relating to the resale
business and the corresponding accounts receivable, for approximately $1.1
million in cash.
In December 1995, the Company completed a $3 million private placement of equity
with International Capital Partners, Inc., ("ICP"), a Stamford, Connecticut
based investment firm, two of whose principals are currently directors of the
Company. The $3 million offering proceeds, net of commissions, was used
primarily for the acquisition of certain assets of PTCC and to provide
additional working capital. Under the terms of the offering, STC issued 300,000
shares of its Series A Convertible Preferred Stock, $.01 par value per share
(the "Series A Stock"). In addition, the Company issued to ICP a five-year
warrant to purchase 150,000 shares of the Company's Common Stock at an exercise
price of $2.50. In May 1996, all outstanding shares of Series A Stock were
converted into 1,146,450 shares of Common Stock. In August 1996, the Company's
stockholders approved the Company's cancellation of the Certificate of
Designations for the Series A Stock.
In April 1996, the Company completed its acquisition of substantially all of the
assets of its only franchisee, Summit Assurance Cellular, Inc. and certain other
parties (collectively "Summit") The purchase price was approximately $3,563,000
comprised of $335,000 in cash, the assumption of $669,000 of accounts payable
and $656,000 of notes payable, the issuance of a promissory note for $953,000,
and the issuance of 300,000 shares of Common Stock, valued at $3.125 per share
and three-year warrants each to purchase 100,000 shares of the Company's Common
Stock at prices of $3.00, $4.00 and $5.00 per share, respectively. These
warrants were valued at $13,000. In April 1998, the Company, Summit and Craig
Marlar, who was an officer and director of Summit and was a director of the
Company until his resignation in April 1998, entered into a settlement of
litigation arising out of the acquisition of certain assets
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of Summit, whereby the Company received from Summit 100,000 shares of the
Company's Common Stock. The stock received was in exchange for the assumption by
the Company of $150,000 to a vendor on behalf of Summit, a one-year extension of
the expiration date of the warrants issued in connection with the acquisition,
the issuance to Summit of a warrant to purchase 100,000 shares of the Company's
Common Stock at an exercise price of $5.00 per share, and forgiveness of all
amounts due, including accrued interest, on a note receivable from Summit in the
principal amount of $180,000. The effect of this transaction on the Company's
results of operations was immaterial.
In August 1996, the Company completed a $5 million private placement with ICP
and STFI for 500,000 shares of Series B Preferred Stock, $.01 par value per
share (the "Series B Stock"). The Company received gross proceeds from the
offering of $5 million, including the cancellation of $1,200,000 of preexisting
debt to STFI. A commission of $125,000 was paid to ICP. Separately, the Company
engaged the services of ICP to provide certain financial advisory services to
the Company for a period of one year. In consideration for such services, the
Company issued a five-year Common Stock Warrant to ICP for the purchase of
240,000 shares of Common Stock at an exercise price of $3.00 per share and on
terms substantially the same as those provided for in the Common Stock Warrants
issued to the purchasers of the Series B Stock. In August 1997, all outstanding
shares of Series B Stock were converted into 1,667,000 shares of the Company's
Common Stock and the shareholders received warrants to purchase an equal number
of Common Stock at an exercise price of $3.00 per share.
In December 1996, the Company entered into an agreement (the "Purchase
Agreement") with RHI Holdings, Inc. ("RHI") pursuant to which the Company sold
to RHI 500,000 Common Stock units ("Units") with each Unit consisting of one
share of Common Stock, and one warrant to purchase an additional share of Common
Stock at $3.00 per share. The Company received proceeds of $1,469,000, net of
certain transactional expenses, from the sale of such Units. The Purchase
Agreement provided for STC to use its best efforts to cause the Board of
Directors of STC to include at least one member designated by RHI so long as RHI
owns capital stock (or the rights to purchase capital stock) comprising 5% or
more of the voting power in STC, and at least two members designated by RHI so
long as RHI owns capital stock (or the rights to purchase capital stock)
comprising 10% or more of the voting power in STC. To date, no RHI-designated
directors have joined the Board of Directors. The Company used the proceeds
received from the sale of the Units for working capital.
In August and September 1997, the Company sold an additional 407,000 Units
through a private placement that included various members of the Company's
management. The sale generated proceeds of $1,220,000.
In April 1998, the Company secured debt financing in the principal amount of
$4,000,000 from four lenders, in connection with which the Company issued
warrants to purchase an aggregate of 400,000 shares of the Company's Common
Stock. Pursuant to credit agreements entered into in April 1998, the Company
borrowed $1,000,000 from Anthony D. Autorino, the Company's Chairman and Chief
Executive Officer; $500,000 from ICP; $2,000,000 from Salomon Brothers Holding
Company Inc. ("Salomon"); and $500,000 from a private investor. The credit
agreements had a maturity date of July 1999 and a floating interest rate of 2.5%
above a rate comparable to the prime rate. In connection with the debt
financing, the Company issued to Mr. Autorino, ICP, Salomon and the private
investor warrants for the purchase of 100,000, 50,000, 200,000 and 50,000 shares
of Common Stock, respectively. The warrants are exercisable at $5.00 per share,
and expire April 15, 2003. The warrants were valued at $100,000. In connection
with the financing, the Company paid a facility fee of $25,000 to ICP
Investments, Inc. with respect to the funding by ICP and the private investor,
and paid a facility fee of $50,000 to Salomon. The Company used a portion of the
proceeds raised in February 1999 (see below) to repay the $4,000,000 of debt.
In May 1998, the Company issued to nine investors through a private offering 5%
convertible notes in the aggregate principal amount of $2,400,000 (the "Notes").
Purchasers of the Notes included an affiliate of ICP, International Capital
Partners Profit Sharing Trust, which purchased a Note in the amount of $200,000.
The Notes have a term of seven years and are convertible at any time at the
option of the noteholder into shares of the Company's Common Stock at a rate of
$5.00 per share, subject to certain antidilution adjustments. The Company has
the right to force conversion of the Notes after three years, in the event that
the Company's Common Stock trades at or above $10 per share for at least five
consecutive trading days. $1,950,000 of such Notes were converted into 390,000
shares of Common Stock as of March 27, 2000.
In February 1999, the Company completed a $15 million private placement of
15,000 shares of Series C Convertible Preferred Stock ("Series C Shares"). Each
purchaser of the Series C 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 Shares. Therefore, the Series C Shares have not been reflected in
Stockholders' Deficit. The number of shares of Common Stock issuable
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upon the conversion of the Series C Shares includes a premium of 6%, per annum.
The Company accounted for the premium of 6% as a preferred stock dividend. The
Series C private placement also included Warrants to purchase an aggregate of
300,000 shares of Common Stock. The Warrants were valued at $75,000 and the
value was treated as a "discount" to the Series C Shares and such discount is
being accreted as a preferred stock dividend over the five-year term of the
Warrants. In accordance with Emerging Issues Task Force Topic D-60, the Company
recognized a beneficial conversion feature in the amount of $4,018,000 as a
one-time non-cash preferred stock dividend in the first quarter of 1999. The
amount represented the difference between the conversion price of $7 per share
at the date of issuance of the Series C Shares, February 5, 1999, and the $8 7/8
market price of Common Stock on that date. 1,000 of such Series C Shares were
converted into 148,000 shares of Common Stock as of March 27, 2000.
In July 1999 and as amended in March 2000, the Company entered into a $5 million
two-year revolving credit facility with State Street Bank and Trust Company,
which subsequently assigned its interest in such credit facility to Citizens
Bank of Massachusetts (the "Bank"). The availability of the credit facility is
based on a percentage of eligible receivables and includes covenants requiring
certain levels of prepaid lines and operating results over time. Advances under
the loan are to be used for working capital and general corporate purposes. The
loan is secured by substantially all of the Company's assets. As of December 31,
1999, the Company had approximately $2,859,000 available under the terms of the
credit facility, of which none was outstanding and $2,750,000 was committed to
support various letters of credit. In connection with the loan, the Company
issued to the Bank a ten-year warrant for the purchase of 150,000 shares of
Common Stock at an exercise price of $10 per share, subject to certain
adjustments. The warrant is redeemable by the Bank any time after July 7, 2002
for a minimum redemption price of $200,000. The Company accounted for the
$200,000 as additional interest and the amount will be accreted as interest over
the two-year term of the credit facility. On March 28, 2000 the Company received
a waiver effective as of December 31, 1999 with respect to certain covenants as
to which the Company is not in compliance.
In July 1999, the Company completed the acquisition of all of the issued and
outstanding capital stock of Retail Cellular, Inc. ("RCI"), for a purchase price
of 150,000 shares of Common Stock. RCI became a wholly-owned subsidiary of the
Company. The transaction enhanced the Company's sales capabilities, particularly
in connection with the distribution of the Company's prepaid cellular services.
The Company purchased RCI from Retail Distributors, Inc. ("RDI"), the chief
executive officer and a principal stockholder of which is Victor Grillo, Sr.,
who was elected to the Company's Board of Directors on July 7, 1999 at the
annual meeting of the Company's stockholders. As part of the acquisition
transaction, the Company entered into a Services Agreement with RDI, pursuant to
which RDI provides certain services relating to the marketing and distribution
of the Company's prepaid cellular services. Pursuant to terms of the Services
Agreement, which was retroactive to February 8, 1999, the Company paid RDI
approximately $843,000 and issued to RDI 118,194 shares of Common Stock.
Additional compensation, exclusive of expenses, is performance based, payable
through the issuance of Common Stock purchase warrants. As of December 31, 1999,
the Company had issued 250,000 Common Stock purchase warrants to RDI. The Common
Stock purchase warrants were valued at $63,000 and the value was treated as a
sales expense. Also, RCI entered into a Consulting Agreement with RDI, expiring
March 31, 2001, pursuant to which RDI provides certain sales and marketing
services. The Services Agreement and the Consulting Agreement include monthly
payments to RDI through December 2000 that total $1,596,000. These transactions
were all treated as a services agreement, and as such are being expensed over
the two-year life of the Services Agreement.
In October 1999, the Company completed a $6.1 million private placement of 6,100
shares of Series D Convertible Preferred Stock ("Series D Shares"). Each
purchaser of the Series 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 D Shares. Therefore, the Series D Shares have not been reflected in
Stockholders' Deficit. The number of shares of Common Stock issuable upon the
conversion of the Series D Shares includes a premium of 6%, per annum. The
Company accounted for the premium of 6% as a preferred stock dividend. The
Series D Shares private placement also included Warrants to purchase an
aggregate of 122,000 shares of Common Stock. The Warrants were valued at $31,000
and the value was treated as a "discount" to the Series D Shares and such
discount is being accreted as a preferred stock dividend over the five-year term
of the Warrants (See Item 14, Reports on Form 8-K).
(b) Financial Information about Industry Segments - The Company is engaged in
three industry segments within the telecommunications industry, providing a wide
range of services including, debit cellular phone services, short-term cellular
phone rentals and activation of cellular phones. The response to this section of
Item 1 is incorporated by reference to Note 19 of the Notes to the Consolidated
Financial Statements, contained in Item 14 (a) Financial Statements, below.
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(c) Narrative Description of Business
(1) (i) Products and Services
DEBIT SERVICES
The U.S. prepaid market is robust, and industry analysts predict continued rapid
growth for at least the next five years. According to the Cellular
Telecommunications Industry Association (CTIA), for example, 25 Americans sign
up for postpaid cellular service every minute (36,000 per day). And since these
applicants have been facing a 30% to 40% rejection rate, anywhere from 10,000 to
15,000 potential prepaid cellular customers are created every day. Analysts at
the Yankee Group, a leading telecommunications trade group, see prepaid
subscribers growing by more than 685% in next four years, from 4.3 to 34
million, with prepaid subscribers projected to increase from 5% to 28% of total
wireless subscribers by 2003.
Aside from market demand, there is another reason for STC's commitment to
prepaid. To date, over 70% of all telecommunications services are sold by
specialty outlets (i.e. agents, resellers, carriers). Traditional service
offerings are too complicated for most major retailers. Lengthy sales
transactions requiring credit approval, extensive training requirements,
geographical limitations, and low margins have driven some retailers away from
complex telecommunications service offerings. Prepaid offerings are far simpler,
however, and can be deployed nationwide, similar to any consumer electronics
product, i.e., using a single Stock Keeping Unit (SKU). STC's ability to offer
prepaid services as a consumer electronics product makes it more attractive to
mass merchants.
STC's DIRECT TO RETAIL PROGRAM is marketed directly to retailers, regardless of
their size or scope. This program offers retailers four different prepaid
products - cellular, paging, Internet and long distance. The current programs
include free minutes and do not require the purchase of a usage card to activate
the phone or pager. This is a major benefit because the products become more
attractive to the consumer because no investment beyond the purchase of the
equipment is required. STC has also introduced a new cellular rate plan (with
rates as low as $0.39 per minute) which makes STC's cellular offering one of the
most competitively priced prepaid programs available in the marketplace today.
STC's national carrier contracts also enable customers to purchase this product
from the retailer and activate the phone with a local phone number in any market
they choose - making it an ideal gift offering.
STC's PRIVATE LABEL PROGRAM is primarily designed to meet the needs of various
distribution partners. The program mimics the Direct to Retail programs with
respect to the products and pricing, but allows these partners to promote their
own brand recognition, without investing in the technology, and human resources
necessary to support the prepaid cellular offering.
STC, through its recently formed wholly-owned subsidiary CellEase.com, Inc., is
primarily a business to business IT services company, providing back-office
service bureau functions, advanced platform, and integrated e-commerce and
direct marketing solutions to the telecommunications industry. Utilizing
proprietary systems that were developed over several years, CellEase offers
carriers and distribution partners an array of services, including: a universal
prepaid redemption platform, IVR facilities, point-of-sale activation (POSA)
card services, inter-carrier communications services and one-stop shopping,
e-commerce and direct marketing programs that offer multiple telecommunications
services.
CellEase's universal prepaid redemption platform is the most widely distributed
payment system in the industry today. Offered under private label programs or
under its own "CellEase Compatible" logo, the platform primarily serves cellular
carriers, service providers and resellers. This innovative platform broadens and
enhances their distribution channels for prepaid cellular, paging and other
communications services without the need for additional investments on the part
of the provider, in technology, administration and back room operations.
Participating providers should experience significant reductions in churn by
offering their customer bases thousands of additional outlets for purchasing
prepaid usage cards, thus strengthening their commitment to customer services,
satisfaction and retention.
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CELLULAR PHONE RENTALS
Responding to the need for individuals to stay in touch while traveling, the
incompatibility of many cellular networks throughout the country, the high cost
of roaming, and the increase in cellular fraud, STC began marketing cellular
telephone rental services, primarily through car rental companies, in 1992.
The Company has agreements with Hertz Corporation ("Hertz"), Budget Rent-a-Car
Corporation, Avis Rent-a-Car Systems, Inc., and Alamo Rent-A-Car Inc., as well
as certain car rental company licensees, to offer its portable cellular
telephones at car rental counters (primarily in airport terminals) in
approximately 70 cities throughout the United States.
Customers typically rent STC phones to avoid the confusion (and cost) of
multiple PINs, authentication, roaming access codes, and the other consequences
of using a cellular phone outside one's home calling area. Added benefits of
renting an STC cellular phone include access to an international calling
platform and simplified billing for expense reimbursement to corporate users.
Car rental companies and the airline industry see the cellular rental program as
a value-added service that generates incremental revenue and provides a
much-needed customer service.
While STC's national service footprint gives the Company a clear competitive
advantage, the growing acceptance of PCS digital phones -- despite the coverage
gaps that accompany them -- must be acknowledged as a potential threat to market
share. Since business travelers represent that segment of the market that
desires features such as paging, voice mail, caller ID, and speaker phone
capabilities, and since most business travelers remain within 60 miles of a
major metropolitan area, STC can strengthen its already dominant position in the
rental market by offering such services directly. Accordingly, STC has become a
national authorized representative for one of the premier providers of digital
cellular services: Nextel Communications.
STC has developed and tested the Nextel digital network program ("Try It, Like
It, Buy It") at car rental locations in the Dallas, Houston, and San Antonio
markets and is in the midst of a nationwide rollout that should be completed by
the end of the first quarter of 2000. Customers rent Nextel's feature-rich
i1000+ or i500+ digital phones (made by Motorola); those who wish to purchase
the phones earn a discount based on prior rental usage, and other incentives are
planned as well.
ACTIVATION SERVICES
With the acquisition of The Cellular Hotline, Inc. in 1995, STC became one of
the largest providers of nationwide cellular phone activation services. The
Company acts as an agent linking retail points of sale to more than 690 cellular
markets, using its 1,200 individual carrier contracts nationwide. The Company
maintains contracts and relationships with most cellular carriers in the United
States, and can provide the necessary administrative services to permit a
customer in a participating store to purchase a phone with activated cellular
service. In addition to charging a service fee to the distribution partner, the
Company also derives revenues from the cellular carrier in the form of
commissions, residual payments, and other revenue sharing.
The Company offers its activation services to cellular carriers under its
"MOVE/Customer Retention Program". This program is a nationwide subscriber
retention/relocation program which offers a carrier's customers the ability to
exit from existing contracts and establish service at a new location with just
one phone call. The old carrier benefits, as it receives a portion of the
activation fee from the new cellular carrier via the Company, while the customer
is allowed to terminate its existing contract without paying the contract's
early cancellation fee.
(iv) PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS
The Company, through its wholly-owned subsidiary, The Cellular Hotline, Inc.,
holds a patent for point-of-sale programming of cellular phones that is utilized
in connection with phone activations. In addition, the Company has certain
technology licenses, including agreements with Telemac Corporation, US
Intellicom, Boston Communications Group, and JRC International. "Shared
Technologies Cellular" is a registered trademark that is owned by STFI. STC has
a royalty-free license to use such mark for 15 years, which expires in 2010. The
Company has registered the trademark "CellEase" and is currently using "It's
About Choices", which it is contemplating registering.
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(v) SEASONALITY
The Company has experienced a reduction of revenues from phone rentals in the
winter months due to the reduction in business travel during the holiday season
and inclement weather. The Company has experienced an increase in sales of
prepaid cellular phones in the holiday season.
(vi) WORKING CAPITAL
The Company has incurred cumulative losses of approximately $51,000,000 through
December 31, 1999. The Company has funded its losses through borrowings from
STFI, its former parent, through its initial public offering in April 1995, and
various private placements of debt and equity. See Item 1(a) - "General
Development of Business", "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and "Notes to Consolidated Financial
Statements" herein.
(vii) DEPENDENCE ON CERTAIN CUSTOMERS
Approximately 18% and 16% of the Company's revenues for 1999 were attributable
to MCI WorldCom and Hertz, respectively. The Company has good relationships with
both MCI WorldCom and Hertz. Nevertheless, the longevity of these relationships
is generally subject to contractual termination provisions that are effective
upon relatively short notice.
(viii) BACKLOG
At any given time the Company maintains approximately 3,500 portable cellular
telephones available for short-term rentals. Due to the varying utilization of
the telephones, backlog information for the portable rental business cannot be
quantified.
(ix) GOVERNMENT REGULATION
From time to time, legislation and regulations that could potentially affect the
Company, either beneficially or adversely, have been proposed by federal and
state legislators and regulators. Management is not aware of any current pending
or proposed legislation or regulations which, if adopted, would have a material
adverse impact on the Company's operations.
(x) COMPETITION
The telecommunications industry in general, and the cellular telephone industry
in particular, is highly competitive. Competitive factors include price,
customer service, geographical coverage and the ability to increase revenues
through marketing. The Company's short-term portable service competes with
local, regional and national cellular service companies, some of which have
substantially more experience and greater financial, technical and other
resources than the Company.
Other cellular providers in the debit market include: national carriers such as
Sprint PCS, BAM, AT&T, and local carriers and resellers. In addition, Topp
Telecom, Inc., an alternative service provider, offers a turnkey solution
similar to the STC CellEase program. In the activation business, the Company
faces competition mainly from other resellers, mass merchants, carriers and
agents, many of which may have substantially more experience and greater
financial, marketing, technical and other resources than the Company.
(xiii) EMPLOYEES
As of March 27, 2000, the Company had 355 employees; 11 in management, 40 in
administration, 86 in sales and service, 201 in clerical and 17 in technical
positions. The Company's employees are not represented by a labor union. The
Company believes its relations with its employees are satisfactory.
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ITEM 2. PROPERTIES.
The Company does not own any real estate and has no present plans to purchase
any real estate. The Company's principal executive office is leased and is
located at 100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109.
The Company's executive office currently occupies approximately 23,000 square
feet pursuant to a five-year lease agreement, as amended in July 1998, expiring
in 2001 (the "Term"). The Company pays a monthly rent of approximately $35,000
during the remainder of the Term. The Company leases approximately 16,000 square
feet pursuant to a five-year lease agreement, expiring in 2004, in Missouri for
a call center. The Company pays a monthly rent of approximately $8,000 on this
lease. The Company also leases approximately 12,000 square feet pursuant to a
five-year lease agreement, expiring in 2002, in Connecticut for another call
center. The Company pays a monthly rent of approximately $13,000 on this lease.
In addition, the Company leases an aggregate of approximately 3,000 square feet
in various locations nationwide for the purpose of direct sales by its sales
force, for a total monthly rent of approximately $7,000. Each of the leased
properties is, in management's opinion, generally well maintained and is
suitable to support the Company's business.
ITEM 3. LEGAL PROCEEDINGS.
In January 1999, the Company filed a lawsuit against SmarTalk 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during the
fiscal quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's shares of Common Stock (trading symbol: STCL) have been quoted and
traded in the over-the-counter market since April 21, 1995. Over-the-counter
market quotations reflect interdealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions. The
Company's Common Stock is currently traded on the Nasdaq National Market. During
1999 and 1998, the quarterly high and low closing prices were as follows:
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High Low High Low
<S> <C> <C> <C> <C>
First Quarter $9 3/8 $6 1/8 $5 $3 1/4
Second Quarter 13 7 1/2 8 1/8 4 1/4
Third Quarter 11 1/2 8 7 3/8 5 1/8
Fourth Quarter 9 7/16 7 1/8 7 3 3/4
</TABLE>
8
<PAGE> 9
The number of beneficial holders of the Company's Common Stock as of March 27,
2000 was approximately 1,800.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth the selected financial data of the Company for
each of the last five years. Financial statements for 1996 and 1995 are not
presented in this filing. Such selected financial data were derived from audited
financial statements not included herein. The selected financial data of the
Company should be read in conjunction with the Consolidated Financial Statements
and related notes appearing elsewhere in this Form 10-K. All amounts, except per
share amounts, are in thousands.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations-Data:
Revenues $ 28,271 $ 28,200 $ 24,198 $ 20,914 $ 13,613
Gross margin 6,344 7,941 10,667 6,305 5,026
Total operating expenses 22,628 18,629 14,120 14,173 8,015
Loss from operations (16,284) (10,688) (3,453) (7,868) (2,989)
Gain on sale of division -- -- -- -- 689
Loss on discontinued affiliate -- -- -- -- (364)
Interest expense, net 574 952 232 906 136
Net loss before income
Taxes (16,858) (11,640) (3,685) (8,774) (2,800)
Income taxes (7) (6) (10) (22) (48)
Net loss (16,865) (11,646) (3,695) (8,796) (2,848)
Preferred stock dividends (5,786) -- -- (112) --
Net loss applicable to
common stock $(22,651) $(11,646) $ (3,695) $ (8,908) $ (2,848)
Net loss per common
share, basic and diluted $ (2.84) $ (1.58) $ (0.63) $ (2.18) $ (1.04)
Weighted average number of
shares outstanding 7,985 7,375 5,900 4,082 2,748
Balance Sheet Data:
Working Capital Deficit $ (8,248) $(16,099) $ (6,955) $ (8,975) $ (1,851)
Total assets 21,585 13,487 11,536 14,262 14,378
Notes payable (including current
portion) 3,027 7,331 1,487 2,578 2,000
Other liabilities 20,180 14,840 7,832 8,768 6,290
Indebtedness to STFI -- 1,411 1,052 59 985
Series C and D Shares 20,861 -- -- -- --
Accumulated deficit (51,005) (28,354) (16,708) (13,013) (4,105)
Stockholders' equity (deficit) $(22,483) $(10,095) $ 1,165 $ 2,857 $ 5,102
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues for 1999 were $28,271,000, compared to $28,200,000 for 1998, an
increase of $71,000. The net loss applicable to Common Stock for 1999 was
$22,651,000, compared to $11,646,000 for 1998. The net loss applicable to Common
Stock for 1999 included a one-time non-cash preferred stock dividend of
$4,018,000, $0.50 per share, attributable to the beneficial conversion feature
in connection with the Company's issuance of its Series C Convertible
9
<PAGE> 10
Preferred Stock, in February 1999. The net loss per Common Stock was $2.84 for
1999, which included such one-time charge, compared to a net loss per Common
Stock of $1.58 for 1998.
Revenues
Debit, or prepaid, operations had revenues of $14,280,000 for 1999, compared to
$12,737,000 for 1998. The increase in revenues of $1,543,000 (12%) was due to
growth of the private label program, which is co-branded with MCI WorldCom and
the Company's CellEase brand name. The private label program, introduced in
April 1998, generated most of the 1999 debit revenues, compared to revenues of
$9,127,000 for 1998. The balance of the 1998 debit revenues ($3,610,000) were
primarily from a major distributor which discontinued its prepaid cellular phone
business and transitioned a small portion of its customers to the Company's
end-user program in the fourth quarter of 1998.
The growth of the prepaid program was assisted by two major developments during
fiscal 1999. In February 1999, the Company signed an agreement with MCI WorldCom
for the retail distribution of the Company's prepaid cellular services under the
MCI WorldCom brand name, utilizing MCI WorldCom's extensive network of retail
distribution locations. In July 1999, the Company purchased Retail Cellular,
Inc. ("RCI") from Retail Distributors, Inc. ("RDI") and entered into a Services
Agreement with RDI for support in the marketing, sale and distribution of the
Company's debit cellular services. The 1998 debit revenues from the CellEase
program of $9,127,000 were primarily attributable to SmarTalk TeleServices, Inc.
("SmarTalk"). In December 1998, the Company terminated its relationship with
SmarTalk and, subsequently the Company filed a lawsuit against SmarTalk (see
"Legal Proceedings").
The Company's cellular phone rental operations had revenues of $12,939,000 for
1999, compared to $14,037,000 for 1998. The decrease of $1,098,000 (8%) was
mostly attributable to a 15% drop in the average revenue per customer rental
agreement to $115 for 1999. Such decrease in revenue per rental was due to a
drop in minutes of usage per rental by 11%, to 58 minutes, as well as to price
discounts offered in connection with market testing of the price elasticity of
the Company's product offering. During 1999, the Company ran various special
promotions, such as "first 10 minutes free". Such promotions were primarily
responsible for the number of rental agreements increasing by 3%, to 106,000 for
1999.
The Company's cellular activation operations had revenues of $1,052,000 for
1999, compared to $1,426,000 for 1998. The decrease of $374,000 (26%) was mainly
attributable to $263,000 in revenues in 1998 related to a test program with a
national retailer that was terminated in September 1998. The balance of the
decrease was due to the Connecticut activation location generating lower
revenues due to a cutback in the sales staff. Due to a reduction in the
activation commission offered by the local cellular carrier, the Company closed
the Connecticut activation location in November 1999.
Gross Margin
Gross margin was 22% of revenues for 1999, compared to 28% for 1998. The
decrease in gross margin was primarily due to the deterioration of gross margin
for the debit operations. The following table summarizes the change in the
revenues mix and the corresponding gross margins for the two periods:
<TABLE>
<CAPTION>
1999 1999 1998 1998
---- ---- ---- ----
Revenues Gross Margin Revenues Gross Margin
<S> <C> <C> <C> <C>
Debit 46% (14)% 45% 4%
Rental 50% 62% 50% 48%
Activation 4% 32% 5% 45%
--- --- --- ---
100% 22% 100% 28%
</TABLE>
As anticipated, gross margin for debit operations for 1999 was disappointing due
to problems associated with SmarTalk. Prior to STC's termination of its
relationship with SmarTalk in December 1998, the
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<PAGE> 11
Company was anticipating an increase in volume in the fourth quarter of 1998. By
the middle of the fourth quarter of 1998, the Company had approximately 63,000
active customers and was experiencing a growth rate of over 15% per month. To
help facilitate the rapid growth, the Company maintained a reserve of
approximately one month's line requirement. As a result of the termination of
the SmarTalk relationship, the Company did not maintain its growth rate and, in
addition, the Company's customer base began to deteriorate due to the lack of
availability of prepaid usage cards needed for existing customers to maintain
service. Consequently, a significant gap was created between active lines with
customers, as compared to committed lines with carriers. In January 1999, the
Company signed a letter of intent with MCI WorldCom for the retail distribution
of the Company's prepaid cellular service. As a result, the Company made the
decision to maintain many of its existing lines with carriers, in an effort to
minimize line termination fees and expense, in anticipation of the launch of the
MCI WorldCom program in the second quarter of 1999. Throughout most of fiscal
1999, the Company worked to reduce the significant gap between active lines and
committed lines by adding new customers and returning some excess lines to
carriers. By year-end, the gap between active and committed lines was within an
acceptable range. The cost of maintaining these excess lines for fiscal 1999 was
approximately $3,000,000.
Gross margin for cellular phone rental operations increased by 18% in 1999,
compared to 1998. The Company took various steps during the year to improve
gross margin. The Company worked with its cellular carriers to reduce monthly
line access charges as well as per minute usage charges. The Company also
increased the utilization of its cellular phone inventory by working more
closely with its field personnel to minimize excess inventory. In addition, the
Company improved its gross margin by passing on certain charges it was
previously incurring.
Gross margin for activation operations decreased in 1999 as a result of two
factors. The Connecticut activation program had a lower gross margin as a result
of the local carrier reducing the activation commission that it was paying to
STC, as previously discussed. In addition, with the closing of the Connecticut
activation program, the national MOVE program made up a larger portion of
activation revenues. 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 and Administrative Expenses
Selling, general and administrative expenses ("SG&A") were $21,411,000 for 1999,
compared to $15,075,000 for 1998, an increase of $6,336,000 (42%). As a
percentage of revenues, SG&A increased to 76% for 1999, compared to 53% for
1998. The increase was attributable to several factors. The Company incurred
additional corporate overhead following the March 1998 acquisition of Shared
Technologies Fairchild Inc. ("STFI") by Intermedia Communications, Inc. STFI,
the former parent of the Company, had been providing certain support and
management services to the Company under a management agreement. Such expenses
included payroll for certain employees of STFI who had not previously received
direct compensation from the Company. The increase in SG&A in 1999, compared to
1998, related to the sale of STFI was approximately $300,000. To assist in the
growth of the prepaid program, the Company increased its IT department by six
programmers; hired several salesmen and program managers; established a
high-speed telephone link between the corporate office and the two call centers;
and leased additional office space. The increase in corporate SG&A related to
the growth in the prepaid program was approximately $800,000 in 1999. Field
SG&A, as a percentage of revenues, increased significantly to 56% for 1999,
compared to 41% for 1998. During the fourth quarter of 1998, the Company added a
new call center in Hartford and expanded its existing call center in St. Louis
in anticipation of the significant growth the Company expected from debit
operations, which did not occur, as previously discussed. The increase in SG&A
related to the two call centers was approximately $2,535,000 in 1999. Also, in
February 1999, the Company signed a letter of intent with RDI for support in the
marketing, sale and distribution of the Company's debit cellular services. The
Company had incurred expenses in anticipation of its entry into a services
agreement with RDI, which agreement was signed in July 1999. The Company
incurred $1,480,000 in field SG&A related to the services agreement in 1999.
Bad Debt Expense
Bad debt expense was $1,217,000 for 1999, compared to $3,554,000 for 1998, a
decrease of $2,337,000 (66%). As a percentage of revenues, bad debt expense was
approximately 4% for 1999, compared to 13% for 1998. The 1998 amount included a
write-off of $1,975,000 that was due from SmarTalk. The additional decrease in
bad debt expense for 1999, compared to 1998, was due to an improvement in
collection procedures in the Rental Division. The predominant amounts of these
sales are paid by credit card. Historically, the Company has experienced an
amount of credit card charges that it is not able to collect. In addition, the
Company receives some customer requests for amounts charged to be reversed for a
variety of reasons. The Company diligently investigates these occurrences.
However, the
11
<PAGE> 12
Company still experiences a percentage of bad debt write-offs, as it continues
to make efforts to address this problem. The Company therefore maintains an
allowance for doubtful accounts against its receivable balance, representing the
unpaid accounts under investigation, and upon final resolution of the account,
the amount is either collected or written off against the allowance. The
investigation process is time consuming; documentation (typically itemized call
detail for the rental period) must be generated and provided to the credit card
processing company prior to the reversal of the claim. The Company regularly
reviews the allowance for the amounts that are deemed truly uncollectable and
writes them off against the allowance. The allowance represents only those
receivables generated within the current operating cycle and does not have any
amounts that are aged in excess of a 6-month period.
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 $574,000 for 1999, compared to
$952,000 for 1998. Interest expense was mainly due to debt from acquisitions
made in prior years, debt to STFI, debt financing completed in May 1998 and the
revolving credit facility with State Street Bank and Trust Company established
in July 1999, which was subsequently assigned to Citizens Bank of Massachusetts.
In February 1999, the Company used a portion of the $15 million private equity
placement proceeds to repay $1,411,000 of the STFI debt and $4 million of the
May 1998 debt.
Preferred Stock Dividend
In February 1999, the Company completed a $15 million private placement of
15,000 shares of Series C Convertible Preferred Stock ("Series C Shares"). The
number of shares of Common Stock issuable upon the conversion of the Series C
Shares included a premium of 6%, per annum, payable in cash or shares of Common
Stock at the option of the Company. The Company accounted for the premium of 6%
as a non-cash preferred stock dividend. The non-cash preferred stock dividend
was $797,000 for fiscal 1999. The Series C Shares also included Warrants to
purchase an aggregate of 300,000 shares of Common Stock. The Warrants were
valued at $75,000 and the value was treated as a "discount" to the Series C
Shares and such discount is being accreted as a preferred stock dividend over
the five-year term of the Warrants. The amount accreted as a preferred stock
dividend was $14,000 for fiscal 1999. The Company incurred $537,000 in placement
and legal fees related to the completion of this private placement. These fees
were also treated as a preferred stock dividend in fiscal 1999. In accordance
with Emerging Issues Task Force Topic D-60, the Company recognized a beneficial
conversion feature in the amount of $4,018,000 as a one-time non-cash preferred
stock dividend in 1999. 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.
In October 1999, the Company completed a $6.1 million private placement of 6,100
shares of Series D Convertible Preferred Stock ("Series D Shares"). The number
of shares of Common Stock issuable upon the conversion of the Series D Shares
included a premium of 6%, per annum, payable in cash or shares of Common Stock
at the option of the Company. The Company accounted for the premium of 6% as a
non-cash preferred stock dividend. The non-cash preferred stock dividend was
$92,000 for fiscal 1999. The Series D Shares also included Warrants to purchase
an aggregate of 122,000 shares of Common Stock. The Warrants were valued at
$31,000 and the value was treated as a "discount" to the Series D Shares and
such discount is being accreted as a preferred stock dividend over the five-year
term of the Warrants. The amount accreted as a preferred stock dividend was
$2,000 for fiscal 1999. The Company incurred $326,000 in placement and legal
fees related to the completion of this private placement. These fees were also
treated as a preferred stock dividend in fiscal 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues for 1998 were $28,200,000, compared to $24,198,000 for 1997, an
increase of $4,002,000 (17%). This increase was due to the expansion of debit
services, which grew by over 100%. The net loss for 1998 was $11,646,000,
compared to a net loss of $3,695,000 for 1997. Included in the net loss for 1998
was approximately $6,494,000 of expenses related to the termination of the
Company's relationship with SmarTalk TeleServices, Inc. The basic and diluted
loss per Common Share was $1.58 for 1998, compared to $0.63 for 1997.
Revenues
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<PAGE> 13
Debit, or prepaid, operations had revenues of $12,737,000 for 1998, compared to
$6,299,000 for 1997. The increase in revenues of $6,438,000 (102%) was due to a
new private label program co-branded under the CellEase brand name. The Company
experienced significant revenue growth from private label program beginning in
April 1998. The increase in the private label program was partially offset by a
$2,796,000 reduction in revenues from a major distributor due to a price
reduction given in order to keep the distributor competitive with the private
label program. In addition, during the fourth quarter of 1998, the distributor
transitioned its prepaid cellular phone business customers to the Company's
CellEase end-user program, which negatively impacted revenues.
For the fourth quarter of 1998, revenues from the private label program were
below Company expectations. This was a direct result of the deterioration of the
Company's relationship with its main distributor, SmarTalk TeleServices, Inc.
("SmarTalk"). In the fourth quarter, SmarTalk introduced a new prepaid cellular
phone to retailers that did not utilize the Company's' cellular service, which
the Company has alleged in a lawsuit against SmarTalk was in violation of
SmarTalk's contract with STC (see "Legal Proceedings"). Conflicting directives
confused retailers, resulting in significant lost revenues to the Company, which
was particularly detrimental to the Company's sales for the year-end holiday
period. In January 1999, SmarTalk filed for bankruptcy. Cellular telephone
rental operations had revenues of $14,037,000 for 1998, compared to $15,242,000
for 1997. The decrease in revenues of $1,205,000 (8%) was attributable to the
Company de-emphasizing the Special Events and Airlines programs due to local
competition and the high costs to generate revenues from such operations.
Revenues from the car rental companies were flat for the two years. However,
during the second half of 1998, the Company changed its emphasis to be more of a
sales-oriented business and less of a service-oriented business. As a result,
revenues from the car rental companies for the last six months of 1998, compared
to the last six months of 1997, increased 6%.
Activation operations had revenues of $1,426,000 for 1998, compared to
$2,657,000 for 1997. The decrease of $1,231,000 (46%) was mainly attributable to
the discontinuance of operations at military bases in late 1997. In addition,
the Company closed its Texas activation location in November 1997.
Gross Margin
Gross margin was 28% of revenues for 1998, compared to 44% of revenues for 1997.
The decrease in gross margin was mainly due to expenses related to the problems
with SmarTalk and a change in the revenue mix. The following table summarizes
the change in the revenue mix and the corresponding gross margin for the two
years:
<TABLE>
<CAPTION>
1999 1999 1998 1998
---- ---- ---- ----
Revenues Gross Margin Revenues Gross Margin
<S> <C> <C> <C> <C>
Debit 45% 4% 26% 43%
Rental 50% 48% 63% 46%
Activation 5% 45% 11% 37%
--- --- --- ---
100% 28% 100% 44%
</TABLE>
Gross margin for debit operations decreased in 1998 mainly due to two factors.
In December 1998, the Company terminated its relationship with SmarTalk and
filed a lawsuit against SmarTalk. SmarTalk subsequently filed for bankruptcy
protection. As a result, the Company wrote off approximately $2,246,000 that
pertained to the unamortized portion of a subsidy the Company paid SmarTalk for
cellular phone sales they made to retailers. The Company paid SmarTalk $30 per
phone shipped to a retailer and an additional $20 when the phone was sold to a
customer. A portion of this subsidy was refundable under certain circumstances.
A deferred charge was recorded at the time of payment, since the "cost" of the
phone was to benefit future periods and revenue streams, thereby matching the
cost with the associated revenues. As a result of the termination of the
Company's relationship with SmarTalk, the Company determined that future
revenues would not justify the amount capitalized and the amount was
written-off. In addition, the Company purchased several thousand new cellular
lines in anticipation of an increase in volume related to the SmarTalk contract.
With the termination of the SmarTalk relationship, the Company did not maintain
its growth rate and, in addition, the Company's customer base began to
deteriorate. Consequently, a significant gap was created between active lines
with customers and lines under contract with carriers. Most of the new lines
required significant minimum commitment periods and had early termination
penalties. As a result, during the fourth quarter of 1998, the
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<PAGE> 14
Company incurred $648,000 in monthly access fees on the excess carrier lines.
The other factors that resulted in a decrease to the gross margin of the debit
operations was a price reduction given to a major distributor and due to the
end-user CellEase program having a lower margin than the distributor program.
The distributor program accounted for most of the 1997 debit revenues. The gross
margin for portable cellular rental operations improved slightly due to a slight
reduction in carrier costs. The gross margin for the activation operations
improved significantly due to a change in the product mix to more retail
activations, which generally provided higher commissions to the Company than
activations performed at the military bases.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $15,075,000 for 1998, compared
to $10,742,000 for 1997, an increase of $4,333,000. As a percentage of revenues,
SG&A increased to 54% for 1998, compared to 44% for 1997. Revenues increased by
$4,002,000 from fiscal 1997 to fiscal 1998. SG&A, as a percentage of such
revenues, would have remained constant at 44%, but for two significant factors
in 1998. The Company incurred $1,625,000 in expenses in 1998 related to the
termination of the SmarTalk agreement. These expenses included the write-off of
$875,000 of unamortized advance commissions made to SmarTalk against future
revenues. The Company and SmarTalk agreed in November 1998 to these advance
commissions in exchange for a waiver of all future commissions. As a result of
the termination of the Company's relationship with SmarTalk, the Company
determined that future revenues would not justify the amount capitalized and the
amount was written-off. Another $412,000 relates to expenses incurred in the
fourth quarter of 1998 for the addition of a new call center in Hartford and the
expansion of the existing call center in St. Louis to handle the anticipated
increase in volume from the SmarTalk agreement that did not occur. The balance
of the expenses incurred in 1998 that relate to the termination of the Smartalk
agreement relate to computer programming, legal and other ancillary costs. The
Company also incurred expenses of approximately $800,000 as a result of the
acquisition of Shared Technologies Fairchild Inc. ("STFI"), the former parent of
the Company, by Intermedia Communications, Inc., and the subsequent termination
of a management agreement with STFI. STFI had been providing certain support and
management services to the Company under this management agreement. Such
additional expenses included payroll for certain former employees of STFI who
had not previously received direct compensation from the Company. Therefore, of
the $4,332,000 increase in SG&A, approximately $1,907,000 represented the amount
of SG&A increase unrelated to the termination of the SmarTalk agreement and the
STFI transaction. The majority of the $1,907,000 increase was in field SG&A,
which, as a percentage of revenues, increased slightly to 35% in 1998, compared
to 34% in 1997. As previously discussed, the Company did not achieve the
anticipated fourth quarter 1998 debit revenues, even though the Company
increased its field SG&A in anticipation of the additional revenues.
Bad Debt Expense
Bad debt expense was $3,554,000 for 1998, compared to $1,341,000 for 1997, an
increase of $2,213,000. As a percentage of revenues, bad debt expense was 13%
for 1998, compared to 6% for 1997. This increase in the percentage of bad debts
was due to the write-off of $1,975,000 (7%) that was due from SmarTalk. In
December 1998 the Company terminated its relationship with SmarTalk and filed a
lawsuit against SmarTalk, which filed for bankruptcy protection in January 1999.
Interest Expense
Interest expense was $952,000 for 1998, compared to $232,000 for 1997. Interest
expense was mainly due to debt from acquisitions made in prior years, debt to
STFI, and debt financing completed in May 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $8,248,000 at December 31, 1999,
compared to a deficit of $16,099,000 at December 31, 1998. Stockholders' deficit
at December 31, 1999 was $22,483,000, compared to stockholders' deficit of
$10,095,000 at December 31, 1998. Stockholder's deficit at December 31, 1999 did
not include $20,861,000 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.
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<PAGE> 15
Net cash used in operations for the year ended December 31, 1999 was
$14,175,000. This was mainly attributable to the net loss for the period, offset
by the non-cash depreciation and amortization expense. The Company experienced a
significant increase in receivables at year-end, compared to prior year, as a
result of the prepaid program. At December 31, 1999, the Company had
approximately $3,554,000 of debit receivables, of which $2,396,000 was due from
MCI WorldCom, compared to an insignificant amount of debit receivables at
December 31, 1998. The December 31, 1998 debit receivables were written-off due
to SmarTalk filing for bankruptcy in January 1999. In the fourth quarter of
1999, the Company purchased $2,000,000 of debit cellular phones and accessories
from DTR Associates Limited Partnership, (see Part III, Item 13, "Certain
Relationships and Related Transactions"). The Company used a portion of its
revolving credit facility to secure the purchase. Most of the phones and the
corresponding liability existed at year-end. Deferred revenues increased
significantly due to the debit program. The Company recognizes debit card
revenues over the estimated period in which the Company provides debit, or
prepaid services to its customers. Customers purchase debit cellular service by
buying debit cards at retailers throughout the nation 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 their phone that allows it to be
activated for a specific number of minutes and days. A typical $30 debit card
expires after approximately 38 minutes of local usage or 60 days after
activation, whichever comes first. However, most of the airtime is used within
the first 30 days of activation. Consequently, the deferred revenue at December
31, 1999 consisted of the unused portion of the debit cards activated plus the
debit cards sold but not yet activated. Carrier commissions receivable pertain
to commissions the Company was entitled to receive for carrier lines the Company
activated. During fiscal 1998, the Company activated over 60,000 new carrier
lines and was entitled to a commission on a small portion of those new lines.
The Company recorded approximately $2.2 million of carrier commissions in fiscal
1998, of which approximately $1.4 million was collected as of December 31, 1998,
and the balance was collected in fiscal 1999. The Company elected to forgo
commissions on new lines in 1999 in lieu of lower monthly access fees; thus the
Company recorded minimal amounts of carrier commissions receivable in fiscal
1999. The Company deferred the recognition of the carrier commissions over a
12-month period, the expected customer life. As of December 31, 1999, the
Company had recognized all of such carrier commissions.
Net cash used in investing activities for the year ended December 31, 1999 was
$513,000. This was mainly attributable to the purchase of computers and office
equipment to support the prepaid programs. During the year ended December 31,
1999, the Company raised $14,466,000, net of expenses, in a private equity
placement of Series C Shares and related Common Stock purchase warrants. The
Company also raised $5,774,000, net of expenses, in a private placement of
Series D Shares and related Common Stock purchase warrants. In addition,
approximately 380,000 unrelated warrants and options were exercised, raising an
additional $1,792,000. The Company used a portion of these proceeds to repay
$1,411,000 of debt owed to its former parent, STFI, and $4,000,000 of debt
financing raised in May 1998. The Company continued to make required payments on
its existing debt. During the year ended December 31, 1998, the Company received
$6,400,000 of debt financing completed in April and May 1998. The Company will
require additional funds in order to satisfy existing obligations, and to fund
current expansion plans. Management believes that, based on certain assumptions,
ongoing operations, in conjunction with the existing credit facility, should
provide the Company with sufficient funds to finance operations and planned
expansion for the next 12 months, although long-term liquidity will depend on
the Company's ability to attain profitable operations. Certain of the
assumptions underlying management's projected liquidity requirements include
factors relating to the success of the Company's CellEase Universal Prepaid
Platform, which currently is in the process of development and implementation.
No assurances can be made as to the actual success of such program once fully
implemented. Accordingly, in the event that such assumptions are incorrect, the
Company will require additional sources of liquidity within the next 12 months
to fund the Company's operations.
2000 COMPANY OUTLOOK
The Company expects to show revenue growth in both its prepaid and rental
operations in 2000. The wireless industry continues to diversify and expand with
abundant opportunities. PCS, GSM and other wireless carriers are now entering
the marketplace. Subscription growth continues to be double-digit as new
products and services, such as prepaid cellular, have been launched. The Company
believes it is positioned to take advantage of these opportunities; offering
travelers throughout the United States communications devices, offering prepaid
services through national retailers and direct marketing firms such as HSN and
various Internet sites and working with telecom carriers to offer them an array
of platform and distribution management services.
15
<PAGE> 16
Debit operations are expected to show continued revenue growth in 2000. This
growth is expected to come primarily from three of the Company's programs; its
Total Communications, Private Label Agent and CellEase Universal Platform
Programs. The Company's Total Communications program allows retailers to promote
wireless, paging, Internet and long distance under a single advertising
campaign. All of these services operate off of a single CellEase compatible
card. STC's "One Card Does It All(TM)" approach allows customers to allocate
their dollars to various services and maintain a single master account.
STC recently opened up its Private Label Program to new distribution partners.
In addition to MCI WorldCom, the Company now has signed agreements with US South
Communications and Qcomm International, Inc., both of whom are prepaid long
distance providers with established retail distribution channels. The Company is
focused on this distribution model for its prepaid cellular program, which
should account for most of its growth in 2000.
Leveraging the distribution outlets and platform from the programs described
above, the Company's CellEase Universal Platform services has gained recognition
in the industry as an alternative card distribution and platform system for
multiple service providers. The Company is offering these services under its
CellEase Compatible logo, as well as under a Private Label offering.
Cellular phone rental operations are expected to have moderate revenue growth in
2000. The Company is in the process of replacing the older cellular Motorola
flip phones with the new digital Nextel cellular phones. STC also is continuing
to work with its car rental partners in soliciting more customers through
training and improved policies and procedures, by improving awareness through
marketing programs, and by penetrating the premiere traveler programs (e.g. Avis
Preferred, Hertz Gold).
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: THE MANAGEMENT'S DISCUSSION AND ANALYSIS MAY INCLUDE FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN ANY
FORWARD-LOOKING STATEMENT. SUCH RISKS AND UNCERTAINTIES MAY INCLUDE, WITHOUT
LIMITATION, TECHNOLOGICAL OBSOLESCENCE, PRICE AND INDUSTRY COMPETITION,
FINANCING CAPABILITIES, DEPENDENCE ON MAJOR CUSTOMERS AND RELATIONSHIPS,
DEPENDENCE ON RELATIONSHIPS WITH TECHNOLOGY LICENSORS AND TELECOMMUNICATIONS
CARRIERS, AND THE COMPANY'S ABILITY TO EFFECTIVELY EXECUTE ITS BUSINESS PLAN
WITH RESPECT TO SIGNIFICANT PROJECTED GROWTH IN ITS DEBIT SERVICES DIVISION, IN
PARTICULAR, WITH RESPECT TO ITS VENTURE WITH MCI WORLDCOM AND ITS CELLEASE.COM,
INC. OPERATIONS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements and supplementary data are attached.
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997.
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997.
Notes to Consolidated Financial Statements.
Financial Statement Schedules Schedule II.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
16
<PAGE> 17
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE (ITEM 8)
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS:
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficiency) F-5
Consolidated Statements of Cash Flows F-6-7
Notes to Consolidated Financial Statements F-8-21
FINANCIAL STATEMENT SCHEDULE (a):
Schedule II - Valuation and Qualifying Accounts for the
Years Ended December 31, 1999, 1998 and 1997 S-1
</TABLE>
NOTE:
(a) All other schedules are not submitted because they are either not
applicable, not required or the required information is included in the
consolidated financial statements or notes thereto.
F-1
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Shared Technologies Cellular, Inc.
We have audited the accompanying consolidated balance sheets of Shared
Technologies Cellular, Inc. and Subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows and financial statement schedule for each of the
three years in the period ended December 31, 1999. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Shared
Technologies Cellular, Inc. and Subsidiaries as of December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles. Also in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has a stockholders' deficiency
a working capital deficit and an accumulated deficit, which raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
March 3, 2000, except for Note 9 which
is as of March 28, 2000
F-2
<PAGE> 19
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,635,000 $ 229,000
Accounts receivable, less allowance for doubtful
accounts of $495,000 in 1999 and $896,000 in 1998 3,612,000 1,169,000
Carrier commissions receivable, net 178,000 992,000
Inventories 2,316,000 234,000
Prepaid expenses and other current assets 4,526,000 2,030,000
------------ ------------
Total current assets 12,267,000 4,654,000
------------ ------------
TELECOMMUNICATIONS AND OFFICE EQUIPMENT, net 1,514,000 1,125,000
------------ ------------
OTHER ASSETS:
Intangible assets, net 6,289,000 6,993,000
Deposits and other 1,515,000 715,000
------------ ------------
7,804,000 7,708,000
------------ ------------
$ 21,585,000 $ 13,487,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt $ 535,000 $ 5,913,000
Accounts payable 8,580,000 7,439,000
Accrued expenses and other current liabilities 7,045,000 6,153,000
Deferred revenues 4,355,000 1,248,000
------------ ------------
Total current liabilities 20,515,000 20,753,000
------------ ------------
LONG-TERM DEBT, less current portion 2,492,000 2,829,000
------------ ------------
REDEEMABLE PUT WARRANT 200,000
------------ ------------
SERIES C AND D REDEEMABLE PREFERRED STOCK, issued
and outstanding 20,100 shares in 1999 20,861,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $.01 par value, authorized 5,000,000
shares, no shares issued or outstanding
Common stock, $.01 par value, authorized 20,000,000
shares, issued and outstanding 8,452,000 shares in
1999 and 7,567,000 shares in 1998 85,000 76,000
Capital in excess of par value 28,437,000 18,183,000
Accumulated deficit (51,005,000) (28,354,000)
------------ ------------
Total stockholders' deficiency (22,483,000) (10,095,000)
------------ ------------
$ 21,585,000 $ 13,487,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 20
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ 28,271,000 $ 28,200,000 $ 24,198,000
COST OF REVENUES 21,927,000 20,259,000 13,531,000
------------ ------------ ------------
GROSS MARGIN 6,344,000 7,941,000 10,667,000
------------ ------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 21,411,000 15,075,000 10,742,000
BAD DEBT EXPENSE 1,217,000 3,554,000 1,341,000
LOSS ON DISCONTINUED PRODUCT LINE 2,037,000
------------ ------------ ------------
22,628,000 18,629,000 14,120,000
------------ ------------ ------------
LOSS FROM OPERATIONS (16,284,000) (10,688,000) (3,453,000)
------------ ------------ ------------
INTEREST EXPENSE, NET (574,000) (952,000) (232,000)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (16,858,000) (11,640,000) (3,685,000)
INCOME TAXES (7,000) (6,000) (10,000)
------------ ------------ ------------
NET LOSS (16,865,000) (11,646,000) (3,695,000)
PREFERRED STOCK DIVIDENDS (5,786,000)
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $(22,651,000) $(11,646,000) $ (3,695,000)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE
$ (2.84) $ (1.58) $ (.63)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,985,000 7,375,000 5,900,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 21
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Series B
Preferred Stock Common Stock
------------------------------- ------------------------------
Shares Amount Shares Amount
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balances, January 1, 1997 500,000 $ 5,000 4,863,000 $ 49,000
Issuance of common stock 686,000 7,000
Conversion of preferred stock (500,000) (5,000) 1,667,000 16,000
Net loss
--------------- -------------- -------------- --------------
Balances, December 31, 1997 -- -- 7,216,000 72,000
Issuances of common stock and warrants 271,000 3,000
Exercise of warrants and options 180,000 2,000
Cancellation of common stock (100,000) (1,000)
Net loss
--------------- -------------- -------------- --------------
Balances, December 31, 1998 -- -- 7,567,000 76,000
Issuances of common stock and warrants
337,000 3,000
Preferred stock dividend
Conversion of redeemable preferred stock
149,000 2,000
Exercise of warrants and options
399,000 4,000
Net loss
--------------- -------------- -------------- --------------
Balances, December 31, 1999 -- $ -- 8,452,000 $ 85,000
=============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Total
Capital in Stockholders'
Excess of Accumulated Equity
Par Value Deficit (Deficiency)
---------------- ------------------ ----------------
<S> <C> <C> <C>
Balances, January 1, 1997 $ 15,816,000 $ (13,013,000) $ 2,857,000
Issuance of common stock 1,996,000 2,003,000
Conversion of preferred stock (11,000) --
Net loss (3,695,000) (3,695,000)
---------------- ------------------ ----------------
Balances, December 31, 1997 17,801,000 (16,708,000) 1,165,000
Issuances of common stock and warrants 201,000 204,000
Exercise of warrants and options 547,000 549,000
Cancellation of common stock (366,000) (367,000)
Net loss (11,646,000) (11,646,000)
---------------- ------------------ ----------------
Balances, December 31, 1998 18,183,000 (28,354,000) (10,095,000)
Issuances of common stock and warrants 3,413,000
3,410,000
Preferred stock dividend (1,768,000)
4,018,000 (5,786,000)
Conversion of redeemable preferred stock 1,040,000
1,038,000
Exercise of warrants and options 1,792,000
1,788,000
Net loss (16,865,000) (16,865,000)
---------------- ------------------ ----------------
Balances, December 31, 1999 $ 28,437,000 $ (51,005,000) $ (22,483,000)
================ ================== ================
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 22
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(16,865,000) $(11,646,000) $ (3,695,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accretion of interest on notes payable 107,000 75,000
Write-off of assets held for disposition 153,000 2,037,000
Depreciation and amortization 1,473,000 1,332,000 1,292,000
Provision for doubtful accounts 1,217,000 3,554,000 1,341,000
Common stock issued for compensation
and services 646,000 104,000 71,000
Accrued interest, note receivable (11,000)
Changes in assets and liabilities:
Accounts receivable (3,933,000) (3,086,000) (1,357,000)
Carrier commissions receivable 814,000 (829,000) (110,000)
Inventories (2,082,000) (103,000) (51,000)
Prepaid expenses and other current assets (692,000) (1,903,000) 6,000
Accounts payable and other current liabilities 2,033,000 6,204,000 (980,000)
Deferred revenues 3,107,000 1,204,000 44,000
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (14,175,000) (4,941,000) (1,413,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (486,000) (744,000) (318,000)
(Increase) decrease in deposits (27,000) (389,000) 47,000
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (513,000) (1,133,000) (271,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 6,400,000
Payments for debt issuance costs (171,000)
Payments on long-term debt (4,527,000) (530,000) (1,091,000)
Advances from (payments of note to) former parent (1,411,000) (239,000) 993,000
Issuance of common and redeemable preferred stock 20,240,000 1,932,000
Exercise of warrants and options 1,792,000 549,000
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,094,000 6,009,000 1,834,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 1,406,000 (65,000) 150,000
CASH, beginning of year 229,000 294,000 144,000
------------ ------------ ------------
CASH, end of year $ 1,635,000 $ 229,000 $ 294,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 23
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------ ------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 640,000 $ 863,000 $ 379,000
=================== ================== ==================
Income taxes $ 7,000 $ 6,000 $ 10,000
=================== ================== ==================
SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Cancellation of common stock to settle
outstanding receivable
$ -- $ 367,000 $ --
=================== ================== ==================
Issuance of warrants in connection with certain
debt instruments and preferred stock.
$ 306,000 $ 100,000 $ --
=================== ================== ==================
Issuance of common stock in connection with
Services Agreement $ 2,832,000 $ -- $ --
=================== ================== ==================
Redeemable preferred stock issued as preferred
stock dividends $ 891,000 $ -- $ --
=================== ================== ==================
Conversion of redeemable preferred stock
and convertible notes into common stock $ 1,290,000 $ -- $ --
=================== ================== ==================
Capital lease obligation incurred for lease of
equipment
$ 672,000 $ -- $ --
=================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 24
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
Shared Technologies Cellular, Inc. (STC) together with its
subsidiaries (collectively the "Company") is a national cellular
service provider offering rental, prepaid and activation services
in substantially all of the Cellular Geographical Service Areas
within the United States. The Company rents cellular telephones to
business and leisure travelers and to individuals at sporting
events. As a reseller or agent for cellular and PCS carriers, the
Company offers cellular service throughout the United States. STC
also performs nationwide cellular activation services through a
variety of retail and commercial outlets. The Company has expanded
the scope of its prepaid (debit) cellular service by offering
carrier and distribution partners an array of services including:
a universal prepaid redemption platform, Interactive Voice
Response, (IVR), point-of-sale activation (POSA) card services,
inter-carrier communications services and one-stop shopping,
e-commerce and direct marketing programs that offer multiple
telecommunications services.
The Company's operations are subject to regulation by the Federal
Communications Commission (FCC), which has generally preempted the
regulatory jurisdiction of state agencies with respect to the
business in which the Company is engaged.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of STC
and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Cash
The Company maintains its cash in bank deposit accounts which at
times may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not
subject to any significant credit risk on cash.
Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities which
qualify as financial instruments under Statement of Financial
Accounting Standards No. 107 approximates the carrying amounts
presented in the consolidated balance sheets.
Inventories
Inventories, consisting of telecommunications equipment and parts
expected to be sold to customers, are valued at the lower of cost,
on the first-in, first-out (FIFO) method, or market.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, such as
telecommunications and office equipment, identifiable intangibles
and goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may
not be fully recoverable. To determine the recoverability of its
long-lived assets, the Company evaluates the probability that
future undiscounted net cash flows will be less than the carrying
amount of the assets. Impairment is the amount by which the
carrying value of the asset exceeds its fair value.
F-8
<PAGE> 25
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Telecommunications and Office Equipment
Telecommunications and office equipment are stated at cost. The
Company records depreciation on the straight-line method over the
estimated useful lives of the assets as follows:
Telecommunications equipment 2-5 years
Office equipment 3-5 years
Intangible Assets
Goodwill represents the excess of cost over the fair market value
of net assets of acquired businesses and is amortized over periods
ranging from 15 to 20 years from the respective acquisition dates.
The Company monitors the cash flows of the acquired operations to
assess whether any impairment of recorded goodwill has occurred.
The Company amortizes the cost to obtain exclusive agreements to
provide cellular telephone rentals at specific locations on the
straight-line basis over the life of the respective agreements,
generally five to six years.
Debt Issuance Costs
Costs incurred relating to the issuance of debt are deferred and
are being amortized over the life of the related debt. The
amortization of debt issuance costs included in interest expense
was $58,000, $83,000 and nil in 1999, 1998 and 1997, respectively.
Revenue Recognition
Revenues related to providing short-term cellular phone rental
services are recognized as the service is provided. Debit card
revenues are recognized over the estimated period in which the
Company provides debit, or prepaid, cellular service to its
customers. Customers purchase debit cellular service by buying
debit cards at retail locations throughout the United States 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 their 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 $30
debit card expires after approximately 38 minutes of usage or 60
days, whichever occurs first. However, most of the airtime is used
within the first 30 days of redemption. Carrier commissions
related to activation revenues are due from cellular carriers for
new cellular telephone line activations performed by the Company.
The commissions are earned only after the cellular telephone user
has remained on the cellular telephone network for a specified
period of time (vesting period). The Company records an allowance,
as a reduction to carrier commissions receivable, for estimated
cancellations of cellular service by the user prior to the end of
the aforementioned vesting period. Although there is a short-term
vesting period for which the Company must wait in order to receive
its commission, the Company believes that the revenue process has
been completed.
Advertising Costs
The Company expenses costs of advertising and promotions as
incurred. Advertising expenses included in selling, general and
administrative expenses for the years ended December 31, 1999,
1998 and 1997 were approximately $265,000, $308,000 and $132,000,
respectively.
F-9
<PAGE> 26
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company complies with Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes",
which requires an asset and liability approach to financial
reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future, based on enacted
tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce the deferred
tax assets to the amount expected to be realized.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Loss Per Common Share
The Company complies with Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), "Earnings Per Share". SFAS No.
128 requires dual presentation of basic and diluted earnings per
share for all periods presented. Basic earnings per share excludes
dilution and is computed by dividing loss applicable to common
stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. Diluted loss per common
share was the same as basic loss per common share for the years
ended December 31, 1999, 1998 and 1997. Unexercised stock options
to purchase 1,222,000, 699,000 and 365,000 shares of the Company's
common stock and unexercised warrant options to purchase
3,758,000, 3,316,000 and 3,518,000 shares of the Company's common
stock as of December 31, 1999, 1998 and 1997, respectively, in
addition to shares of common stock from the conversion of
convertible debentures and preferred stock of 3,236,000 and
480,000 as of December 31, 1999 and 1998, respectively, were not
included in the computations of diluted earnings per share because
their effect would have been antidilutive as a result of the
Company's losses.
NOTE 3 - UNCERTAINTY - ABILITY TO CONTINUE AS A GOING CONCERN
The accompanying consolidated financial statements have
been presented on the basis that it is a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has
sustained a cumulative net loss of approximately $51,000,000
through December 31, 1999, had a working capital deficit of
approximately $8,200,000 at December 31, 1999 and a stockholders'
deficiency of approximately $22,500,000 at December 31, 1999. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Management's plans include the expansion of the Company's customer
base of its prepaid cellular services through the anticipated
spin-off of its CellEase.com subsidiary, improved operating
results in its rental division and additional expansion of
services to third parties. CellEase.com is primarily a business to
business information technology company, providing back- office
service bureau functions,
F-10
<PAGE> 27
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - UNCERTAINTY - ABILITY TO CONTINUE AS A GOING CONCERN (CONTINUED)
advanced platform and integrated e-commerce and direct marketing
solutions to the telecommunications industry.
Continuation of the Company as a going concern is dependent on its
ability to obtain profitable operations through the CellEase.com
subsidiary in addition to the current operations in the prepaid
and short-term rental of cellular phones throughout the United
States. In addition, the Company is pursuring additional equity or
debt financing in an effort to improve working capital.
NOTE 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following
at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Prepaid consulting agreement 2,492,000 --
Prepaid telephone line charges 695,000 732,000
Prepaid access fees 672,000 878,000
Marketable securities -- 408,000
Note receivable 500,000 --
Other 167,000 12,000
---------- ----------
$4,526,000 $2,030,000
========== ==========
</TABLE>
In July 1999, the Company entered into a consulting agreement (the
"Agreement") with Retail Distributor, Inc. ("RDI"), expiring in
March 2001 pursuant to which RDI provides certain services
relating to the marketing, sale and distribution of the Company's
prepaid cellular services. The Agreement was entered into in
connection with the Company's acquisition, in July 1999, of all of
the outstanding capital stock of Retail Cellular Inc. (RCI) for
150,000 shares of the Company's common stock valued at a fair
market value of $10.56 per share. Pursuant to the terms of the
Agreement, the Company also paid RDI approximately $843,000 in
cash, issued 118,194 shares of the Company's common stock valued
at $10.56 per share, will make monthly payments over the term of
the Agreement aggregating approximately $1,596,000, of which
approximately $996,000 was paid during 1999. All amounts payable
under the Agreement are being expensed over the services period
expiring in March 2001. During the term of the Agreement, RDI
shall be paid certain additional amounts based upon performance
set forth in the agreement. These payments will be in the form of
cash and warrants for the purchase of shares of STC common stock.
As of December 31, 1999 the Company issued 250,000 warrants to
purchase shares of the Company's common stock. The Company loaned
RDI $500,000, bearing interest at 9.5% per annum, which is due on
demand.
NOTE 5 - TELECOMMUNICATIONS AND OFFICE EQUIPMENT
Telecommunications and office equipment consist of the following
at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Telecommunications equipment $ 400,000 $2,504,000
Office equipment 2,141,000 1,411,000
---------- ----------
2,541,000 3,915,000
Accumulated depreciation 1,027,000 2,790,000
---------- ----------
$1,514,000 $1,125,000
========== ==========
</TABLE>
F-11
<PAGE> 28
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - TELECOMMUNICATIONS AND OFFICE EQUIPMENT (CONTINUED)
Depreciation expense for the years ended December 31, 1999, 1998
and 1997 was $769,000, $604,000 and $650,000, respectively.
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Goodwill $8,426,000 $8,426,000
Covenant not to compete -- 142,000
Rental car agreement 520,000 520,000
Debt issuance costs 171,000 171,000
---------- ----------
9,117,000 9,259,000
Accumulated amortization 2,828,000 2,266,000
---------- ----------
$6,289,000 $6,993,000
========== ==========
</TABLE>
Amortization expense for the years ended December 31, 1999, 1998
and 1997 was $704,000, $619,000 and $642,000, respectively.
NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the
following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Sales and other taxes $5,512,000 $4,428,000
Payroll and payroll taxes 200,000 124,000
Commissions 178,000 222,000
Other 1,155,000 1,379,000
---------- ----------
$7,045,000 $6,153,000
========== ==========
</TABLE>
F-12
<PAGE> 29
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Promissory note bearing interest at 8% per annum and
payable in semi-annual principal installments of
$225,000 through May 2000. The note is
collateralized by certain of the Company's assets. $ 225,000 $ 675,000
Promissory notes bearing interest at 10%
per annum and payable in monthly installments
of $8,500 through March 2002. 204,000 281,000
Promissory notes bearing interest at prime
rate (7.75% at December 31, 1998)
plus 2.50% per annum, payable on or before
July 1, 1999. The notes include
warrants to purchase 400,000 shares of the Company's common
stock at $5.00 per share through April 2003. -- 3,975,000
Convertible debt bearing interest at 5% per annum
Interest is payable quarterly, with principal
due in May 2005. The debt may be converted into
shares of the Company's common stock, at $5.00 per share. 2,150,000 2,400,000
Promissory note, to former parent, bearing interest
at prime rate plus 2% per annum, due in November 1999. -- 1,411,000
Capital lease obligation bearing interest
at 8% per annum payable monthly, with
principal, due in November 2001. The lease
is payable to an affiliate of the Company
448,000 --
---------- ----------
3,027,000 8,742,000
Less current portion 535,000 5,913,000
---------- ----------
$2,492,000 $2,829,000
========== ==========
</TABLE>
F-13
<PAGE> 30
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - NOTES PAYABLE (CONTINUED)
Aggregate future principal payments are as follows:
<TABLE>
<CAPTION>
Long-Term Capital Lease
Year Ending December 31, Debt Obligation
---------- -------------
<S> <C> <C>
2000 $ 310,000 $ 253,000
2001 94,000 232,000
2002 25,000
2003 --
2004 --
Thereafter 2,150,000
---------- ----------
$2,579,000 $ 485,000
==========
Less amount representing interest 37,000
----------
Present value of future payments,
including current portion of $225,000 448,000
==========
</TABLE>
Telecommunications and office furniture includes assets under
capital leases with a net book value of approximately $605,000 as
of December 31, 1999.
NOTE 9 - REVOLVING CREDIT FACILITY
In July 1999, as amended in March 2000, the Company entered into a
$5 million two-year revolving credit facility with a bank. The
availability of the credit facility is based on a percentage of
eligible receivables and includes covenants requiring certain
levels of active debit/prepaid customers and operating results
through the term of the agreement. Advances under the facility
bear interest at the prime rate and are to be used for working
capital and general corporate purposes. The facility is
collateralized by substantially all of the Company's assets. In
connection with the facility, the Company issued to the bank a
ten-year warrant for the purchase of 150,000 shares of its Common
Stock at an exercise price of $10 per share, subject to certain
adjustments. The warrant is redeemable by the bank any time after
the third anniversary for a minimum redemption price of $200,000.
The Company will account for the warrant as additional interest
related to the facility over a two year period. At December 31,
1999 the Company had no direct borrowings outstanding under the
facility. The Company is currently in default on certain of the
covenants within the facility. On March 28, 2000 the Company
received a waiver, as of December 31, 1999, for the default of the
covenants. The Company remains in default after December 31, 1999.
In connection with the credit facility, the Company had standby
letters of credit to certain vendors in the aggregate of
$2,750,000. These letters of credit expire on various dates from
February 2, 2000 through September 1, 2000 and are collateralized
by certain assets of the Company.
NOTE 10 - CONVERTIBLE REDEEMABLE PREFERRED STOCK
In February 1999, the Company completed a $15 million private
placement, issuing an aggregate of 15,000 shares of a new Series C
Convertible Preferred Stock, $.01 par value, and warrants to
purchase an aggregate of 300,000 shares of common stock. Each
share of Series C Convertible Preferred Stock is convertible into
common stock of the Company based upon certain formulas and
limitations.
F-14
<PAGE> 31
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - CONVERTIBLE REDEEMABLE PREFERRED STOCK (CONTINUED)
The Series C Convertible Preferred Stock contains a dividend of
6%, payable upon conversion, in either cash or the Company's
common stock, at the Company's option (subject to certain
conditions). The warrants are exercisable at $9 per share and
expire in February 2004 and are subject to mandatory exercise,
subject to certain conditions. The Warrants were valued at $75,000
and the value was treated as a "discount" to the Series C Shares
and such discount is being accreted as a preferred stock dividend
over the five-year term of the Warrants. In accordance with
Emerging Issues Task Force Topic D-60, the Company recognized a
beneficial conversion feature in the amount of $4,018,000 as a
one-time non-cash preferred stock dividend in the first quarter of
1999. The amount represented the difference between the conversion
price of $7 per share on the date of issuance of the Series C
Shares, February 5, 1999, and the $8 7/8 market price of Common
Stock at that date. The Company has the right to require
conversion of all of the outstanding shares of Series C
Convertible Preferred Stock at any time after February 5, 2000, if
the closing bid price for the Company's common stock is greater
than $15 for fifteen consecutive trading days. The Series C
Convertible Preferred Stock may be redeemed by the holder upon
certain specified events as defined. During 1999, holders of 1,000
shares of Series C Preferred Stock converted their stock into an
aggregate of approximately 149,000 shares of the Company's common
stock.
In October 1999, the Company completed a $6.1 million private
placement, issuing an aggregate of 6,100 shares of a new Series D
Convertible Preferred Stock, $.01 par value, and warrants to
purchase an aggregate of 122,000 shares of common stock. Each
share of Series D Convertible Preferred Stock is convertible into
common stock of the Company at a conversion price of $8.875. The
Series D Convertible Preferred Stock contains a dividend of 6%,
accruing from the date of issuance of the Series D Convertible
Preferred Stock through and including the date of conversion. The
premium is payable upon conversion, in the Company's common stock
or cash, at the Company's option (subject to certain conditions),
The warrants are exercisable at $11.09 per share, expire in
October 2004 and are subject to mandatory exercise, subject to
certain conditions. The Warrants were valued at $31,000 and the
value was treated as a "discount" to the Series D Shares and such
discount is being accreted as a preferred stock dividend over the
five-year term of the Warrants. The Company has the right to
require conversion of all of the outstanding shares of Series D
Convertible Preferred Stock at any time after October 1, 2000, if
the closing bid price for the Company's common stock is greater
than $18 for fifteen consecutive trading days. The Series D
Convertible Preferred Stock may be redeemed by the holder upon
certain specified events as defined.
NOTE 11 - STOCKHOLDERS' DEFICIENCY
The Company has reserved for issuance 3,758,000 shares of its
common stock relating to common stock purchase warrants
outstanding as of December 31, 1999, at prices ranging from $2.50
to $11.09 per share.
In 1998, the Company received 100,000 shares of its common stock
that were issued in connection with the Summit acquisition and
assumed a $150,000 liability of Summit, in payment for the
remaining balance of the note receivable from Summit. In addition,
the Company issued to Summit a warrant for the purchase of 100,000
shares of common stock, exercisable at $5 per share and expiring
in 2001.
In August and September 1997, the Company sold an aggregate of
407,000 units, at $3.00 per unit, through a private placement that
included various members of the Company's management. Each unit
consists of one share of common stock and one warrant to purchase
one share of common stock at $3.00 per share.
F-15
<PAGE> 32
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTION PLANS
The Board of Directors adopted, and the Company's stockholders
approved, as amended, a stock option plan (the Plan) pursuant to
which 1,325,000 shares of the Company's common stock are reserved
for issuance upon the exercise of options granted to officers,
employees, consultants and directors of the Company. Options
issued under the Plan are nonqualified stock options (NSO's) and
the Board of Directors (Committee) will grant NSO's at an exercise
price which is not less than seventy percent of the fair market
value on the date such options are granted. The Plan further
provides that the maximum period in which stock options may be
exercised will be determined by the Committee, except that they
may not be exercisable after ten years from the date of grant. At
December 31, 1999, options to purchase 1,120,000 shares of common
stock were outstanding.
The Board of Directors adopted, and the stockholders approved, the
Company's 1994 Director Option Plan (the Director Plan), as
amended, pursuant to which 200,000 shares of the Company's common
stock are reserved for issuance upon the exercise of options to be
granted to non-employee directors of the Company. Under the
Director Plan, an eligible director will automatically receive, at
the commencement of the Director's three-year term, nonstatutory
options to purchase 15,000 shares of the Company's common stock.
For directors elected to less than a three-year term, such
directors shall receive an option to purchase 5,000 shares per
year to be served as a director, with vesting pro rated on a
monthly basis. The option exercise price per share shall be equal
to the fair market value of such shares at the time of grant. All
options granted under the Plan vest ratably over the director's
term and are exercisable within ten years from the date of grant,
but generally may not be exercised more than 90 days after the
date the director ceases to serve as a director of the Company. At
December 31, 1999, options to purchase 102,000 shares of the
Company's common stock were outstanding under the Director Plan.
The activity in the Plan and the Director Plan are as follows:
<TABLE>
<CAPTION>
Exercise Price Per Share
Number of Weighted
Options Range Average
--------------- ----------------- -------------
<S> <C> <C> <C>
Balance outstanding, January 1, 1997 281,000 $ 1.63-5.00 $ 3.33
Granted 93,000 2.13-2.50 2.15
Expired (9,000) 3.68-5.00 4.22
--------------- ----------------- -------------
Balance outstanding, December 31, 1997 365,000 1.63-4.75 3.01
Granted 380,000 5.56-7.13 5.60
Exercised (28,000) 2.13-4.75 2.75
Expired (18,000) 2.13-6.50 4.10
--------------- ----------------- -------------
Balance outstanding, December 31, 1998 699,000 1.63-7.13 4.38
Granted 590,000 6.13-12.00 9.85
Exercised (35,000) 2.13-6.50 3.27
Expired (32,000) 2.13-12.00 8.08
--------------- ----------------- -------------
Balance outstanding, December 31, 1999 1,222,000 $ 1.63-12.00 $ 6.95
=============== ================= =============
Exercisable, December 31, 1999 431,000 $ 1.63-12.00 $ 4.16
=============== ================= =============
</TABLE>
F-16
<PAGE> 33
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTION PLANS (CONTINUED)
The Company has adopted the disclosure requirements of Statement
of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation". The Company applies
Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Had compensation cost
for the Company's stock-based compensation plans been determined
based on the fair value at the grant dates, consistent with SFAS
No. 123, the Company's net loss applicable to common stockholder's
and net loss per share applicable to common stockholder's would
have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported $ (22,651,000) $ (11,646,000) $ (3,695,000)
Pro forma (23,735,000) (12,024,000) (3,770,000)
Net loss per share applicable to common
stockholders:
As reported $ (2.84) $ (1.58) $ (0.63)
Pro forma
(2.98) (1.63) (0.64)
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1999,
1998 and 1997, respectively: risk-free interest rate of 5.5%, 5%
and 6%, respectively; no dividend yield; expected lives of 3 to 10
years; and expected volatility of 81%, 91% and 64%, respectively.
NOTE 13 - LOSS ON DISCONTINUED PRODUCT LINE
During 1997, the Company completed the transition of the existing
in-car rental accounts to portable rentals. In conjunction with
this transition, the Company attempted to develop alternate uses
for the in-car cellular telephones as well as the capitalized
software associated with the in-car cellular rental business.
Although management believes that there are viable uses for such
assets, the probability that such uses will be successful is not
known. As a result, the Company reduced the in-car cellular phones
and the capitalized software to net realizable value and
classified them on the balance sheet as assets held for
disposition.
NOTE 14 - SAVINGS AND RETIREMENT PLAN
In June 1996, the Company formed a savings and retirement plan
(the Plan) which covers all eligible employees. Participants in
the Plan may elect to make contributions up to a maximum of 20% of
their compensation. For each participant, the Company will make a
matching contribution of one-half of the participant's
contributions, up to 5% of the participant's compensation.
Matching contributions may be made in the form of the Company's
common stock and are vested at the rate of 33% per year based on
years of employment. For the years ended December 31, 1999, 1998
and 1997, the Company's matching contributions were $165,000,
$104,000 and $71,000, respectively.
F-17
<PAGE> 34
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - Income Taxes
A reconciliation of income tax benefit, to the federal statutory
rate for the years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax benefit on reported pretax
loss at federal statutory rate (35.0)% (35.0)% (34.0)%
State net operating losses (6.0) (6.0) (6.0)
Net operating loss carryforward not recognized 41.0 41.0 40.0
-------- -------- --------
Income taxes 0.0% 0.0% 0.0%
======== ======== ========
</TABLE>
At December 31, 1999 and 1998, the Company recorded net deferred
tax assets of approximately $16,835,000 and $9,702,000,
respectively, and valuation allowances in the same amounts. The
valuation allowances were increased by $7,133,000, $4,191,000 and
$1,111,000, respectively, for the years ended December 31, 1999,
1998 and 1997, respectively. SFAS No. 109 requires that the
Company record a valuation allowance when it is "more likely than
not that some portion or all of the deferred tax asset will not be
realized". The ultimate realization of the deferred tax asset
depends on the Company's ability to generate sufficient future
taxable income.
The net deferred tax assets and liabilities as of December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- ------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 16,510,000 $ 9,289,000
Allowance for doubtful accounts 237,000 367,000
Asset basis difference, intangible assets 88,000 57,000
----------------- ------------------
16,835,000 9,713,000
----------------- ------------------
Deferred tax liabilities, asset basis
difference for equipment and intangible assets -- (11,000)
----------------- ------------------
Deferred tax asset, net 16,835,000 9,702,000
Valuation allowance on deferred tax asset (16,835,000) (9,702,000)
----------------- ------------------
$ -- $ --
================= ==================
</TABLE>
At December 31, 1999, the Company has federal net operating loss
carryforwards of approximately $40,000,000, which can be utilized
against future taxable income and expire through the year 2019.
Net operating losses available for state income tax purposes are
less than those for federal purposes and generally expire earlier.
F-18
<PAGE> 35
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENCIES
The Company has leases for office facilities and equipment, which
expire in various years through December 2002. Future aggregate
minimum annual rental payments as of December 31, 1999 are as
follows:
<TABLE>
<S> <C>
Year ending December 31
2000 $ 798,000
2001 753,000
2002 138,000
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997
was approximately $815,000, $558,000 and $352,000, respectively.
Leased equipment expense for the year ended December 31, 1999 was
approximately $55,000.
In January 1999, the Company brought an action against SmarTalk
TeleServices, Inc. ("SmarTalk"), a former party to an agreement in
which the Company was to provide prepaid cellular services, for
fraud and breach of contract. SmarTalk subsequently filed for
bankruptcy, leading the Company to file a proof of claim with the
bankruptcy court in the amount of approximately $14,400,000 in
March 1999. SmarTalk has since disclosed approximately $847,000 in
preference payments that it claims the bankrupt estate is entitled
to recover from the Company. The Company intends to prosecute its
claim against SmarTalk and to vigorously contest any preference
action brought by the bankrupt estate.
The Company, in the ordinary course of business, is a party to
various legal actions, the outcome of which, in the opinion of
management, will not have a material adverse effect on results of
operations, cash flows or financial position of the Company.
NOTE 17 - RELATED PARTY TRANSACTIONS
The Company sub-leases certain office space to affiliates,
expiring January 6, 2000 through December 31 , 2004. As of
December 31, 1999, aggregate monthly rental payments are
approximately $15,000, plus operating expenses, property taxes and
rent escalations.
In November 1999, the Company purchased $2,000,000 of debit
cellular phones from a company whose member is a director of the
Company.
During 1999 the Company entered into a capitalized lease
obligation with an affiliate, expiring in November 2001. Aggregate
monthly payments are approximately $21,000.
F-19
<PAGE> 36
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - DEPENDENCE UPON KEY RELATIONSHIPS AND MAJOR CUSTOMERS
Approximately 18%, related to the debit segment, and 16%, related
to the rental segment, of the Company's revenues for 1999 were
attributable to two customers. Approximately 24% and 12%, related
to the debit segment, and 19% and 10%, related to the rental
segment, of the Company's revenues for 1998 were attributable to
four customers. Approximately 26%, related to the debit segment,
and 24%, 13% and 11%, related to the rental segment, of the
Company's revenues for 1997 were attributable to four customers.
The agreements with these companies are terminable with cause and
require written notification, typically effective upon relatively
short notice. The termination of any one of these agreements would
have a material adverse effect on the Company. In 1998, certain of
the agreements relating to 36% and 26% of the Company's revenues
in 1998 and 1997, respectively, were terminated.
NOTE 19 - SEGMENT INFORMATION
The Company complies with Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 requires disclosures
of segment information on the basis that is used internally for
evaluating segment performance and deciding how to allocate
resources to segments.
Segment information listed below reflects the three principal
business units of the Company (as described in Note 1). Each
segment is managed according to the products or services, which
are provided to the respective customers, and information is
reported on the basis of reporting to the Company's Chief
Operating Decision Maker (CODM). The Company's CODM uses segment
information relating to the operations of each segment, however,
segment balance sheet data is not prepared for or used by the
CODM.
Operating segment information for 1999, 1998, and 1997 is
summarized as follows:
F-20
<PAGE> 37
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Rental Debit Activation Corporate Consolidated
------ ----- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 1999 $12,939,000 $14,280,000 $1,052,000 $28,271,000
1998 14,037,000 12,737,000 1,426,000 28,200,000
1997 15,242,000 6,299,000 2,657,000 24,198,000
Depreciation
and amortization 1999 326,000 280,000 22,000 845,000 1,473,000
1998 429,000 101,000 10,000 792,000 1,332,000
1997 495,000 14,000 783,000 1,292,000
Bad debts 1999 883,000 306,000 28,000 1,217,000
1998 1,441,000 2,097,000 16,000 3,554,000
1997 1,309,000 8,000 24,000 1,341,000
Operating income (loss) 1999 1,034,000 (10,964,000) (20,000) (6,334,000) (16,284,000)
1998 (777,000) (5,942,000) (365,000) (3,604,000) (10,688,000)
1997 (965,000) 1,471,000 86,000 (4,045,000) (3,453,000)
Interest expense, net 1999 (574,000) (574,000)
1998 (952,000) (952,000)
1997 (232,000) (232,000)
Income (loss) before
income taxes 1999 1,034,000 (10,964,000) (20,000) (6,908,000) (16,858,000)
1998 (777,000) (5,942,000) (365,000) (4,556,000) (11,640,000)
1997 (965,000) 1,471,000 86,000 (4,277,000) (3,685,000)
</TABLE>
F-21
<PAGE> 38
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End
Description of Year Expenses Deductions (1) of Year
----------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts $ 896,000 $ 1,217,000 $ 1,618,000 $ 495,000
=============== =============== =============== ===============
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $ 991,000 $ 3,554,000 $ 3,649,000 $ 896,000
=============== =============== =============== ===============
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $ 1,392,000 $ 1,341,000 $ 1,742,000 $ 991,000
=============== =============== =============== ===============
</TABLE>
(1) Represents write off of uncollected accounts, net of recoveries.
S-1
<PAGE> 39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
The following table sets forth certain information concerning the directors and
executive officers of the Company who are also directors. Pursuant to the
Company's Second Restated Certificate of Incorporation and Amended Bylaws, the
Company has a classified Board of Directors, whereby directors are elected to
three-year terms, with one-third of the directors coming up for election each
year at the Company's annual meeting of stockholders.
<TABLE>
<CAPTION>
Director Age Director Since Year Term Position with the Company
-------- --- -------------- Expires --------------------------
--------
<S> <C> <C> <C> <C>
Anthony D. Autorino 61 1989 2002 Chairman, Chief Executive Officer and
Director
Bruce Carswell 70 1998 2000 Director
Thomas H. Decker 59 1994 2002 Director
William A. DiBella 57 1993 2001 Director
Vincent DiVincenzo 50 1993 2001 Senior Vice President, Chief Financial
Officer, Treasurer and Director
Victor Grillo, Sr. 59 1999 2001 Director
Ajit G. Hutheesing 64 1995 2002 Director
Nicholas E. Sinacori 55 1996 2000 Director
</TABLE>
ANTHONY D. AUTORINO has been Chairman, President and Chief Executive Officer
of the Company since its formation in 1989. Mr. Autorino is a principal of CMD
Ventures LLC, a private real estate management and development company. From
January 1986 to March 1998, he was Chairman and Chief Executive Officer of
Shared Technologies Fairchild Inc. ("STFI"), the former parent of the Company,
and he was President of STFI from January 1986 to March 1996. From January, 1985
to January, 1986, he was Chairman and Chief Executive Officer of ShareTech, a
joint venture between United Technologies Corporation and AT&T. He was President
of United Technologies Building System Company from 1981 to 1984 and was its
Chairman and Chief Executive Officer from 1984 to 1985. Mr. Autorino joined the
Hamilton Standard Division of United Technologies in 1960, holding the positions
of Vice President, Executive Vice President and President of the Division. Mr.
Autorino was Chairman of the firearms manufacturer Colt's Manufacturing Company,
Inc. and of its parent company, CF Holding Corp. from March, 1990 to March,
1992. Mr. Autorino serves on the board of directors of the Connecticut
Children's Medical Center. He also serves on the boards of trustees of The
Bushnell Memorial Theater in Hartford, Connecticut, and St. Joseph's College in
West Hartford, Connecticut. Mr. Autorino is chairman of Global Interactive
Communications Corporation, a private telecommunications services company.
BRUCE CARSWELL was appointed a director of the Company in July 1998. Mr.
Carswell has been a consultant to GTE Corporation since 1995, and has been a
principal in the Cabot Advisory Group, a human resource firm, since June, 1998.
In 1995, he retired from GTE, having served in various capacities, including as
Executive Director of the Office of the Chairman, as Senior Vice President of
Human Resources and Administration, and as a member of the Board of Directors.
He chaired one joint-venture Board of GTE, continues to serve as a director of
another such Board, and provides consulting services to GTE. Mr. Carswell is a
noted authority on human resource issues and labor law, with experience that
includes congressional appointments to various commissions concerning business
and labor. Mr. Carswell received a bachelor's degree from Colby College and a
law degree from Cornell University.
THOMAS H. DECKER has been a director of the Company since September, 1994.
Since March, 2000, Mr. Decker has been a Senior Vice President and Financial
Advisor at Morgan Stanley Dean Witter. From September, 1992 to March, 2000, Mr.
Decker was a Senior Vice President - Investments of Prudential Securities. From
1981 to September, 1992, he served as a Senior Vice President at Tucker Anthony
Incorporated.
17
<PAGE> 40
WILLIAM A. DIBELLA has been a director of the Company since September, 1994.
Mr. DiBella is currently a lobbyist and is a principal of CMD Ventures LLC., a
private real estate management and development company. From 1981 to 1997, Mr.
DiBella served as a Connecticut State Senator, including serving as Senate
Majority Leader and Chairman of the Finance, Revenue and Bonding Committee. Mr.
DiBella was a member of the Hartford City Council from 1971 to 1979 and Deputy
Mayor from 1975 to 1977.
VINCENT DIVINCENZO has been Treasurer of the Company since March, 1989,
Chief Financial Officer of the Company since February, 1994, Senior Vice
President of the Company since March, 1998, and a director of the Company since
March, 1993. He is a principal of CMD Ventures LLC, a private real estate
management and development company. From 1988 to 1998, Mr. DiVincenzo served
STFI in many capacities, including as its Vice President - Finance from 1988
until 1993, its Senior Vice President - Administration and Finance from 1993 to
March, 1998, its Treasurer and Chief Financial Officer 1988 to March, 1998, and
as a director of STFI from 1992 to March, 1998. From 1987 to 1988, Mr.
DiVincenzo was Controller of KCR Technology, Inc., a research and development
firm. From 1982 to 1986 he was employed by Lorlin Test Systems, formerly Eaton
Corporation, last serving as Controller. Mr. DiVincenzo is a director of Global
Interactive Corporation.
VICTOR GRILLO, SR. has been a director of the Company since July, 1999.
Since 1997, Mr. Grillo has been Chief Executive Officer of the corporate general
partner of DTR Associates Limited Partnership ("DTR"), a limited partnership
engaged in the business of developing, marketing and distributing consumer
products through direct response and retail distribution channels. From 1991 to
1997, Mr. Grillo was President of DTR. Mr. Grillo is a member of Retail
Distributors, LLC, formerly Retail Distributors, Inc., which provides certain
marketing support services to the Company.
AJIT G. HUTHEESING has been a director of the Company since December, 1995.
Mr. Hutheesing is the founder, Chairman and Chief Executive Officer of
International Capital Partners, Inc. ("ICP"), a private investment management
firm. Prior to starting ICP in 1988, he was Chairman of the Board and Director
of Corporate Finance of The Sherwood Group. Before joining Sherwood, Mr.
Hutheesing was with the J. Henry Schroder Corporation from 1975 to 1985 and held
the position of Vice Chairman from 1982 to 1985. Prior to that time, Mr.
Hutheesing spent ten years with the International Finance Corporation, a private
sector investment banking arm of the World Bank. He also serves as a Director of
Counsel Corporation and Officeland, Inc.
NICHOLAS E. SINACORI has been a director of the Company since August, 1996.
He has served as Managing Partner of ICP since 1990. From 1985 to 1990, Mr.
Sinacori was President of Westport Management, Inc., a private real estate
investment company. From 1974 to 1985, he was Vice President and Treasurer of
U.S. Industries, an international conglomerate. Mr. Sinacori also serves as a
director of Ralin, Inc., Cambric Corporation, Beverage Marketing Technologies,
Inc., Arrow Corporation and Tickets.com.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers of the Company who are not also directors. The executive officers are
elected by the Board of Directors and serve at the discretion of the Board.
<TABLE>
<CAPTION>
OFFICER AGE POSITION WITH COMPANY
------- --- ---------------------
<S> <C> <C>
Kenneth M. Dorros 40 Senior Vice President, General Counsel and Secretary
Sean P. Hayes 35 Executive Vice President
John Lovkay 62 Vice President - Debit Division Operations
Ismael G. Pinho 41 Vice President and Controller
</TABLE>
KENNETH M. DORROS has been Senior Vice President, General Counsel and
Secretary of the Company since June, 1998. Previously, he served the Company as
Counsel from October, 1997 to June, 1998. From March, 1989 to October, 1997, Mr.
Dorros served as Vice President, General Counsel and Secretary of the Company.
Mr. Dorros served as General Counsel and Secretary of Shared Technologies
Fairchild Inc. ("STFI") from June, 1986 to March, 1998, where he was also a
Senior Vice President from April, 1996 to March, 1998. Mr. Dorros received a
bachelor's degree from Lehigh University and a Juris doctor from the Fordham
University School of Law.
18
<PAGE> 41
SEAN P. HAYES has been an Executive Vice President of the Company since
March, 1993. Between December, 1992 and March, 1993, he served as the Company's
Director of Operations. From March, 1993 to August, 1996, Mr. Hayes served on
the Company's Board of Directors. Prior to joining the Company, Mr. Hayes was
employed by STFI, serving as director of STFI's Data Division from 1990 to 1992
and as a Regional Business Manager from 1988 to 1990. He received a B.A. degree
in business administration and computer information systems from New Hampshire
College.
JOHN LOVKAY has been Vice President - Operations of the Company's Debit
Division since December, 1999. From February, 1999 to December, 1999 he had been
President of the Debit Division. Prior to that, he served as Senior Vice
President - Corporate Operations from October, 1996 to February, 1999. From
April, 1995 to October, 1996, Mr. Lovkay held the position of Vice President -
Operations Support. Prior to joining the Company, Mr. Lovkay was employed by
STFI in the position of Senior Vice President - Operations Analysis from August,
1994 to April, 1995. From December of 1992 to August of 1994, he was a software
consultant, which position included work for Integrated Management Systems and
DeSai Consulting Group. Mr. Lovkay was Executive Vice President and Chief
Operating Officer of STFI from January of 1987 to December of 1992. He also
served as President of the Hamilton Standard Division of United Technologies
Corporation from 1984 to 1986. Mr. Lovkay holds a B.S. in electrical engineering
from the Massachusetts Institute of Technology and a M.S. from the University of
Connecticut.
ISMAEL G. PINHO joined the Company as its Controller in May, 1995. Since
December, 1999 he has held the position of Vice President and Controller. From
October, 1990 to May, 1995, he was Controller of F.L. Roberts & Company, Inc. a
retailer and distributor of petroleum products. Mr. Pinho was Controller of
Shapiro Equipment, Inc., a construction equipment company, from 1986 to 1990.
Mr. Pinho holds a B.A. degree in accounting from the University of Connecticut.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than 10% of the Company's outstanding shares of Common
Stock, to file reports of ownership and changes in ownership with the SEC and
NASDAQ. executive officers, directors and persons holding greater than ten
percent of the Company's outstanding shares of Common Stock are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
The Company knows of no delinquent filings under Section 16(a) of the
Exchange Act during the fiscal year ended December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation awarded
or paid to or earned by the Company's Chief Executive Officer, as well as to
each of the Company's other most highly paid executive officers who received
compensation in excess of $100,000 for the fiscal year ended 1999 (of which
there were only four such other executive officers). Collectively, the Chief
Executive Officer and such other executive officers are referred to herein as
the "Named Executive Officers."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION SECURITIES ALL OTHER
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
- --------------------------- ---- ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Anthony D. Autorino
Chairman and Chief Executive
Officer 1999 $312,500 $8,500 100,000 $54,890 (a)
1998 $156,250 -- 150,000 $55,020 (b)
1997 (c) -- --
Vincent DiVincenzo 1999 $162,500 $8,500 55,000 $ 9,900 (d)
Senior Vice President,
Treasurer and Chief
Financial Officer
</TABLE>
19
<PAGE> 42
<TABLE>
<S> <C> <C> <C> <C> <C>
Sean P. Hayes 1999 $125,000 $5,000 30,000 $ 3,654 (e)
Executive Vice President 1998 $106,458 -- 25,000 $ 3,644 (f)
1997 $102,084 -- -- $ 3,207 (g)
Kenneth M. Dorros 1999 $105,000 $4,000 10,000 $ 1,535 (h)
Senior Vice President, General
Counsel and Secretary
</TABLE>
(a) Includes life insurance premiums of $47,844 and disability insurance
premiums of $7,046.
(b) Includes life insurance premiums of $47,974 and disability insurance
premiums of $7,046.
(c) Until April 1998, the Chief Executive Officer, Anthony D. Autorino, was
paid by Shared Technologies Fairchild Inc., of which Mr. Autorino was
Chairman and Chief Executive Officer, in accordance with a Management
Agreement that is no longer in effect.
(d) Includes life insurance premiums of $4,460, disability insurance
premiums of $1,815 and automobile expense allowance of $3,625. Until
April 1998, the Senior Vice President, Treasurer and Chief Financial
Officer, Vincent DiVincenzo, was paid by Shared Technologies Fairchild
Inc., of which he was Senior Vice President, Treasurer and Chief
Financial Officer, in accordance with a Management Agreement that is no
longer in effect.
(e) Includes life insurance premiums of $1,573, disability insurance
premiums of $423 and automobile expense allocation of $1,658.
(f) Includes life insurance premiums of $1,579, disability insurance
premiums of $407 and automobile expense allowance $1,658.
(g) Includes life insurance premiums of $1,579, disability insurance
premiums of $392 and automobile expense allowance of $1,236.
(h) Includes life insurance premiums of $865 and disability insurance
premiums of $670.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information on options granted during the
fiscal year ended December 31, 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED VALUE
% OF TOTAL AT ASSUMED RATES OF
OPTIONS EXERCISE STOCK PRICE APPRECIATION
GRANTED TO OR BASE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) 1999 ($/SH) DATE 5%($) 10%($)
- ---- ---------- ------------ ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Anthony D. Autorino 100,000 18.9% (1) 3/20/09 $607,931 $1,540,618
Vincent DiVincenzo 50,000 9.4% (1) 3/20/09 $303,966 $ 770,309
Sean P. Hayes 20,000 3.8% $6.125 1/04/09 $ 77,040 $ 195,233
10,000 1.9% (1) 3/20/09 $ 60,793 $ 154,062
Kenneth M. Dorros 10,000 1.9% (1) 3/20/09 $ 60,793 $ 154,062
</TABLE>
(1) One-third exercisable at $9.00, $10.00 and $12.00 per share, respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning outstanding options to
purchase the Company's Common Stock as of December 31, 1999. No stock options
were exercised during the fiscal year ended December 31, 1999 by
20
<PAGE> 43
the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR END($)
YEAR END(#)
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
------------- -------------
<S> <C> <C>
Anthony D. Autorino 158,333/100,000 $463,665 / 91,667
Vincent DiVincenzo 71,667/50,000 $193,435 / 45,833
Sean P. Hayes 61,666/36,667 $238,707/70,350
Kenneth M. Dorros 31,166/6,667 $139,732/0
</TABLE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or its subsidiaries receive cash
compensation of $750 per board meeting attended ($400 if attended by
teleconference) and $500 for each committee meeting attended ($400 if attended
by teleconference), plus reimbursement of out-of-pocket expenses for attendance
at each such meeting. Each non-employee director also receives an annual fee of
$10,000, payable quarterly in arrears.
In addition, pursuant to the 1994 Director Option Plan, each non-employee
director receives an option, at the beginning of each three-year term to which
he is elected, to purchase 15,000 shares of the Company's Common Stock. Such
options have an exercise price equal to the fair market value of the Company's
Common Stock at the time of their grant, and vest at the rate of one-third per
year from the date of issuance, for so long as the option holder continues to
serve as a director of the Company.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has employment agreements currently in effect with 10 of its
employees, including each of the Named Executive Officers.
As of October 1, 1999, the Company entered into employment agreements with
certain members of management, including each of the Named Executive Officers.
Each agreement has a term of one year, and is automatically renewable for
successive one-year terms, subject to termination provisions. The agreements
provide for base salaries for Messrs. Autorino, DiVincenzo, Hayes and Dorros of
$375,000, 175,000, 130,000 and $110,000, respectively. Each agreement contains
certain termination and change-of-control payments, payable under certain
circumstances. In the case of Messrs. Autorino, DiVincenzo and Hayes, in the
event of termination of employment without cause or in the event of non-renewal
by the Company, each would receive a severance payment equal to one year's base
salary plus one year's target bonus (which is 50% for Messrs. Autorino and
DiVincenzo and 40% for Mr. Hayes), plus 20% to account for the loss of benefits.
Under such circumstances, Mr. Dorros' agreement provides for severance of six
month's base salary and target bonus (25%), plus a 20% fringe factor.
In the event of a change of control of the Company, Messrs. Autorino, DiVincenzo
and Hayes would receive an additional payment in an amount equal to 18 months'
base salary and target bonus. Such payment for Mr. Dorros would be in an amount
equal to six months' base salary and target bonus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Decker, DiBella and Hutheesing. Messrs. Autorino and DiVincenzo,
executive officers of the Company, and Mr. DiBella are each managing directors
of CMD Ventures, LLC, a private real estate management and development company.
Mr. Hutheesing is a director and executive officer of International Capital
Partners, Inc. and a trustee of International Capital Partners Profit Sharing
Trust, each of which participated in financing transactions with the Company in
1998 and 1999, which are described in greater detail below under the caption
(See Item 13, "Certain Relationships and Related Transactions").
1. REPORT OF THE COMPENSATION COMMITTEE
21
<PAGE> 44
The Compensation Committee of the Board of Directors is responsible for
establishing the compensation, including bonus and incentive arrangements, of
the Company's Chief Executive Officer and for reviewing the compensation of
other executive officers of the Company, as established by the Chief Executive
Officer. Until April of 1998, the Chief Executive Officer received no cash
compensation from the Company, but was instead paid by Shared Technologies
Fairchild Inc. ("STFI"), which was acquired by Intermedia Communications, Inc.
in March of 1998. Previously, STFI provided certain management services to the
Company pursuant to a management agreement that expired in 1997.
The Compensation Committee makes appropriate recommendations concerning
executive compensation, and it reports to the Company's Board of Directors.
Under the supervision, approval and review of the Compensation Committee, the
Company's compensation policies and programs are intended to motivate, retain
and attract management with incentives linked to the financial performance of
the Company and the value that is delivered to its stockholders. Specifically,
the Company's policies and programs endeavor to (i) link executive compensation
to sustainable increases in the financial performance of the Company, where
possible, and where not possible, preservation or realization of stockholder
value; (ii) provide rewards contingent upon Company performance; (iii)
differentiate compensation based upon individual contributions; (iv) promote
teamwork among executives and other Company employees; and (v) encourage the
retention of a sound management team.
Cash compensation at the Company consists of two components: (i) a base
salary that is competitive with that of other companies paying at the median
level of the market, and (ii) an annual incentive opportunity that is variable
and is reflective of the financial performance of the Company and the individual
performance of the executive officer. When high levels of performance are
achieved, the level of cash compensation may exceed the median of the market.
Conversely, when the Company or the individual falls short of the predetermined
goals, the level of cash compensation may be substantially below the market
median. The objective of this mix is to deliver total annual cash compensation
competitive with compensation offered at other companies facing similar
challenges for similar positions, while simultaneously linking the payment of
the annual cash incentive to the achievement of specific objectives in the
Company's annual operating plan as approved by the Board of Directors.
The award and size of any performance bonus is based upon (i) the executive
officer's performance against individual goals, and (ii) the performance of the
Company against Company goals. Goals vary from year to year. The Compensation
Committee also occasionally awards special bonuses in connection with
extraordinary transactions by the Company. The bonuses generally are awarded to
individuals who make significant contributions toward consummation of the
transactions.
The Compensation Committee believes that stock option grants serve as a
desirable, long-term method of compensation because they closely ally the
interests of management with the preservation, enhancement and realization of
stockholder value and serve as an additional incentive to promote the success of
the Company.
The Compensation Committee believes that the total compensation program for
executives of the Company is on a level with the compensation programs provided
by other companies facing similar challenges.
In establishing compensation for the Chief Executive Officer for 1999, the
Compensation Committee employed the same criteria as it used to set compensation
for other executive officers. The Compensation Committee believes that Mr.
Autorino's compensation is competitive with salary levels for chief executive
officers with similar experience and ability and recognizes Mr. Autorino's
individual performance and contributions to the Company's development, including
his leadership in positioning the Company as a more significant competitor
within the prepaid wireless market.
Respectfully submitted,
THOMAS H. DECKER
WILLIAM A. DIBELLA
AJIT G. HUTHEESING
2. RECOMMENDATIONS OF THE CHIEF EXECUTIVE OFFICER
22
<PAGE> 45
The Chief Executive Officer recommends to the Compensation Committee the
proposed compensation (other than his own) of each executive officer of the
Company.
In evaluating the performance of an executive officer and in formulating his
recommendation to the Compensation Committee, the Chief Executive Officer
adheres generally to the criteria and principles enunciated in the Compensation
Committee's report set forth above, yet he relies most heavily on the following
criteria employed by the Compensation Committee:
(a) the executive officer's influence on the performance of the Company
through his or her management skills;
(b) the executive officer's skill in long range planning for the
Company's future growth and activities; and
(c) the manner in which the executive officer positions the Company to
succeed in the future.
Respectfully submitted,
ANTHONY D. AUTORINO
Chairman and Chief Executive Officer
CUMULATIVE STOCKHOLDER RETURN
The following graph and chart compare the cumulative annual stockholder
return on the Company's Common Stock over the period commencing April 21, 1995
(the date of the Company's initial public offering and the date that the
Company's Common Stock commenced trading on Nasdaq) through December 31, 1999 to
that of the total return Index for the Nasdaq Stock Market ("Nasdaq") and the
total return Index for the Standard Industrial Classification Codes 4810-4819
Telephone Communications ("SIC Code Index") assuming the investment of $100 on
April 21, 1995. The total return Index for the Company and the SIC Code Index
were computed using the Compustat database. The first partial year of the Nasdaq
total return Index was computed using Bloomberg, and the subsequent years were
calculated based upon the Center for Research of Securities Prices Total Return
Indices data. In calculating total annual return, reinvestment of dividends is
assumed. The stock performance graph and chart below are not necessarily
indicative of future price performance.
[LINE GRAPH]
<TABLE>
<CAPTION>
Company Name/Index 4/21/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C>
SHARED TECHNOLOGIES CELLULAR $100.00 $33.70 $30.40 $59.80 $107.67 $147.80
NASDAQ 100.00 128.90 158.60 194.30 274.00 507.10
SIC CODE INDEX 100.00 123.90 145.20 193.10 340.30 559.00
</TABLE>
23
<PAGE> 46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 10, 2000 by (i) each of the
Company's directors and nominees, (ii) the Named Executive Officers, (iii) all
directors and executive officers of the Company as a group, and (iv) each person
known by the Company to own beneficially more than five percent of the
outstanding shares of the Company's Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS (1) NUMBER OF SHARES COMMON STOCK
DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWNED (2) OUTSTANDING
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Anthony D. Autorino 1,036,882 (a) 11.4%
Chief Executive Officer and Director
Bruce Carswell 8,467 (b) *
Director
Thomas H. Decker 135,500 (c) 1.5%
Director
William A. DiBella 240,833 (d) 2.7%
Director
Vincent DiVincenzo 314,144 (e) 3.5%
Senior Vice President, Chief Financial
Officer,
Treasurer and Director
Victor Grillo, Sr. 422,361 (f) 4.7%
Director
Sean P. Hayes 143,134 (g) 1.6%
Executive Vice President
Ajit G. Hutheesing 961,063 (h) 10.0%
Director
Nicholas E. Sinacori 948,714 (I) 9.8%
Director
Kenneth M. Dorros 107,973 (j) 1.2%
Senior Vice President, General Counsel and
Secretary
All directors and officers as a group (12 persons) 3,482,294 (k) 33.1%
FIVE PERCENT STOCKHOLDERS
George W. Mauerman 838,541 (l) 9.4%
6585 S. Yale, Suite 500
Tulsa, OK 74136
George S. Mauerman 593,166 (m) 6.7%
6585 S. Yale, Suite 500
Tulsa, OK 74136
The Fairchild Corporation and Banner Aerospace, Inc. 750,519 (n) 8.5%
45025 Aviation Drive, Suite 400
Dulles, VA 20177
International Capital Partners, Inc. 961,063 (o) 10.0%
300 First Stamford Place
Stamford, CT 06902
Zesiger Capital Group LLC 1,562,242 (p) 16.4%
320 Park Avenue
New York, NY 10022
Dulville Limited 500,587 (q) 5.6%
9 Avenue d'Ostende
MC-98000, Monaco
</TABLE>
24
<PAGE> 47
<TABLE>
<S> <C> <C>
Marshall Capital Management, Inc. 830,802 (r) 8.6%
11 Madison Avenue
New York, NY 10010
SIB Investment Holdings Limited 578,383 (s) 6.2%
380 Madison Avenue
New York, NY 10017
Rayflex Limited 833,333 (t) 8.6%
PO Box 3136
Road Town, Tortola
British Virgin Islands
</TABLE>
* Less than 1%
(1) The mailing address of each of the Company's directors and executive
officers is c/o the Company, 100 Great Meadow Road, Wethersfield, CT 06109.
(2) Except as otherwise specifically noted, the number of shares stated as being
owned beneficially includes shares held beneficially by spouses and minor
children. The inclusion herein of any shares deemed beneficially owned does
not constitute an admission of beneficial ownership of those shares. Each
stockholder possesses sole voting and investment power with respect to the
shares listed opposite such stockholder's name, except as otherwise
indicated.
(a) Includes 158,333 shares currently issuable upon exercise of options by
Mr. Autorino. Also includes 134,666 shares that are owned beneficially
by the estate of Mr. Autorino's late spouse, as to which Mr. Autorino
disclaims beneficial ownership. Also includes 100,000 shares issuable
upon exercise of other warrants held by Mr. Autorino, and 1,019 shares
beneficially owned through the Company's Savings and Retirement Plan.
(b) Includes 8,167 shares issuable upon exercise of options by Mr. Carswell.
(c) Includes 14,167 shares currently issuable upon exercise of options by
Mr. Decker. Also includes 33,333 shares issuable upon exercise of
warrants.
(d) Includes 14,167 shares currently issuable upon exercise of options by
Mr. DiBella. Also includes 168,333 shares and 58,333 shares issuable
upon exercise of warrants, all of which shares and warrants are
beneficially owned by Mr. DiBella's spouse, as to which he disclaims
beneficial ownership.
(e) Includes 71,667 shares currently issuable upon exercise of options by
Mr. DiVincenzo. Also includes 16,667 shares issuable upon exercise of
warrants and 762 shares beneficially owned through the Company's Savings
and Retirement Plan.
(f) Includes 4,167 shares currently issuable upon exercise of options by Mr.
Grillo. Also includes 168,194 shares of Common Stock and 250,000 shares
currently issuable upon exercise of warrants held by Retail
Distributors, Inc., of which Mr. Grillo is the CEO and a principal
stockholder.
(g) Includes 63,333 shares currently issuable upon exercise of options by
Mr. Hayes. Also includes 6,667 shares issuable upon exercise of
warrants, and 4,086 shares owned through the Company's Savings and
Retirement Plan.
(h) Includes 131,667 shares owned by International Capital Partners, Inc.
("ICP"), of which Mr. Hutheesing is the Chairman, Chief Executive
Officer and a stockholder. Also includes 26,333 shares currently
issuable upon exercise of options by ICP, 710,000 shares issuable upon
exercise of warrants held by ICP, 38,063 shares issuable upon conversion
of Series C Convertible Preferred Stock held by the ICP Profit Sharing
Plan and 5,000 shares issuable upon exercise of warrants held by the ICP
Profit Sharing Trust. Also includes 40,000 shares issuable upon
conversion of a convertible promissory note held by ICP Profit Sharing
Trust.
(i) Includes 131,667 shares owned by ICP, of which Mr. Sinacori is Managing
Director. Also includes 26,333 shares currently issuable upon exercise
of options by ICP, 710,000 shares issuable upon exercise of warrants
held by ICP, 38,063 shares issuable upon conversion of Series C
Convertible Preferred Stock held by the ICP Profit Sharing plan and
5,000 shares issuable upon exercise of warrants held by the ICP Profit
Sharing Trust.
25
<PAGE> 48
Also includes 40,000 shares issuable upon conversion of a
convertible promissory note held by ICP Profit Sharing Trust.
(j) Includes 31,166 shares currently issuable upon exercise of options by
Mr. Dorros. Also includes 5,000 shares issuable upon exercise of
warrants, and 702 shares owned through the Company's Savings and
Retirement Plan.
(k) Includes a total of 442,666 shares currently issuable upon exercise of
options by the Company's directors and executive officers. Also includes
a total of 1,194,667 shares currently issuable upon exercise of warrants
by such directors and executive officers, 13,340 shares owned through
the Company's Savings and Retirement Plan, and 38,063 shares issuable
upon conversion of Series C Convertible Preferred Stock and 40,000
shares issuable upon conversion of a convertible promissory note
beneficially owned by certain of such directors.
(l) Includes 83,333 shares currently issuable upon exercise of warrants by
George W. Mauerman. Also includes the shares and warrants reported by
George S. Mauerman, discussed in note (m) below.
(m) Includes 58,333 shares currently issuable upon exercise of warrants by
George S. Mauerman.
(n) Owned by Banner Aerospace, Inc. a wholly-owned subsidiary of The
Fairchild Corporation.
(o) Includes 26,333 shares currently issuable upon exercise of options held
by ICP. Also includes 710,000 shares issuable upon exercise of warrants
held by ICP, 38,063 shares issuable upon conversion of Series C
Convertible Preferred Stock held by the ICP Profit Sharing Trust and
5,000 shares issuable upon exercise of warrants held by the ICP Profit
Sharing Trust, 40,000 shares issuable upon conversion of a convertible
promissory note held by the ICP Profit Sharing Trust and 10,000 shares
owned by Mr. Hutheesing. (See notes (h) and (i) with respect to
beneficial ownership attributable to Messrs. Hutheesing and Sinacori.)
(p) Includes 690,000 shares currently issuable upon exercise of warrants
owned beneficially by Zesiger Capital Group.
(q) Includes 46,893 shares currently issuable upon conversion of Series C
Convertible Stock and 16,000 shares issuable upon exercise of warrants
by Dulville Limited.
(r) Includes 100,000 shares currently issuable upon exercise of warrants and
730,802 shares issuable upon conversion of Series C Convertible
Preferred Stock.
(s) Includes 578,383 shares issuable upon conversion of Series D Convertible
Preferred Stock.
(t) Includes 833,333 shares currently issuable upon exercise of warrants by
Rayflex Limited.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective December 1, 1999, the Company entered into a consulting agreement with
CMD Ventures, LLC ("CMD") for certain financial analysis and advisory services.
The agreement, which is on a month-to-month basis, provides for a monthly fee to
CMD of $10,000, provided however that no such fees shall be payable until such
time as the Company generates positive cash flow of at least $50,000 per month.
Until such time, the Company will accrue, but not pay, such fees. Members of CMD
include Anthony D. Autorino, the Company's Chairman and Chief Executive Officer;
Vincent DiVincenzo, the Company's Senior Vice President, Chief Financial Officer
and Treasurer; and William A. DiBella, who is a director of the Company.
The Company subleased certain office space to CMD on the first floor of the
Company's corporate offices in Wethersfield, CT from April 1, 1998 to January 6,
2000 at a monthly rate of $4,003. Since January 7, 2000, the Company has
subleased space to CMD on the fourth floor of the Company's Wethersfield
location. This sublease, which expires December 31, 2004, is at a monthly rate
of $10,874. In addition to rent, CMD is obligated to pay all operating expenses,
property taxes, rent escalations and other surcharges or increases applicable to
such subleaseholds.
26
<PAGE> 49
Since December 1, 1998, CMD has leased to the Company substantially all of the
furniture used by the Company at its call center located at Constitution Plaza,
Hartford, CT at a rate of $21,062 per month. Such agreement will expire November
30, 2001, at which time the Company shall have the right to acquire all such
furniture at a cost of $1.00.
On November 2, 1999 the Company purchased $2,000,000 of debit cellular phones
and accessories from DTR Associates Limited Partnership ("DTR") which assets had
been purchased by DTR from the bankruptcy estate of SmarTalk TeleServices, Inc.
Due to the financing constraints, the Company was unable to directly bid on
these assets. DTR realized a profit of $197,969 in the resale of such assets to
the Company. Victor Grillo, Sr., a director of the Company, is CEO of the
general partner of DTR.
On July 1, 1998, the Company entered into a month-to-month agreement to sublease
a portion of its Wethersfield offices to NRG Solutions, LLC ("NRG") at a rate of
$1,325 per month. CMD has a minority ownership interest in NRG.
In July 1999, the Company entered into certain transactions with Retail
Distributors, Inc. ("RDI"), of which Victor Grillo, Sr, a director of the
Company, is chief executive officer and a principal stockholder. The
transactions included the Company's entry into an agreement, expiring March 31,
2001, to retain the services of RDI to bolster the Company's capabilities with
respect to the marketing and distribution of its prepaid programs, pursuant to
which the Company paid RDI approximately $843,000 and issued to RDI 118,194
shares of Common Stock. The agreement also required the Company to pay RDI a
monthly fee of $90,000 from February 8, 1999 to September 30, 1999; $65,000 from
October 1, 1999 to December 31, 1999; and $40,000 from January 1, 2000 to
December 31, 2000. Additional performance-based compensation, exclusive of
expenses, was provided for through the conditional issuance of Common Stock
purchase warrants, of which warrants to purchase 250,000 shares of Common Stock
had been issued as of March 27, 2000. Concurrently the Company acquired from RDI
all of the outstanding capital stock of Retail Cellular, Inc. ("RCI"), in
connection with which the Company issued 150,000 shares of Common Stock to RDI.
In addition, RCI entered into an agreement, expiring March 31, 2001, to obtain
certain sales and marketing services from RDI, for a monthly fee of $10,000.
(See also, Management's Discussion and Analysis of Financial Condition and
Results of Operation, " Selling, General and Administrative Expenses"). In
connection with and in anticipation of such transactions, in February 1999 the
Company provided a loan to RDI in the principal amount of $500,000, which
accrues interest at the rate of prime plus one percent and had a maturity date
of September 30, 1999. The loan was intended as a prepayment of expense
reimbursement for RDI, as RDI had started to provide significant services for
the Company at such time. As of March 27, 2000, the Company had not made a
demand for repayment of the loan, but rather had deferred such demand in view of
RDI's expense requirements. However, interest has continued to accrue on the
loan, which is subject to call at any time.
In February 1999, the Company completed a private placement of 15,000 shares of
Series C Convertible Preferred Stock ("Series C Shares") and Warrants to
purchase 300,000 shares of Common Stock for an aggregate consideration of
$15,000,000. International Capital Partners, Inc. Profit Sharing Trust purchased
250 shares of Series C Shares and received Warrants to purchase 5,000 shares of
Common Stock for an aggregate consideration of $250,000. In addition, ICP
received a commission in the amount of $50,000 in connection with the
transaction as a finder's fee. Messrs. Ajit G. Hutheesing and Nicholas E.
Sinacori, directors of the Company, also serve as principals of ICP and trustees
of the ICP Profit Sharing Trust.
In February 1999, the Company used a portion of the proceeds from the Series C
Shares to repay the $4,000,000 debt financing secured in April 1998, of which
$1,000,000 was borrowed from Anthony D. Autorino, the Company's Chairman and
Chief Executive Officer, and $500,000 which was borrowed from ICP. Messrs. Ajit
G. Hutheesing and Nicholas E. Sinacori, directors of the Company, also serve as
principals of ICP. The Company also used a portion of the Series C Shares to
prepay $1,411,000, the outstanding balance of a promissory note, to STFI, the
former parent of the Company which beneficially owned approximately 23% of the
Company's Common Stock at the time.
In October 1999, the Company completed a private placement of 6,100 shares of
Series D Convertible Preferred Stock ("Series D Shares") for an aggregate
consideration of $6,100,000. In consideration for their placement services, ICP
received a cash commission in the amount of $300,000 and a five-year warrant to
purchase 120,000 shares of the Company's Common Stock at an exercise price of
$11.09 per share, which price was 25% greater than the Conversion Price of the
Series D Shares. Messrs. Ajit G. Hutheesing and Nicholas E. Sinacori, directors
of the Company, also serve as principals of ICP.
27
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS
See Part II, Item 8 hereof.
(b) REPORTS ON FORM 8-K
On October 12, 1999, the Company filed with the Securities and Exchange
Commission a report on Form 8-K, pursuant to Item 5 thereof, detailing the
Company's entry into an agreement on October 1, 1999 to close on a $6.1 million
private placement of equity with three investors, led by SIB Investment Holdings
Limited, a wholly owned subsidiary of Saudi International Bank. International
Capital Partners, LLC of Stamford, Connecticut and Oakes, Fitzwilliams & Co.
S.A. of London acted as placement agents for the Company in connection with this
private placement.
Pursuant to a Securities Purchase Agreement entered into between the
Company and the investors (the "Securities Purchase Agreement"), the Company
issued an aggregate of 6,100 shares of a new Series D Convertible Preferred
Stock, $.01 per share. Each share of Series D Convertible Preferred Stock is
convertible into Common Stock of the Company.
The Company included exhibits 4.1, 4.2, 4.3, 4.4 and 4.5, in accordance with
Form 8-K, Item 5. The exhibits included the Certificate of Designations,
Preferences and Rights of the Series D Convertible Preferred Stock, the
Securities Purchase Agreement, the Registration Rights Agreement and the Form of
Warrant to Purchase Common Stock of the Company, all dated October 1, 1999.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3. (i) Second Restated Certificate of Incorporation, dated February 29, 2000.
3. (ii) Amended and Restated By-laws, dated July 7, 1999.
4.1 Specimen of Common Stock Certificate. Incorporated by reference from exhibit 4.2 to the Company's
Registration Statement of Form SB-2 filed with Amendment No. 3 to such Registration Statement dated
January 27, 1995.
4.2 Series B Convertible Preferred Stock Purchase Agreement by and between International Capital
Partners, Inc. and the Company dated August 19, 1996 (agreement between STFI and the Company is
substantially the same), including form of Common Stock Warrant. Incorporated by Reference from
Exhibit 4.2 to the Company's Form 8-K dated August 19, 1996 and filed September 15,
1996.
4.3 Equity Holders Agreement by and among International Capital Partners, Inc., Zeisiger Capital Group,
LLC and Shared Technologies Fairchild Inc. dated August 19, 1996. Incorporated by Reference from
Exhibit 4.3 to the Company's Form 8-K dated August 19, 1996 and filed September 15, 1996.
</TABLE>
28
<PAGE> 51
<TABLE>
<S> <C>
4.4 Purchase Agreement, Common Stock Warrant Certificate and Option Agreement by and among RHI
Holdings, Inc., and the Company dated December 27, 1996. Incorporated by Reference from Exhibit
4.1, 4.2, and 4.3 respectively to the Company's Form 8-K dated December 27, 1996, and filed January
22, 1997.
4.5 Form of Registration Rights Agreement dated as of April 15, 1998, between Shared Technologies
Cellular, Inc., and Salomon Brothers Holding Company Inc. Incorporated by Reference from Exhibit
4.4 to the Company's Quarterly Report on Form 10-Q dated May 15, 1998.
4.6 Form of Warrant Purchase Agreement, dated as of April 15, 1998, between Shared Technologies
Cellular, Inc., and Salomon Brothers Holding Company Inc. Incorporated by Reference from Exhibit
4.5 to the Company's Quarterly Report on Form 10-Q dated May 15, 1998.
4.7 Form of Shared Technologies Cellular, Inc., Common Stock Purchase Warrant, dated April 15, 1998, in
favor of Salomon Brothers Holding Company Inc. or its registered assigns. Incorporated by Reference
from Exhibit 4.6 to the Company's Quarterly Report on Form 10-Q dated May 15, 1998.
4.8 Form of Subscription Agreement dated May 1998 between Shared Technologies Cellular, Inc., and the
Purchasers (as defined therein), including form of Convertible Note. Incorporated by Reference
from Exhibit 4.7 to the Company's Quarterly Report on Form 10-Q dated May 15, 1998.
4.9 Securities Purchase Agreement among the Company and the Purchasers dated as of January 28, 1999.
Incorporated by Reference from Exhibit 4.2 to the Company's Form 8-K dated February 5, 1999 and
filed February 12, 1999.
4.10 Registration Rights Agreement among the Company and the Purchasers dated as of January 28, 1999.
Incorporated by Reference from Exhibit 4.3 to the Company's Form 8-K dated February 5, 1999 and
filed February 12, 1999.
4.11 Form of Warrant to Purchase Common Stock of the Company issued to the Purchasers. Incorporated by
Reference from Exhibit 4.4 to the Company's Form 8-K dated February 5, 1999 and filed February 12,
1999.
4.12 Certificate of Designations, Preferences and Rights of the Series D Convertible Preferred Stock of
Shared Technologies Cellular, Inc. dated October 1, 1999. Incorporated by Reference from Exhibit
4.1 to the Company's Form 8-K dated October 1, 1999 and filed October 12, 1999.
4.13 Securities Purchase Agreement among the Company and the Purchasers dated as of October 1, 1999.
Incorporated by Reference from Exhibit 4.2 to the Company's Form 8-K dated October 1, 1999 and filed
October 12, 1999.
4.14 Registration Rights Agreement among the Company and the Purchasers dated as of October 1, 1999.
Incorporated by Reference from Exhibit 4.3 to the Company's Form 8-K dated October 1, 1999 and
filed October 12, 1999.
4.15 Form of Warrant to Purchase Common Stock of the Company issued to International Capital Partners,
LLC. Incorporated by Reference from Exhibit 4.4 to the Company's Form 8-K dated October 1, 1999
and filed October 12, 1999.
4.16 Form of Warrant to Purchase Common Stock of the Company issued to Oakes, Fitzwilliams & Co., S.A.
Incorporated by Reference from Exhibit 4.5 to the Company's Form 8-K dated October 1, 1999 and
filed October 12, 1999.
10.1 Agreement by and between the Hertz Corporation and the Company dated October 1, 1996. Incorporated by
reference from Exhibit 10.1 to the Company's Form 10-K dated March 27, 1997.
10.2 Agreement by and between National Car Rental System, Inc. and the Company dated July 1, 1996. Incorporated by
reference from Exhibit 10.2 to the Company's Form 10-K dated March 27, 1997.
</TABLE>
29
<PAGE> 52
<TABLE>
<S> <C>
10.3 Lease Agreement by and between Putnam Park Associated and the Company dated January 1, 1995.
Incorporated by reference from Exhibit 10.10 to the Company's Registration Statement on Form SB-2
filed with Amendment No. 1 to such Registration Statement dated January 4, 1995.
10.4 Sample Customer Service Agreement. Incorporated by reference from Exhibit 10.15 to the Company's
Registration Statement on Form SB-2 filed with Amendment No. 1 to such Registration Statement dated
January 4, 1995.
10.5 Sample Customer Service Agreement. Incorporated by reference from Exhibit 10.16 to the Company's
Registration Statement on Form SB-2 filed with Amendment No. 1 to such Registration Statement dated
January 4, 1995.
10.6 Shared Technologies Cellular, Inc. Savings and Retirement Plan, Effective as of April 1, 1996. Incorporated by
reference from Exhibit 10.15 to the Company's Form 10-K dated March 27, 1997.
10.7 Agreement by and between Budget Rent A Car Corporation and the Company dated July 28, 1997. Incorporated by
reference from Exhibit 10.16 to the Company's Form 10-K dated March 31, 1998.
10.8 Agreement by and between Thorn Americas, Inc. and the Company dated December 1, 1996. Incorporated by reference
from Exhibit 10.17 to the Company's Form 10-K dated March 31, 1998.
10.9 1994 Stock Option Plan, as amended, November 11, 1998. Incorporated by reference from Exhibit 10.9
to the Company's Form 10-K dated March 30, 1999.
10.10 1994 Director Option Plan, as amended, November 11, 1998. Incorporated by reference from Exhibit
10.10 to the Company's Form 10-K dated March 30, 1999.
10.11* Prepaid Cellular Reseller Agreement by and between the Company and MCI Telecommunications
Corporation and WorldCom Technologies, Inc. dated February 19, 1999. Incorporated by reference
from Exhibit 10.11 to the Company's Form 10-K dated March 30, 1999.
10.12 Employment Agreement by and between Anthony D. Autorino and the Company, effective October 1, 1999.
10.13 Employment Agreement by and between Vincent DiVincenzo and the Company, effective October 1, 1999.
10.14 Employment Agreement by and between Sean P. Hayes and the Company, effective October 1, 1999.
10.15 Employment Agreement by and between Kenneth M. Dorros and the Company, effective October 1, 1999.
21 List of subsidiaries of the registrant.
27 Financial Data Schedule
</TABLE>
* Confidential treatment as to certain portions has been
requested until April 1,2004. The copy filed as an exhibit
omits the information subject to the confidentiality
treatment.
30
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SHARED TECHNOLOGIES CELLULAR, INC.
(Registrant)
\ s\ Anthony D. Autorino
--------------------------------------------
By Anthony D. Autorino
Chief Executive Officer and Director
Date: March 27, 2000
\ s\ Vincent DiVincenzo
--------------------------------------------
By Vincent DiVincenzo
Chief Financial Officer and Director
Date: March 27, 2000
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Anthony D.
Autorino and Vincent DiVincenzo, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign on his behalf individually and in each
capacity stated below any amendment, including post-effective amendments, to
this Registration Statement under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
By: /s/Anthony D. Autorino By: /s/ William A. DiBella By: /s/Bruce Carswell
Anthony D. Autorino William A. DiBella Bruce Carswell
Chief Executive Officer Director Director
and Director Date: March 27,2000 Date: March 27, 2000
Date: March 27, 2000
By: /s/ Ajit G. Hutheesing By: /s/ Thomas H. Decker By: /s/ Victor Grillo, Sr.
Ajit G. Huthessing Thomas H. Decker Victor Grillo, Sr.
Director Director Director
Date: March 27, 2000 Date: March 27, 2000 Date: March 27, 2000
By: /s/ Vincent DiVincenzo By: /s/ Nicholas E. Sinacori
Vincent DiVincenzo Nicholas E. Sinacori
Chief Financial Officer Director
and Director Date: March 27, 2000
Date: March 27, 2000
</TABLE>
* By: /s/ Anthony D. Autorino
Anthony D. Autorino
Attorney-in-fact
<PAGE> 1
Exhibit 3(i)
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
SHARED TECHNOLOGIES CELLULAR, INC.
---------------------------------------
Pursuant to Section 245 of the General Corporation
Law of the State of Delaware
-----------------------------------------
SHARED TECHNOLOGIES CELLULAR, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify as follows:
1. The name of Corporation is Shared Technologies Cellular, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on March 14, 1989. A
Restated Certificate of Incorporation was filed with the Secretary of State on
October 6, 1994.
3. This Second Restated Certificate of Incorporation was duly adopted
in accordance with the provisions of Section 245 of the General Corporation Law,
as amended, of the State of Delaware (the "GCL") by the written consent of the
Board of Directors of the Corporation in accordance with Section 141(f) of the
GCL.
4. This Second Restated Certificate of Incorporation hereby restates
and integrates, but does not further amend, the provisions of the Corporation's
Restated Certificate of Incorporation, as heretofore amended or supplemented,
and there is no discrepancy between those provisions and the provisions hereof,
so that the same shall read in its entirety as follows:
First: The name of the Corporation is Shared Technologies Cellular,
Inc. (hereinafter, the "Corporation").
Second: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County
of Castle, Delaware 19801. The name of the Corporation's registered agent at
such address is The Corporation Trust Company.
Third: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law, as amended, of the State of Delaware (the "GCL"), as set forth in Title 8
of the Delaware Code.
<PAGE> 2
Fourth: The total number of shares of stock which the Corporation shall
have authority to issue is 25,000,000 shares, of which 5,000,000 shall be
Preferred Stock with a par value of $.01 per share and 20,000,000 shares shall
be Common Stock with a par value of $.01 per share.
The Preferred Stock is to be issued in one or more series, with each
series to have such designations, preferences, and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions provided for the issue of each series adopted by the Board of
Directors of the Corporation, subject to the limitations prescribed by law and
in accordance with the provisions hereof, the Board of Directors being hereby
expressly vested with authority to adopt any such resolution or resolutions.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, the determination or fixing of the
following:
(1) The number of shares to constitute the series and the distinctive
designation thereof;
(2) The amount or rate of dividends on the shares of the series,
whether dividends shall be cumulative and, if so, from what date or dates;
(3) Whether the shares of the series shall be redeemable and, if
redeemable, the terms and provisions upon which the shares of the series may be
redeemed and the premium, if any, and any dividends accrued thereon which the
shares of the series shall be entitled to receive upon the redemption thereof;
(4) Whether the shares of the series shall be subject to the operations
of a retirement or sinking fund to be applied to the purchase or redemption of
the shares for retirement and, if such retirement or sinking fund be
established, the annual amount thereof and the terms and provisions relative to
the operation thereof;
(5) Whether the shares of the series shall be convertible into shares
of any class or classes, with or without par value, or of any other series of
the same class, and if convertible, the conversion price or prices or the rate
at which the conversion may be made and the method, if any, of adjusting the
same;
(6) The rights of the shares of the series in the event of the
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation;
(7) The restrictions, if any, on the payment of the dividends upon, and
the making of distributions to, any class of stock ranking junior to the shares
of the series, and the restrictions, if any, on the purchase or redemption of
the shares of any such junior class;
(8) Whether the series shall have voting rights in addition to the
voting rights provided by law, and, if so, the terms of such voting rights; and
(9) Any other relative rights, preferences, and limitations of that
series.
-2-
<PAGE> 3
The holders of the Common Stock shall be entitled to one vote for each
share of Common Stock held.
A. Series C Preferred Stock.
The Board of Directors has heretofore authorized a series of the
Corporation's Preferred Stock, par value $.01 per share, with the designation
and number of shares, and relative rights, preferences, privileges and
restrictions thereof as follows:
1. Designation and Amount. The designation of this series,
which consists of fifteen thousand shares of Preferred Stock, is the
"Series C Convertible Preferred Stock" (the "Series C Preferred Stock")
and the face amount of each share of Series C Preferred Stock (each, a
"Preferred Share" and collectively, the "Preferred Shares") shall be
One Thousand Dollars ($1,000) per Preferred Share (the "Stated Value").
The date on which the Preferred Shares are issued and sold pursuant to
the Securities Purchase Agreement, dated as of January 28, 1999,
between the Company and the Purchasers named therein (the "Securities
Purchase Agreement") is referred to herein as the "Issue Date." The
holders of Preferred Shares are each referred to as a "Holder" and,
collectively, as the "Holders."
2. Dividends. The Series C Preferred Stock will not bear
dividends.
3. Priority.
a. Payment upon Dissolution.
(1) Upon the occurrence of (x) any
insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other
similar proceedings in connection therewith,
commenced by the Corporation or by its creditors, as
such, or relating to its assets or (y) the
dissolution or other winding up of the Corporation
whether total or partial, whether voluntary or
involuntary and whether or not involving insolvency
or bankruptcy proceedings, or (z) any assignment for
the benefit of creditors or any marshalling of the
material assets or material liabilities of the
Corporation (each, a "Liquidation Event"), no
distribution shall be made to the holders of any
shares of Junior Securities (as defined below)
unless, following the payment of preferential amounts
on all Senior Securities (as defined below), each
Holder shall have received the Liquidation Preference
(as defined below) with respect to each Preferred
Share then held by such Holder. In the event that
upon the occurrence of a Liquidation Event, and
following the payment of preferential amounts on all
Senior Securities (as defined below), the assets
available for distribution to the Holders and the
holders of Pari Passu Securities are insufficient to
pay the Liquidation Preference with respect to all of
the outstanding Preferred Shares and the preferential
amounts payable to such holders, the entire assets of
the Corporation shall be distributed ratably among
the Preferred Shares and the shares of Pari Passu
Securities in
-3-
<PAGE> 4
proportion to the ratio that the preferential amount
payable on each such share (which shall be the
Liquidation Preference in the case of a Preferred
Share) bears to the aggregate preferential amount
payable on all such shares.
(2) The "Liquidation Preference" with
respect to a Preferred Share shall mean an amount
equal to the Stated Value of such Preferred Share
plus the Premium (as defined below) accrued on such
Preferred Share in accordance with the terms hereof.
"Junior Securities" shall mean the Common Stock and
all other capital stock of the Corporation that are
not Pari Passu Securities or do not have a preference
over the Series C Preferred Stock in respect of
redemption or distribution upon liquidation. "Pari
Passu Securities" shall mean any securities ranking
pari passu with the Series C Preferred Stock in
respect of redemption or distribution upon
liquidation. "Senior Securities" shall mean (i) any
debt issued or assumed by the Corporation and (ii)
any securities of the Corporation which by their
terms have a preference over the Series C Preferred
Stock in respect of redemption or distribution upon
liquidation.
4. Conversion.
a. Right to Convert. Each Holder shall have the right
to convert, at any time and from time to time after the Issue
Date, all or any part of the Preferred Shares held by such
Holder into such number of fully paid and non-assessable
shares ("Conversion Shares") of the Common Stock as is
determined in accordance with the terms hereof (a
"Conversion").
b. Conversion Notice. In order to convert Preferred
Shares, a Holder shall send by facsimile transmission, at any
time prior to 11:59 p.m., eastern time, on the date on which
such Holder wishes to effect such Conversion (the "Conversion
Date"), (i) a notice of conversion (a "Conversion Notice"), in
substantially the form of Exhibit A hereto, to the Corporation
and to the Corporation's transfer agent for the Common Stock
(the "Transfer Agent") stating the number of Preferred Shares
to be converted, the amount of Premium (as defined below)
accrued thereon, the applicable Conversion Price (as defined
below) and a calculation of the number of shares of Common
Stock issuable upon such Conversion and (ii) a copy of the
certificate or certificates representing the Preferred Shares
being converted. The Holder shall thereafter send the original
of the Conversion Notice and of such certificate or
certificates to the Transfer Agent. The Corporation shall
issue a new certificate for Preferred Shares in the event that
less than all of the Preferred Shares represented by a
certificate delivered to the Corporation in connection with a
Conversion are converted. Except as otherwise provided herein,
upon delivery of a Conversion Notice by a Holder in accordance
with the terms hereof, such Holder shall, as of the applicable
Conversion Date, be deemed for all purposes to be record owner
of the Common Stock to which such Conversion Notice relates.
In the case of a dispute between the Corporation and a Holder
as to the calculation of the Conversion Price or the number of
Conversion
-4-
<PAGE> 5
Shares issuable upon a Conversion, the Corporation shall issue
to such Holder the number of Conversion Shares that are not
disputed within the time frames specified in paragraph 4(e)
below and shall submit the disputed calculations to its
independent accountant within one (1) Business Day of receipt
of such Holder's Conversion Notice. The Corporation shall
cause such accountant to calculate the Conversion Price as
provided herein and to notify the Corporation and such Holder
of the results in writing no later than five (5) Business Days
following the Corporation's receipt of such Holder's
Conversion Notice (such 5th Business Day being referred to
herein as the "Disputed Share Calculation Date"). Such
accountant's calculation shall be deemed conclusive absent
manifest error. The fees of any such accountant shall be borne
by the party whose calculations were most at variance with
those of such accountant.
c. Number of Conversion Shares; Conversion Price. The
number of Conversion Shares to be delivered by the Corporation
pursuant to a Conversion shall be determined in accordance
with the following formula:
SV + P
------
CP
where SV represents the aggregate Stated Value of the
Preferred Shares to be converted,
P represents the aggregate Premium (i) accrued on such
Preferred Shares and (ii) eligible for payment by the
Corporation in Conversion Shares, it being understood that,
unless each of the Premium Share Conditions (as defined in
paragraph 4(g) below) is satisfied or waived by the Holder of
such Preferred Shares, the Corporation may not pay accrued
Premium in shares of Common Stock and must pay such Premium on
the applicable Delivery Date (as defined below) in immediately
available funds in accordance with the terms of this
Certificate, and
CP represents the Conversion Price (as defined below) in
effect on the applicable Conversion Date.
"Premium" with respect to a Preferred Share shall be
determined in accordance with the following formula:
(SV)(.06)(N)
------------
365
where SV represents the Stated Value of such Preferred Share,
and
N represents the number of days elapsed from the Issue Date
through and including the Conversion Date relating to such
Preferred Share.
-5-
<PAGE> 6
Subject to adjustment as provided elsewhere herein,
"Conversion Price" shall mean the lesser of the Fixed
Conversion Price and the Variable Conversion Price (each as
defined below); provided, however, that, if (i) during any
period of ten (10) consecutive Trading Days, the Closing Bid
Price for the Common Stock on each such Trading Day is greater
than $11.00 (subject to adjustment for the events specified in
Section 6 of Article FOURTH: A. hereof) and (ii) at all times
during such period of ten consecutive Trading Days, (x) a
registration statement filed under the Securities Act shall be
effective and available to the Holders for the sale of all of
the Conversion Shares into which the Preferred Shares and
Warrants (as defined in the Securities Purchase Agreement, the
"Warrants") then outstanding are convertible or exercisable,
as the case may be (without regard to any restriction or
limitation on the conversion thereof), or such Conversion
Shares may be sold under Rule 144(k), (y) the Common Stock
shall be listed on the Nasdaq SmallCap Market, the Nasdaq
National Market System or the New York Stock Exchange, and (z)
trading in the Common Stock, or trading generally, shall not
have been suspended by the principal market on which the
Common Stock is traded, "Conversion Price" with respect to all
Conversion Notices delivered after the end of such ten
consecutive Trading Day period shall be the Fixed Conversion
Price. "Fixed Conversion Price" shall mean the lesser of (A)
$7.00 and (B) the product of the average Closing Bid Price for
the Common Stock during the period of fifteen (15) Trading
Days occurring immediately prior to the Issue Date times one
hundred and fifteen percent (115%)(as adjusted, in the case of
(A) and (B), for the events specified in Section 6 of Article
FOURTH: A. below). "Variable Conversion Price" shall mean the
average of the lowest Closing Bid Prices for the Common Stock
occurring on any five (5) consecutive Trading Days during the
period of fifteen (15) Trading Days ending on the Trading Day
immediately prior to (but not including) the applicable
Conversion Date.
d. Certain Definitions. "Trading Day" means any day
on which the Common Stock is purchased and sold on the
principal securities exchange or market on which the Common
Stock is then listed or traded. "Closing Bid Price" means,
with respect to the Common Stock, the closing bid price for
the Common Stock occurring on a given Trading Day on the
principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg
Financial Markets or, if Bloomberg Financial Markets is not
then reporting such prices, by a comparable reporting service
of national reputation selected by the Corporation and
reasonably acceptable to each Holder of the then outstanding
Preferred Shares (collectively, "Bloomberg") or if the
foregoing does not apply, the last reported bid price of such
security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or,
if no bid price is reported for such security by Bloomberg,
the average of the bid prices of all market makers for such
security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. (collectively, the "Applicable
Reporting Entity"). If the Closing Bid Price cannot be
calculated for such security on any of the foregoing bases,
the Closing Bid Price of such security shall be the fair
market value as reasonably determined by an investment banking
firm selected by all of the Holders of Preferred Shares, and
reasonably acceptable to the Corporation,
-6-
<PAGE> 7
with the costs of such appraisal to be borne by the
Corporation. "Closing Trade Price" means, with respect to the
Common Stock, the last sale price reported for the Common
Stock on a given Trading Day on the principal securities
exchange or trading market where such security is listed or
traded as reported by the Applicable Reporting Entity or if no
sale price was reported by the Applicable Reporting Entity on
such Trading Day, the last sale price reported by the
Applicable Reporting Entity on the Trading Day on which such
prices were last reported immediately preceding such Trading
Day. "Business Day" means any day on which the New York Stock
Exchange and commercial banks located in the City of New York
are open for business.
e. Delivery of Common Stock Upon Conversion. Upon
receipt of a Conversion Notice from a Holder pursuant to
paragraph 4(b) above, the Corporation shall, on or before the
close of business on the latest to occur of (i) the third
(3rd) Business Day following the Conversion Date set forth in
such Conversion Notice, (ii) the Business Day immediately
following the day on which the certificates representing the
Preferred Shares are delivered by such Holder to the
Corporation or the Transfer Agent, and (iii) with respect to
Conversion Shares that are the subject of a dispute as
described in paragraph 4(b) above, the Business Day
immediately following the Disputed Share Calculation Date (the
latest of such Business Days being referred to herein as the
"Delivery Date"), issue and deliver or cause to be delivered
to such Holder the number of Conversion Shares to which such
Holder is entitled to receive as provided herein. The
Corporation shall effect delivery of Conversion Shares to a
Holder by, as long as the Transfer Agent participates in the
Depository Trust Company ("DTC") Fast Automated Securities
Transfer program ("FAST"), crediting the account of such
Holder or its nominee at DTC (as specified in the applicable
Conversion Notice) with the number of Conversion Shares
required to be delivered, no later than the close of business
on such Delivery Date. In the event that Transfer Agent is not
a participant in FAST or if a Holder so specifies in a
Conversion Notice or otherwise in writing on or before the
Conversion Date, the Corporation shall effect delivery of
Conversion Shares by delivering to the Holder or its nominee
physical certificates representing such Conversion Shares, no
later than the close of business on such Delivery Date. If any
Conversion would create a fractional Conversion Share, such
fractional Conversion Share shall be disregarded and the
number of Conversion Shares issuable upon such Conversion, in
the aggregate, shall be the rounded to the nearest whole
number of Conversion Shares. Conversion Shares delivered to
the Holder shall not contain any restrictive legend as long as
(A) the sale, transfer, pledge or other disposition of such
Conversion Shares is covered by an effective registration
statement, (B) such Securities have been publicly sold
pursuant to Rule 144 ("Rule 144"), or (C) such Conversion
Shares can be sold pursuant to Rule 144(k) under Securities
Act of 1933, as amended (the "Securities Act"), or any
successor rule or provision.
f. Failure to Deliver Conversion Shares.
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<PAGE> 8
(1) In the event that the Corporation fails for any
reason to deliver to a Holder certificates (without any
restrictive legend in the circumstances described in clause
(A) or (B) of paragraph 4(e) above) representing the number of
Conversion Shares specified in the applicable Conversion
Notice on or before the Delivery Date therefor (a "Conversion
Default") as a result of any willful action or any willful
failure to act on the part of the Corporation, and such
failure to deliver certificates continues for ten (10)
Business Days following the delivery of written notice thereof
from such Holder (such tenth Business Day being referred to
herein as the "Conversion Default Date"), the Corporation
shall pay to such Holder payments ("Conversion Default
Payments") in the amount of (i) "N" multiplied by (ii) the
aggregate Stated Value of the Preferred Shares which are the
subject of such Conversion Default multiplied by (iii) one
percent (1%), where "N" equals the number of days elapsed
between the Conversion Default Date and the earlier to occur
of (A) the date on which all of the certificates (without any
restrictive legend in the circumstances described in clause
(A), (B) or (C) of paragraph 4(e) above) representing such
Conversion Shares are issued and delivered to such Holder, (B)
the date on which such Preferred Shares are redeemed pursuant
to the terms hereof and (C) the date on which a Withdrawal
Notice (as defined below) is delivered to the Corporation.
Amounts payable under this subparagraph (f) shall be paid to
the Holder in immediately available funds on or before the
fifth (5th) Business Day of the calendar month immediately
following the calendar month in which such amounts have
accrued.
(2) In the event that a Holder has not received
certificates representing the Conversion Shares by the tenth
(10th) Business Day following a Conversion Default as a result
of any willful action or any willful failure to act on the
part of the Corporation, such Holder may, upon written notice
(a "Withdrawal Notice") delivered to the Corporation on such
Business Day or on any Business Day thereafter (unless, prior
to the delivery of such notice, such Conversion Shares are
delivered to such Holder), withdraw its Conversion Notice with
respect to such Conversion Shares and regain its rights as a
Holder of the Preferred Shares that are the subject of such
Conversion Default. In such event, the Conversion Price that
would otherwise be in effect when such Preferred Shares are
thereafter converted in accordance with the terms hereof shall
be reduced by one percent (1%) for each day occurring during
the period immediately following such 10th Business Day until
the day on which the such Holder delivers a Withdrawal Notice
to the Corporation; provided, however, that the maximum
percentage by which such Conversion Price may be reduced
hereunder shall be fifty percent (50%). (For example, if such
Conversion Default were to continue for five days following
such 10th Business Day, such Conversion Price would be reduced
by 5%; if for ten days, by 10%; and for fifty days or more,
50%, so that the number of Conversion Shares deliverable upon
conversion of such Preferred Shares would be increased
-8-
<PAGE> 9
proportionately). Upon delivery by a Holder of a Withdrawal
Notice, such Holder shall retain all of such Holder's rights
and remedies with respect to the Corporation's failure to
deliver such Conversion Shares (including without limitation
the right to receive the cash payments specified in
subparagraph 4(f)(1) above).
(3) In addition to any other remedies provided
herein, each Holder shall have the right to pursue actual
damages for the Corporation's failure to issue and deliver
Conversion Shares on the applicable Delivery Date (including,
without limitation, damages relating to any purchase of shares
of Common Stock by such Holder to make delivery on a sale
effected in anticipation of receiving Conversion Shares upon
Conversion, such damages to be in an amount equal to (A) the
aggregate amount paid by such Holder for the shares of Common
Stock so purchased minus (B) the aggregate Conversion Price
for such Conversion Shares, and such Holder shall have the
right to pursue all other remedies available to it at law or
in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
g. Premium Share Conditions. The Corporation's right to pay
accrued Premium in Conversion Shares upon conversion of a Preferred
Share is conditioned upon the satisfaction of each of the following
conditions (the "Premium Share Conditions"):
(1) the number of shares of Common Stock authorized,
unissued and unreserved for all other purposes, or held in the
Corporation's treasury, is sufficient to pay such Premium in
Conversion Shares;
(2) the Common Stock is authorized for quotation on
the Nasdaq SmallCap Market or the Nasdaq National Market or
for listing or quotation on the New York Stock Exchange or any
other national securities exchange and trading in the Common
Stock on such market or exchange has not been suspended;
(3) the registration statement required to be
maintained by the Corporation (the "Registration Statement")
pursuant to a registration rights agreement by and among the
Corporation and the Purchasers named therein (the
"Registration Rights Agreement") is effective and available
for the sale of the Conversion Shares issuable pursuant to the
conversion of all of the Preferred Shares and exercise of all
of the Warrants then outstanding, or sales of such Conversion
Shares may be made pursuant to Rule 144(k);
(4) no Mandatory Redemption Event (as defined herein)
has occurred and is continuing; and
-9-
<PAGE> 10
(5) such payment of Premium in Conversion Shares will
not violate the limitations set forth in Section 5 of Article
FOURTH: A. below.
In the event that any Premium Share Condition is not satisfied as of
the Conversion Date for a Preferred Share, the Premium accrued on such
Preferred Share shall be payable by the Corporation to the Holder
thereof in immediately available funds on the Delivery Date immediately
following such Conversion Date. If the Corporation fails to deliver the
amount of such Premium in immediately available funds to a Holder on or
before the close of business on the Delivery Date therefor (a "Premium
Cash Default"), such amount will bear interest at an annual rate equal
to the lower of (x) ten percent (10%) and (y) the highest interest rate
permitted by applicable law (the "Default Interest Rate"), accrued on a
daily basis from and after such Delivery Date until such amount is paid
in full.
h. Conversion at Maturity. On the date which is five (5) years
following the Issue Date (the "Maturity Date"), each Preferred Share
then outstanding shall be automatically converted into the number of
shares of Common Stock equal to the Liquidation Preference of such
shares divided by the Conversion Price then in effect (a "Conversion at
Maturity"); provided, however, that if, on the Maturity Date, (i) the
number of shares of Common Stock authorized, unissued and unreserved
for all other purposes, or held in the Corporation's treasury, is not
sufficient to effect the issuance and delivery of the number of
Conversion Shares into which all outstanding Preferred Shares are then
convertible, (ii) the Common Stock is not designated for quotation or
listed on the Nasdaq SmallCap Market, the Nasdaq National Market or the
New York Stock Exchange or trading in the Common Stock on such market
or exchange has been suspended, or (iii) a Mandatory Redemption Event
(as defined herein) has occurred and is continuing, each Holder shall
have the option, upon written notice to the Corporation, to retain its
rights as a holder of Preferred Shares, including without limitation,
the right to convert such Preferred Shares in accordance with the terms
of paragraphs 4(a) through 4(f) hereof and, upon delivery of such
notice, such Preferred Shares shall not be subject to a Conversion at
Maturity hereunder until the thirtieth (30th) day following the later
of (a) the date on which the event specified (i), (ii) or (iii) is no
longer continuing and (b) the date on which the Corporation delivers to
each Holder written notice to such effect, and in such event, such
thirtieth day shall be deemed to be the Maturity Date for purposes of
this Certificate of Designation. If a Conversion at Maturity occurs,
the Corporation and each Holder shall follow the procedures for
Conversion set forth in this Section 4 of Article FOURTH: A., with the
Maturity Date deemed to be the Conversion Date, except that the Holder
shall not be required to send a Conversion Notice as contemplated by
paragraph 4(b).
5. Conversion Limitations. In no event shall a Holder be permitted to
convert any Preferred Shares in excess of the number of such shares, upon the
Conversion of which:
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<PAGE> 11
a. the number of Conversion Shares to be issued pursuant to
such Conversion, when added to the number of shares of Common Stock
issued pursuant to all prior Conversions of Preferred Shares and all
prior exercises of the Warrants by the Holders thereof, would exceed
19.99% of the number of outstanding shares of Common Stock on the Issue
Date (subject to equitable adjustments from time to time for the events
described in Section 6 of Article FOURTH: A. below) (the "Cap Amount"),
except that such limitation shall not apply in the event that (i) the
Corporation obtains the approval of the holders of a majority of the
Corporation's Common Stock for the issuance of Common Stock in excess
of the Cap Amount ("Stockholder Approval") or (ii) the Holders of a
majority of the number of Preferred Shares then outstanding obtain an
opinion of counsel reasonably satisfactory to the Corporation that such
approval is not required. Until Stockholder Approval or such opinion is
obtained, no purchaser of Preferred Shares pursuant to the Securities
Purchase Agreement (each, a "Purchaser" and together the "Purchasers")
shall be issued, upon Conversion of the Preferred Shares, Conversion
Shares in an amount greater than the product of (A) the Cap Amount
times (B) a fraction, the numerator of which is the number of Preferred
Shares issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all
of the Preferred Shares issued to the Purchasers pursuant to the
Securities Purchase Agreement (the "Cap Allocation Amount"). In the
event that any Purchaser shall sell or otherwise transfer any of such
Purchaser's Preferred Shares, the transferee shall be allocated a pro
rata portion of such Purchaser's Cap Allocation Amount. In the event
that any Holder converts all of such Holder's Preferred Shares into a
number of Conversion Shares which, in the aggregate, is less than such
Holder's Cap Allocation Amount, then the difference between such
Holder's Cap Allocation Amount and the number of Conversion Shares
actually issued to such Holder shall be allocated to the respective Cap
Allocation Amounts of the remaining Holders of Preferred Shares on a
pro rata basis in proportion to the number of Preferred Shares then
held by each such Holder; notwithstanding anything to the contrary set
forth herein, from and after May 31, 1999, any Holder whose Cap
Allocation Amount represents one hundred and seventy-five percent
(175%) or less of (i) the number of Conversion Shares into which the
Preferred Shares and Warrants then held by such Holder are convertible
or exercisable at the Conversion Price or the Exercise Price, as the
case may be, then in effect (without regard to any restrictions or
limitations on such conversion or exercise) plus (ii) the number of
Conversion Shares and Warrant Shares into which such Holder has
previously converted Preferred Shares and exercised the Warrants,
respectively, shall have the right from time to time to require the
Corporation, upon written notice, at such Holder's option (A) to seek
Stockholder Approval by means of a special meeting of stockholders to
be held as soon as practicable following the Corporation's receipt of
such notice, but in any case within one hundred and twenty five (125)
days following such receipt, and to recommend such approval to its
stockholders at such special meeting, or (B) to institute proceedings
and take all other action necessary to delist the Common Stock from
-11-
<PAGE> 12
the Nasdaq SmallCap Market, in which case, the limitation set forth in
this paragraph (a) shall not apply at any time following such
delisting;
b. the number of Conversion Shares to be issued pursuant to
such Conversion, when added to the number of shares of Common Stock
issued pursuant to all prior Conversions of Preferred Shares by the
Holders thereof, would exceed the following amounts (each of which
shall be subject to equitable adjustments from time to time for the
events described in Section 6 of Article FOURTH: A. below) during the
periods specified (each, a "Conversion Limit Amount"):
<TABLE>
<CAPTION>
Period Conversion Limit Amount
<S> <C>
During the 1st Year Following the Issue Date 3,975,000
During the 2nd Year Following the Issue Date 4,200,000
During the 3rd Year Following the Issue Date 4,425,000
During the 4th Year Following the Issue Date 4,650,000
Following the 4th Anniversary of the Issue Date 4,875,000
</TABLE>
No Purchaser shall be issued, upon Conversion of the Preferred Shares,
Conversion Shares in an amount greater than the product of (A) the
applicable Conversion Limit Amount times (B) a fraction, the numerator
of which is the number of Preferred Shares issued to such Purchaser
pursuant to the Securities Purchase Agreement and the denominator of
which is the aggregate amount of all of the Preferred Shares issued to
the Purchasers pursuant to the Securities Purchase Agreement (the
"Conversion Limit Allocation Amount"). In the event that any Purchaser
shall sell or otherwise transfer any of such Purchaser's Preferred
Shares, the transferee shall be allocated a pro rata portion of such
Purchaser's Conversion Limit Allocation Amount. In the event that any
Holder converts all of such Holder's Preferred Shares into a number of
Conversion Shares which, in the aggregate, is less than such Holder's
Conversion Limit Allocation Amount, then the difference between such
Holder's Conversion Limit Allocation Amount and the number of
Conversion Shares actually issued to such Holder shall be allocated to
the respective Conversion Limit Allocation Amounts of the remaining
Holders of Preferred Shares on a pro rata basis in proportion to the
number of Preferred Shares then held by each such Holder.
c. (x) the number of shares of Common Stock beneficially owned
by such Holder (other than shares of Common Stock issuable upon
conversion of such Preferred Shares or which would otherwise be deemed
beneficially owned except for being subject to a limitation on
conversion or exercise analogous to the limitation contained in this
subparagraph (b)) plus (y) the number of shares of Common Stock
issuable upon the Conversion of such Preferred Shares, would be
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<PAGE> 13
equal to or exceed (z) 4.99% of the number of shares of Common Stock
then issued and outstanding. As used herein, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules thereunder. To the
extent that the limitation contained in this paragraph 5(c) applies,
the determination of whether Preferred Shares are convertible (in
relation to other securities owned by a Holder) and of which Preferred
Shares are convertible shall be in the sole discretion of such Holder,
and the submission of Preferred Shares for Conversion shall be deemed
to be such Holder's determination that such Preferred Shares are
convertible pursuant to the terms hereof, and the Corporation shall
have no right or obligation whatsoever to verify or confirm the
accuracy of such determination. This paragraph may be amended (i) in
order to clarify an ambiguity or otherwise to give effect to such
limitation, by all of the Holders of Preferred Shares then outstanding
and (ii) for any other reason, with the further consent of the holders
of a majority of the shares of Common Stock then outstanding. Nothing
contained herein shall be deemed to restrict the right of a Holder to
convert Preferred Shares at such time as the Conversion thereof will
not violate the provisions of this subparagraph 5(c). The restriction
contained in this subparagraph 5(c) shall not apply (i) in the event of
a Conversion at Maturity or a Mandatory Conversion (as defined below)
or (ii) with respect to any Preferred Shares that were purchased from
the Corporation pursuant to the Securities Purchase Agreement by a
purchaser that elected therein not to be subject to the limitation
contained in this paragraph 5(c).
6. Adjustments To Conversion Price.
a. Adjustment to Fixed Conversion Price Due to Stock Split,
Stock Dividend, Etc. If, prior to the Conversion of all of the
Preferred Shares, (A) the number of outstanding shares of Common Stock
is increased by a stock split, a stock dividend on the Common Stock, a
reclassification of the Common Stock, the distribution to all or
substantially all of the holders of Common Stock of rights or warrants
entitling them to subscribe for or purchase Common Stock at less than
the then current market price thereof (based upon the subscription or
exercise price of such rights or warrants at the time of the issuance
thereof) or other similar event, the Fixed Conversion Price shall be
proportionately reduced, or (B) the number of outstanding shares of
Common Stock is decreased by a reverse stock split, combination or
reclassification of shares or other similar event, the Fixed Conversion
Price shall be proportionately increased. In such event, the
Corporation shall notify the Transfer Agent of such change on or before
the effective date thereof. For purposes hereof, the "market price" per
share of Common Stock on any date shall be the average Closing Trade
Price for the Common Stock on the five (5) consecutive Trading Days
occurring immediately prior to but not including the earlier of such
date and the Trading Day before the "ex" date, if any, with respect to
the issuance or distribution requiring such computation. The term "'ex'
date", when used with respect to any issuance or distribution, means
the first Trading Day on which the Common Stock trades regular way in
the market from which such average Closing Trade Price is then to be
determined without the right to receive such issuance or distribution.
-13-
<PAGE> 14
b. Adjustment to Conversion Price During Reference Period. If,
prior to the Conversion of all of the Preferred Shares, the number of
outstanding shares of Common Stock is increased or decreased by a stock
split, a stock dividend on the Common Stock, a combination, a
reclassification of the Common Stock or other similar event, and such
event takes place during the reference period for the determination of
the Conversion Price for any Conversion thereof, the Conversion Price
shall be calculated giving appropriate effect to the stock split, stock
dividend, combination, reclassification or other similar event for all
Trading Days occurring during such reference period.
c. Adjustment Due to Merger, Consolidation, Etc. If, prior to
the Conversion of all of the Preferred Shares, there shall be any
merger, consolidation, business combination, tender offer, exchange of
shares, recapitalization, reorganization, redemption or other similar
event, as a result of which shares of Common Stock shall be changed
into the same or a different number of shares of the same or another
class or classes of stock or securities of the Corporation or another
entity (an "Exchange Transaction"), then such Holder shall (A) upon the
consummation of such Exchange Transaction, have the right to receive,
with respect to any shares of Common Stock then held by such Holder, or
which such Holder is then entitled to receive pursuant to a Conversion
Notice previously delivered by such Holder (and without regard to
whether such shares contain a restrictive legend or are
freely-tradable), the same amount and type of consideration (including
without limitation, stock, securities and/or other assets) and on the
same terms as a holder of shares of Common Stock would be entitled to
receive in connection with the consummation of such Exchange
Transaction (the "Exchange Consideration"), and (B) upon the Conversion
of Preferred Shares occurring subsequent to the consummation of such
Exchange Transaction (a "Subsequent Conversion"), have the right to
receive the Exchange Consideration which such Holder would have been
entitled to receive in connection with such Exchange Transaction had
such shares been converted immediately prior to such Exchange
Transaction at the Conversion Price applicable on the Conversion Date
relating to such Subsequent Conversion, and in any such case
appropriate provisions shall be made with respect to the rights and
interests of such Holder to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the
Conversion Price and of the number of shares of Common Stock issuable
upon a Conversion) shall thereafter be applicable as nearly as may be
practicable in relation to any securities thereafter deliverable upon
the Conversion of such Preferred Shares. The Corporation shall not
effect any Exchange Transaction unless (i) it first gives to each
Holder twenty (20) days prior written notice of such Exchange
Transaction (an "Exchange Notice"), and makes a public announcement of
such event at the same time that it gives such notice (it being
understood that the filing by the Corporation of a Form 8-K for the
purpose of disclosing the anticipated consummation of the Exchange
Transaction shall constitute an Exchange Notice for purposes of this
provision) and (ii) the resulting successor or acquiring entity (if not
the Corporation) assumes by written instrument the obligations of the
Corporation hereunder,
-14-
<PAGE> 15
including the terms of this subparagraph 6(c), and under the Securities
Purchase Agreement and the Registration Rights Agreement.
d. Distribution of Assets. If the Corporation or any of its
subsidiaries shall declare or make any distribution of cash, evidences
of indebtedness or other securities or assets (other than cash
dividends or distributions payable out of earned surplus or net profits
for the current or the immediately preceding year), or any rights to
acquire any of the foregoing, to holders of Common Stock (or to a
holder of the common stock of any such subsidiary) as a partial
liquidating dividend, by way of return of capital or otherwise,
including any dividend or distribution in shares of capital stock of a
subsidiary of the Corporation (collectively, a "Distribution"), then,
upon a Conversion by a Holder occurring after the record date for
determining stockholders entitled to such Distribution, the applicable
Conversion Price for Preferred Shares not converted prior to the record
date of a Distribution shall be reduced by an amount equal to the fair
market value of the assets so distributed with respect to each share of
Common Stock, such fair market value to be determined by an investment
banking firm selected by all of the holders of Preferred Shares then
outstanding and reasonably acceptable to the Corporation.
e. Adjustment Pursuant to Other Agreements. In addition to and
without limiting in any way the adjustments provided in this Section 6
of Article FOURTH: A., the Conversion Price shall be adjusted as may be
required by the provisions of the Registration Rights Agreement and/or
by the provisions of the Securities Purchase Agreement.
f. No Fractional Shares. If any adjustment under this Section
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon
Conversion shall be rounded to the nearest whole number of shares.
7. Mandatory Conversion.
a. Mandatory Conversion. The Corporation shall have the right,
upon the satisfaction of each of the Mandatory Conversion Conditions
(as defined below), to require conversion of all of the Preferred
Shares outstanding on the Mandatory Conversion Date (as defined below)
(a "Mandatory Conversion"). In the event of a Mandatory Conversion,
the Corporation and each Holder shall follow the procedures for
Conversion set forth in Section 4 of Article FOURTH: A. above, with the
Mandatory Conversion Date (as defined below) deemed to be the
Conversion Date, except that a Holder shall not be required to send a
Conversion Notice as contemplated by paragraph (b) of Section 4 of
Article FOURTH: A.
b. Mandatory Conversion Notice. In order to effect a Mandatory
Conversion hereunder, the Corporation must deliver to each Holder
written notice thereof (a "Mandatory Conversion Notice") on or before
5:00 p.m. (eastern time)
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<PAGE> 16
on a Business Day (the "Mandatory Conversion Notice Date") that (i)
occurs on or before the third Business Day immediately following the
last Trading Day of the Mandatory Conversion Period (as defined below)
and (ii) is not less than fifteen (15) Trading Days prior to the date
on which such Mandatory Conversion is to be effected (the "Mandatory
Conversion Date") and, at the same time that it delivers such notice,
the Corporation shall confirm delivery thereof with each Holder by
telephone, either personally or by voicemail message. Notwithstanding
the delivery by the Corporation of a Mandatory Conversion Notice,
nothing contained herein shall be deemed to limit in any way (i) the
right of a Holder to convert Preferred Shares prior to the Mandatory
Conversion Date or (ii) the availability of any and all remedies that
are provided to a Holder hereunder, including without limitation in the
event that the Corporation fails to deliver Conversion Shares upon a
Mandatory Conversion as required by the terms of Section 4 of Article
FOURTH: A. hereof.
c. Mandatory Conversion Conditions. The Mandatory Conversion
Conditions are as follows:
(1) at any time after the 365-day period following
the Closing Date, the Closing Bid Price shall have been
greater than $15.00 for fifteen (15) consecutive Trading Days
(such 15-Trading Day period being referred to herein as a
"Mandatory Conversion Period");
(2) during the Mandatory Conversion Period, on the
Mandatory Conversion Notice Date and at all times during the
period from the Mandatory Conversion Notice Date through the
Mandatory Conversion Date, (x) a registration statement filed
under the Securities Act shall be effective and available to
the Holders for the sale of all of the Conversion Shares into
which the Preferred Shares and Warrants then outstanding are
convertible or exercisable, as the case may be (without regard
to any restriction or limitation on the conversion thereof),
or such Conversion Shares may be sold under Rule 144(k), (y)
the Common Stock shall be listed on the Nasdaq SmallCap
Market, the Nasdaq National Market System or the New York
Stock Exchange, and (z) trading in the Common Stock, or
trading generally, shall not have been suspended by the
principal market on which the Common Stock is traded;
(3) the Corporation shall not have breached, at any
time prior to the Mandatory Conversion Date, any material
agreement or obligation hereunder or under the Securities
Purchase Agreement or the Registration Rights Agreement; and
(4) a Mandatory Redemption Event (as defined below)
shall not have occurred and be continuing as of the Mandatory
Conversion Notice Date or the Mandatory Conversion Date.
8. Redemption.
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<PAGE> 17
a. Mandatory Redemption by the Holder.
(1) Mandatory Redemption. In the event that a
Mandatory Redemption Event (as defined below) occurs, each
Holder shall have the right to require the Corporation to
redeem all or any portion of the Preferred Shares held by such
Holder (a "Mandatory Redemption") at the Mandatory Redemption
Price (as defined herein). In order to exercise its right to
effect a Mandatory Redemption, a Holder must deliver a written
notice (a "Mandatory Redemption Notice") to the Corporation at
any time on or before 5:00 p.m. (eastern time) on the third
(3rd) Business Day following the Business Day on which the
Mandatory Redemption Event to which such Mandatory Redemption
Notice relates is no longer continuing. The Mandatory
Redemption Notice shall specify the effective date of such
Mandatory Redemption (the "Mandatory Redemption Date") and the
number of such shares to be redeemed.
(2) Mandatory Redemption Event. Each of the following
events shall be deemed a "Mandatory Redemption Event":
(a) the Corporation fails for any reason
(including without limitation as a result of not
having a sufficient number of shares of Common Stock
authorized and reserved for issuance, or as a result
of the limitation contained in Section 5(a) of
Article FOURTH: A. hereof) to issue shares of Common
Stock to a Holder and deliver certificates
representing such shares to such Holder as and when
required by the provisions hereof upon Conversion of
any Preferred Shares, as a result of any willful
action or willful failure to act on the part of the
Corporation, and such failure continues for ten (10)
Business Days;
(b) the Corporation breaches, in a material
respect, any covenant or other material term or
condition of this Certificate, the Securities
Purchase Agreement, the Registration Rights
Agreement, or any other agreement, document,
certificate or other instrument delivered in
connection with the transactions contemplated
thereby, and such breach continues for a period of
five (5) Business Days after written notice thereof
to the Corporation from a Holder;
(c) any material representation or warranty
made by the Corporation in the Securities Purchase
Agreement, the Registration Rights Agreement or any
other agreement, document, certificate or other
instrument delivered in connection with the
transactions contemplated hereby or thereby is
inaccurate or misleading in any material respect as
of the date such representation or warranty was made;
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<PAGE> 18
(d) the Registration Statement is not
declared effective by the one hundred and twenty
fifth (125th) day following the Issue Date or if the
Registration Statement has been declared effective by
such date and, while the effectiveness of the
Registration Statement is required to be maintained
pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration
Statement lapses for any reason (including without
limitation, the issuance of a stop order) or is
unavailable to the Holder for the sale of Conversion
Shares in accordance with the terms of the
Registration Rights Agreement, and such lapse or
unavailability continues for a period of five (5)
consecutive Business Days (other than during a
"Blackout Period" as that term is defined in the
Registration Rights Agreement), in any twelve (12)
month period, provided that such failure to be
declared effective, lapse or unavailability occurs as
a result of any willful action or willful failure to
act on the part of the Corporation;
(e) the Common Stock is not quoted on the
Nasdaq SmallCap Market or the Nasdaq National Market
or listed on the New York State Exchange, or trading
in the Common Stock on such market or exchange is
suspended and such suspension is in effect for more
than five consecutive (5) Trading Days, and such
suspension or failure to be so quoted or listed
occurs as a result of any willful action or willful
failure to act on the part of the Corporation; and
(f) the Corporation does not obtain
Stockholder Approval on or before May 31, 1999.
(3) Mandatory Redemption Price. The "Mandatory
Redemption Price" shall be equal to the greater of (i) the
Liquidation Preference of the Preferred Shares being redeemed
multiplied by one hundred and fifteen percent (115%) and (ii)
an amount determined by dividing the Liquidation Preference of
the Preferred Shares being redeemed by the Conversion Price in
effect on the Mandatory Redemption Date and multiplying the
resulting quotient by the average Closing Trade Price for the
Common Stock on the five (5) Trading Days immediately
preceding (but not including) the Mandatory Redemption Date.
(4) Payment of Mandatory Redemption Price.
(a) The Corporation shall pay the Mandatory
Redemption Price to the Holder exercising its right
to redemption on the later to occur of (i) the fifth
(5th) Business Day following the Mandatory Redemption
Date and (ii) the date on which the Preferred Shares
being redeemed are delivered by the Purchaser to the
Corporation for cancellation (the "Mandatory
Redemption Payment Date").
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<PAGE> 19
(b) If Corporation fails to pay the
Mandatory Redemption Price to the Holder on or before
the Mandatory Redemption Date, the Holder shall be
entitled to interest thereon, from and after the
Mandatory Redemption Payment Date until the Mandatory
Redemption Price has been paid in full, at an annual
rate equal to the Default Interest Rate.
(c) If the Corporation fails to pay the
Mandatory Redemption Price within ten (10) Business
Days of the Mandatory Redemption Date, then the
Holder shall have the right to regain its rights as a
Holder of the Series C Preferred Stock and, upon
written notice to such effect from the Holder, the
Corporation shall return to such Holder the
certificates representing the Preferred Shares that
were delivered to the Corporation in connection with
such Mandatory Redemption; in such event, the
Conversion Price otherwise applicable to future
Conversions of the Preferred Shares shall be reduced
by one percent (1%) for each day beyond such 10th
Business Day in which the failure to pay the
Mandatory Redemption Price continued until the date
of such notice; provided, however, that the maximum
percentage by which such Conversion Price may be
reduced hereunder shall be fifty percent (50%).
b. Optional Redemption By Corporation.
(1) Optional Redemption. The Corporation shall have
the right, at any time and from time to time, upon the
satisfaction of each of the Optional Redemption Conditions (as
defined below), to redeem any Preferred Shares that are
submitted for Conversion at a Conversion Price that is less
than $7.00 (subject to equitable adjustments from time to time
for the events described in Section 6 of Article FOURTH: A.
hereof) (the "Optional Redemption Trigger Price") in
accordance with the terms hereof (an "Optional Redemption").
The date on which an Optional Redemption is effected and the
Optional Redemption Price (as defined below) is paid by the
Corporation to a Holder is referred to herein as an "Optional
Redemption Date".
(2) Optional Redemption Notice. In order to effect an
Optional Redemption hereunder with respect to a Conversion of
Preferred Shares at a Conversion Price below the Optional
Redemption Trigger Price, the Corporation must deliver to the
Holder seeking such Conversion written notice of such Optional
Redemption (an "Optional Redemption Notice") on or before 5:00
p.m. (eastern time) on the Business Day immediately following
the Conversion Date for such Conversion and, at the same time
that it delivers such notice, the Corporation shall confirm
delivery thereof with such Holder by telephone, either
personally or by voicemail message. Notwithstanding the
foregoing, each Holder shall have the right, at any
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<PAGE> 20
time and from time to time, to deliver a written request (an
"Optional Redemption Request") to the Corporation and, upon
delivery of an Optional Redemption Request by a Holder to the
Corporation, the Corporation shall respond to such Holder in
writing (an "Optional Redemption Response") on or before 5:00
p.m. (eastern time) on the Business Day immediately following
the Business Day on which such Optional Redemption Request is
delivered to the Corporation. The Optional Redemption Response
shall state whether the Corporation intends to redeem such
Holder's Preferred Shares in the event that such Holder
submits a Conversion Notice during the period of five (5)
Business Days following the Business Day on which the Company
delivers an Optional Redemption Response to such Holder (the
"Optional Redemption Period") with a Conversion Price that is
less than the Optional Redemption Trigger Price. In the event
that the Corporation states in an Optional Redemption Response
delivered to a Holder that the Corporation intends to redeem
Preferred Shares that would otherwise be converted at a
Conversion Price that is less than the Optional Redemption
Trigger Price, the Corporation must (subject to the
satisfaction of each of the Optional Redemption Conditions)
redeem all or, if the Corporation intends to redeem less than
all, the percentage specified in the Optional Redemption
Response, of the Preferred Shares for which a Conversion
Notice or Notices may be delivered to the Corporation during
the Optional Redemption Period by such Holder with a
Conversion Price that is less than the Optional Redemption
Trigger Price (in which case the Corporation shall not be
required to deliver an Optional Redemption Notice to such
Holder). In the event that (i) the Corporation fails to
deliver an Optional Redemption Response to a Holder on or
before 5:00 p.m. on the Business Day immediately following the
Business Day on which such Holder delivers an Optional
Redemption Request to the Corporation or (ii) the Corporation
states in an Optional Redemption Response that it does not
intend to redeem Preferred Shares during the related Optional
Redemption Period, the Corporation may not redeem any
Preferred Shares for which a Conversion Notice is submitted by
such Holder during such Optional Redemption Period.
(3) Optional Redemption Conditions. The Optional
Redemption Conditions are as follows:
(a) the Corporation shall not have breached,
at any time prior to the Optional Redemption Date,
any material agreement or obligation hereunder or
under the Securities Purchase Agreement or the
Registration Rights Agreement which remains uncured
as of the Optional Redemption Date, including without
limitation, the Corporation's obligation to effect
Conversions in accordance with the terms hereof; and
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<PAGE> 21
(b) a Mandatory Redemption Event shall not
have occurred and be continuing as of the Optional
Redemption Date.
(4) Optional Redemption Price. The "Optional
Redemption Price" to be paid by the Corporation to a Holder in
the event of an Optional Redemption shall be equal to (A) the
aggregate Stated Value of the Preferred Shares being redeemed
times a percentage such that the resulting product will
represent an annualized return on such Stated Value of one
hundred and ten percent (110%) from the Issue Date for such
Preferred Shares through and including the related Optional
Redemption Date plus (B) all Premium accrued on such Preferred
Shares through and including such Optional Redemption Date.
(5) Payment of Optional Redemption Price.
(a) The Corporation shall pay the Optional
Redemption Price by wire transfer in immediately
available funds to each Holder on or before 5:00 p.m.
(eastern time) on the thirtieth (30th) day following
the Conversion Date for the Preferred Shares being
redeemed (the "Optional Redemption Payment Date").
(b) If the Corporation fails to pay the
Optional Redemption Price by wire transfer in
immediately available funds to a Holder on or before
the Optional Redemption Payment Date, (i) such Holder
shall be entitled to interest thereon, from and after
the Optional Redemption Payment Date until the
Optional Redemption Price has been paid in full, at
an annual rate equal to the Default Interest Rate for
the number of days elapsed from such Optional
Redemption Payment Date until such amount is paid in
full, (ii) such Holder shall have the option to
regain, as of the date of delivery of written notice
thereof to the Corporation (a "Redemption Default
Notice"), its rights as a Holder of the Preferred
Shares that were redeemed, in which case the Variable
Conversion Price for such Preferred Shares upon the
subsequent conversion thereof will be equal to the
lesser of (x) the lowest Variable Conversion Price
occurring during the thirty day period immediately
preceding the Optional Redemption Date and (y) the
Variable Conversion Price in effect on the applicable
Conversion Date (it being understood that such Holder
may deliver a Conversion Notice with respect to such
Preferred Shares at any time following delivery of a
Redemption Default Notice to the Corporation) and
(iii) the Corporation shall not be entitled to effect
an Optional Redemption thereafter with respect to any
Preferred Shares.
9. Miscellaneous.
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<PAGE> 22
a. Transfer of Preferred Shares. A Holder may sell or transfer
all or any portion of the Preferred Shares to any person or entity as
long as such sale or transfer is the subject of an effective
registration statement under the Securities Act or is exempt from
registration thereunder and otherwise is made in accordance with the
terms of the Securities Purchase Agreement. From and after the date of
such sale or transfer, the transferee thereof shall be deemed to be a
Holder. Upon any such sale or transfer, the Corporation shall, promptly
following the return of the certificate or certificates representing
the Preferred Shares that are the subject of such sale or transfer,
issue and deliver to such transferee a new certificate in the name of
such transferee.
b. Notices. Except as otherwise provided herein, any notice,
demand or request required or permitted to be given pursuant to the
terms hereof, the form or delivery of which notice, demand or request
is not otherwise specified herein, shall be in writing and shall be
deemed delivered (i) when delivered personally or by verifiable
facsimile transmission on or before 5:00 p.m., eastern time, on a
Business Day or, if such day is not a Business Day, on the next
succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the Business Day actually
received if deposited in the U.S. mail (certified or registered mail,
return receipt requested, postage prepaid), addressed to the parties as
follows:
If to the Corporation:
Shared Technologies Cellular, Inc.
100 Great Meadow Road
Suite 100
Wethersfield, CT 06109
Attn: Legal Department
Tel: (860) 258-2500
Fax: (860) 258-2455
with a copy to:
Day, Berry & Howard LLP
260 Franklin Street
Boston MA 02110
Attn: Jeffrey A. Clopeck, Esq.
Tel: (617) 345-4600
Fax: (617) 345-4745
and if to any Holder, to such address for such Holder as shall be
designated by such Holder in writing to the Corporation.
c. Lost or Stolen Certificate. Upon receipt by the Corporation
of evidence of the loss, theft, destruction or mutilation of a
certificate representing
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<PAGE> 23
Preferred Shares, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Corporation, and
upon surrender and cancellation of such certificate if mutilated, the
Corporation shall execute and deliver to the Holder a new certificate
identical in all respects to the original certificate.
d. No Voting Rights. Except as provided by applicable law and
paragraph 9(g) below, the Holders of the Preferred Shares shall have no
voting rights with respect to the business, management or affairs of
the Corporation; provided that the Corporation shall provide each
Holder with prior notification of each meeting of stockholders (and
copies of proxy statements and other information sent to such
stockholders).
e. Remedies, Characterization, Other Obligations, Breaches and
Injunctive Relief. The remedies provided to a Holder in this
Certificate of Designation shall be cumulative and in addition to all
other remedies available to such Holder under this Certificate of
Designation or under any Transaction Document (as defined in the
Securities Purchase Agreement), at law or in equity (including without
limitation a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing
contained herein shall limit such Holder's right to pursue actual
damages for any failure by the Corporation to comply with the terms of
these Certificate of Designation. The Corporation agrees with each
Holder that there shall be no characterization concerning this
instrument other than as specifically provided herein. Amounts set
forth or provided for herein with respect to payments, conversion and
the like (and the computation thereof) shall be the amounts to be
received by the Holder hereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Corporation
(or the performance thereof). The Corporation acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm
to the Holders and that the remedy at law for any such breach may be
inadequate. The Corporation agrees, in the event of any such breach or
threatened breach, each Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach,
without the necessity of showing economic loss and without any bond or
other security being required.
f. Failure or Delay not Waiver. No failure or delay on the
part of a Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
g. Protective Provisions.
So long as shares of Series C Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval of the
Holders of at least two-thirds (2/3) of outstanding shares of Series C
Preferred Stock:
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<PAGE> 24
(1) alter, change, modify or amend (x) the
terms of the Series C Preferred Stock in any way or
(y) the terms of any other capital stock of the
Corporation so as to affect adversely the Series C
Preferred Stock;
(2) create any new class or series of
capital stock having a preference over or ranking
pari passu with the Series C Preferred Stock as to
redemption or distribution of assets upon a
Liquidation Event or any other liquidation,
dissolution or winding up of the Corporation;
(3) increase the authorized number of shares
of Series C Preferred Stock;
(4) re-issue any shares of Series C
Preferred Stock which have been converted or redeemed
in accordance with the terms hereof;
(5) issue any Pari Passu Securities or
Senior Securities (other than non-convertible debt
securities or debt securities which are convertible
into or exchangeable for Common Stock or any other
equity or convertible security of the Corporation
junior to the Series C Preferred Stock);
(6) redeem, or declare, pay or make any
provision for any dividend or distribution with
respect to, the Common Stock or any other capital
stock of the Corporation ranking junior to the Series
C Preferred Stock as to the distribution of assets
upon liquidation, dissolution or winding up of the
Corporation; or
(7) issue any Series C Preferred Stock
except pursuant to the terms of the Securities
Purchase Agreement.
In the event that the Holders of at least two-thirds of the
outstanding shares of Series C Preferred Stock agree to allow
the Corporation to alter or change the rights, preferences or
privileges of the shares of Series C Preferred Stock pursuant
to the terms hereof, then the Corporation will deliver notice
of such approved change to the holders of the Series C
Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and the Dissenting Holders
shall have the right for a period of thirty (30) days
following such delivery to convert their Preferred Shares
pursuant to the terms hereof as they existed prior to such
alteration or change, or to continue to hold such Preferred
Shares. No such change shall be effective to the extent that,
by its terms, it applies to less than all of the Holders of
Preferred Shares then outstanding.
B. Series D Preferred Stock.
The Board of Directors has heretofore authorized a series of the
Corporation's previously authorized Preferred Stock, par value $.01 per share,
with the designation and number of shares, and relative rights, preferences,
privileges and restrictions thereof as follows:
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<PAGE> 25
1. Designation and Amount. The designation of this series,
which consists of ten thousand (10,000) shares of Preferred Stock, is
the "Series D Convertible Preferred Stock" (the "Series D Preferred
Stock") and the face amount of each share of Series D Preferred Stock
(each, a "Series D Preferred Share" and collectively, the "Series D
Preferred Shares") shall be One Thousand Dollars ($1,000) per Series D
Preferred Share (the "Stated Value"). The date on which the Series D
Preferred Shares are issued and sold pursuant to the Securities
Purchase Agreement, dated as of October 1, 1999, between the Company
and the Purchasers named therein (the "Securities Purchase Agreement")
is referred to herein as the "Issue Date". The holders of Series D
Preferred Shares are each referred to as a "Holder" and, collectively,
as the "Holders".
2. Dividends. The Series D Preferred Stock will not bear
dividends.
3. Priority.
a. Payment upon Dissolution.
(1) Upon the occurrence of (x) any
insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other
similar proceedings in connection therewith,
commenced by the Corporation or by its creditors, as
such, or relating to its assets or (y) the
dissolution or other winding up of the Corporation
whether total or partial, whether voluntary or
involuntary and whether or not involving insolvency
or bankruptcy proceedings, or (z) any assignment for
the benefit of creditors or any marshalling of the
material assets or material liabilities of the
Corporation (each, a "Liquidation Event"), no
distribution shall be made to the holders of any
shares of Junior Securities (as defined below)
unless, following the payment of preferential amounts
on all Senior Securities (as defined below), each
Holder shall have received the Liquidation Preference
(as defined below) with respect to each Series D
Preferred Share then held by such Holder. In the
event that upon the occurrence of a Liquidation
Event, and following the payment of preferential
amounts on all Senior Securities, the assets
available for distribution to the Holders and the
holders of Pari Passu Securities (as defined below)
are insufficient to pay the Liquidation Preference
with respect to all of the outstanding Series D
Preferred Shares and the preferential amounts payable
to such holders, the entire assets of the Corporation
shall be distributed ratably among the Series D
Preferred Shares and the shares of Pari Passu
Securities in proportion to the ratio that the
preferential amount payable on each such share (which
shall be the Liquidation Preference in the case of a
Series D Preferred Share) bears to the aggregate
preferential amount payable on all such shares.
(2) The "Liquidation Preference" with
respect to a Series D Preferred Share shall mean an
amount equal to the Stated Value of such Series D
Preferred Share plus the Premium (as defined below)
accrued on such Series D Preferred Share in
accordance with the terms hereof.
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<PAGE> 26
"Junior Securities" shall mean the Common Stock and all other
capital stock of the Corporation that are not Pari Passu
Securities or do not have a preference over the Series D
Preferred Stock in respect of redemption or distribution upon
liquidation. "Pari Passu Securities" shall mean the Series C
Convertible Preferred Stock of the Corporation and any other
securities ranking pari passu with the Series D Preferred
Stock in respect of redemption or distribution upon
liquidation. "Senior Securities" shall mean (i) any debt
issued or assumed by the Corporation and (ii) any securities
of the Corporation which by their terms have a preference over
the Series D Preferred Stock in respect of redemption or
distribution upon liquidation.
4. Conversion.
a. Right to Convert. Each Holder shall have the right to
convert, at any time and from time to time after the Issue Date, all or
any part of the Series D Preferred Shares held by such Holder into such
number of fully paid and non-assessable shares ("Conversion Shares") of
the Common Stock as is determined in accordance with the terms hereof
(a "Conversion").
b. Conversion Notice. In order to convert Series D Preferred
Shares, a Holder shall send by facsimile transmission, at any time
prior to 11:59 p.m., eastern time, on the date on which such Holder
wishes to effect such Conversion (the "Conversion Date"), (i) a notice
of conversion (a "Conversion Notice"), in substantially the form of
Exhibit A hereto, to the Corporation and to the Corporation's transfer
agent for the Common Stock (the "Transfer Agent") stating the number of
Series D Preferred Shares to be converted, the amount of Premium (as
defined below) accrued thereon, the applicable Conversion Price (as
defined below) and a calculation of the number of shares of Common
Stock issuable upon such Conversion and (ii) a copy of the certificate
or certificates representing the Series D Preferred Shares being
converted. The Holder shall thereafter send the original of the
Conversion Notice and of such certificate or certificates to the
Transfer Agent. The Corporation shall issue a new certificate for
Series D Preferred Shares in the event that less than all of the Series
D Preferred Shares represented by a certificate delivered to the
Corporation in connection with a Conversion are converted. Except as
otherwise provided herein, upon delivery of a Conversion Notice by a
Holder in accordance with the terms hereof, such Holder shall, as of
the applicable Conversion Date, be deemed for all purposes to be record
owner of the Common Stock to which such Conversion Notice relates. In
the case of a dispute between the Corporation and a Holder as to the
calculation of the Conversion Price or the number of Conversion Shares
issuable upon a Conversion, the Corporation shall issue to such Holder
the number of Conversion Shares that are not disputed within the time
frames specified in paragraph 4(e) below and shall submit the disputed
calculations to its independent accountant within one (1) Business Day
of receipt of such Holder's Conversion Notice. The Corporation shall
cause such accountant to calculate the Conversion Price as provided
herein and to notify the Corporation and such Holder of the results in
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<PAGE> 27
writing no later than five (5) Business Days following the
Corporation's receipt of such Holder's Conversion Notice (such 5th
Business Day being referred to herein as the "Disputed Share
Calculation Date") . Such accountant's calculation shall be deemed
conclusive absent manifest error. The fees of any such accountant shall
be borne by the party whose calculations were most at variance with
those of such accountant.
c. Number of Conversion Shares; Conversion Price. The number
of Conversion Shares to be delivered by the Corporation pursuant to a
Conversion shall be determined in accordance with the following
formula:
SV + P
------
CP
where SV represents the aggregate Stated Value of the Series D
Preferred Shares to be converted,
P represents the aggregate Premium (i) accrued on such Series D
Preferred Shares and (ii) eligible for payment by the Corporation in
Conversion Shares, it being understood that, unless each of the Premium
Share Conditions (as defined in paragraph 4(g) below) is satisfied or
waived by the Holder of such Series D Preferred Shares, the Corporation
may not pay accrued Premium in shares of Common Stock and must pay such
Premium on the applicable Delivery Date (as defined below) in
immediately available funds in accordance with the terms of this
Certificate, and
CP represents the Conversion Price (as defined below) in effect on the
applicable Conversion Date.
"Premium" with respect to a Series D Preferred Share shall be
determined in accordance with the following formula:
(SV)(.06)(N)
------------
365
where SV represents the Stated Value of such Series D Preferred Share,
and
N represents the number of days elapsed from the Issue Date through and
including the Conversion Date relating to such Series D Preferred
Share.
Subject to adjustment as provided elsewhere herein, "Conversion Price"
shall mean $8.875.
d. Certain Definitions. "Trading Day" means any day on which
the Common Stock is purchased and sold on the principal securities
exchange or
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<PAGE> 28
market on which the Common Stock is then listed or traded. "Business
Day" means any day on which the New York Stock Exchange and commercial
banks located in the City of New York are open for business.
e. Delivery of Common Stock Upon Conversion. Upon receipt of a
Conversion Notice from a Holder pursuant to paragraph 4(b) above, the
Corporation shall, on or before the close of business on the latest to
occur of (i) the third (3rd) Business Day following the Conversion Date
set forth in such Conversion Notice, (ii) the Business Day immediately
following the day on which the certificates representing the Series D
Preferred Shares are delivered by such Holder to the Corporation or the
Transfer Agent, and (iii) with respect to Conversion Shares that are
the subject of a dispute as described in paragraph 4(b) above, the
Business Day immediately following the Disputed Share Calculation Date
(the latest of such Business Days being referred to herein as the
"Delivery Date"), issue and deliver or cause to be delivered to such
Holder the number of Conversion Shares to which such Holder is entitled
to receive as provided herein. The Corporation shall effect delivery of
Conversion Shares to a Holder by, as long as the Transfer Agent
participates in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program ("FAST"), crediting the account of such
Holder or its nominee at DTC (as specified in the applicable Conversion
Notice) with the number of Conversion Shares required to be delivered,
no later than the close of business on such Delivery Date. In the event
that Transfer Agent is not a participant in FAST or if a Holder so
specifies in a Conversion Notice or otherwise in writing on or before
the Conversion Date, the Corporation shall effect delivery of
Conversion Shares by delivering to the Holder or its nominee physical
certificates representing such Conversion Shares, no later than the
close of business on such Delivery Date. If any Conversion would create
a fractional Conversion Share, such fractional Conversion Share shall
be disregarded and the number of Conversion Shares issuable upon such
Conversion, in the aggregate, shall be the rounded to the nearest whole
number of Conversion Shares. Conversion Shares delivered to the Holder
shall not contain any restrictive legend as long as (A) the sale,
transfer, pledge or other disposition of such Conversion Shares is
covered by an effective registration statement, (B) such Conversion
Shares have been publicly sold pursuant to Rule 144 ("Rule 144"), or
(C) such Conversion Shares can be sold pursuant to Rule 144(k) under
Securities Act of 1933, as amended (the "Securities Act"), or any
successor rule or provision .
f. Failure to Deliver Conversion Shares.
(1) In the event that the Corporation fails for any
reason to deliver to a Holder certificates (without any
restrictive legend in the circumstances described in clause
(A) or (B) of paragraph 4(e) above) representing the number of
Conversion Shares specified in the applicable Conversion
Notice on or before the Delivery Date therefor (a "Conversion
Default") as a result of any willful action or any willful
failure to act on the part of the Corporation, and such
failure to deliver certificates continues for twenty (20)
Business Days following the delivery of written
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notice thereof from such Holder (such tenth Business Day being
referred to herein as the "Conversion Default Date"), the
Corporation shall pay to such Holder payments ("Conversion
Default Payments") in the amount of (i) "N" multiplied by (ii)
the aggregate Stated Value of the Series D Preferred Shares
which are the subject of such Conversion Default multiplied by
(iii) one percent (1%), where "N" equals the number of days
elapsed between the Conversion Default Date and the earlier to
occur of (A) the date on which all of the certificates
(without any restrictive legend in the circumstances described
in clause (A), (B) or (C) of paragraph 4(e) above)
representing such Conversion Shares are issued and delivered
to such Holder, (B) the date on which such Series D Preferred
Shares are redeemed pursuant to the terms hereof and (C) the
date on which a Withdrawal Notice (as defined below) is
delivered to the Corporation. Amounts payable under this
subparagraph (f) shall be paid to the Holder in immediately
available funds on or before the fifth (5th) Business Day of
the calendar month immediately following the calendar month in
which such amounts have accrued.
(2) In the event that a Holder has not received
certificates representing the Conversion Shares by the
twentieth (20th) Business Day following a Conversion Default
as a result of any willful action or any willful failure to
act on the part of the Corporation, such Holder may, upon
written notice (a "Withdrawal Notice") delivered to the
Corporation on such Business Day or on any Business Day
thereafter (unless, prior to the delivery of such notice, such
Conversion Shares are delivered to such Holder), withdraw its
Conversion Notice with respect to such Conversion Shares and
regain its rights as a Holder of the Series D Preferred Shares
that are the subject of such Conversion Default. In such
event, the Conversion Price that would otherwise be in effect
when such Series D Preferred Shares are thereafter converted
in accordance with the terms hereof shall be reduced by one
percent (1%) for each day occurring during the period
immediately following such 10th Business Day until the day on
which the such Holder delivers a Withdrawal Notice to the
Corporation; provided, however, that the maximum percentage by
which such Conversion Price may be reduced hereunder shall be
fifty percent (50%). (For example, if such Conversion Default
were to continue for five days following such 10th Business
Day, such Conversion Price would be reduced by 5%; if for ten
days, by 10%; and for fifty days or more, 50%, so that the
number of Conversion Shares deliverable upon conversion of
such Series D Preferred Shares would be increased
proportionately). Upon delivery by a Holder of a Withdrawal
Notice, such Holder shall retain all of such Holder's rights
and remedies with respect to the Corporation's failure to
deliver such Conversion Shares (including without limitation
the right to receive the cash payments specified in
subparagraph 4(f)(1) above).
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(3) In addition to any other remedies provided
herein, each Holder shall have the right to pursue actual
damages for the Corporation's failure to issue and deliver
Conversion Shares on the applicable Delivery Date (including,
without limitation, damages relating to any purchase of shares
of Common Stock by such Holder to make delivery on a sale
effected in anticipation of receiving Conversion Shares upon
Conversion, such damages to be in an amount equal to (A) the
aggregate amount paid by such Holder for the shares of Common
Stock so purchased minus (B) the aggregate Conversion Price
for such Conversion Shares, and such Holder shall have the
right to pursue all other remedies available to it at law or
in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
g. Premium Share Conditions. The Corporation's right to pay
accrued Premium in Conversion Shares upon conversion of a Series D
Preferred Share is conditioned upon the satisfaction of each of the
following conditions (the "Premium Share Conditions"):
(1) the number of shares of Common Stock authorized,
unissued and unreserved for all other purposes, or held in the
Corporation's treasury, is sufficient to pay such Premium in
Conversion Shares; and
(2) the Common Stock is authorized for quotation on
the Nasdaq SmallCap Market or the Nasdaq National Market or
for listing or quotation on the New York Stock Exchange or any
other national securities exchange and trading in the Common
Stock on such market or exchange has not been suspended;
In the event that any Premium Share Condition is not satisfied as of
the Conversion Date for a Series D Preferred Share, the premium accrued
on such Series D Preferred Share shall be payable by the Corporation to
the Holder thereof in immediately available funds on the Delivery Date
immediately following such Conversion Date. If the Corporation fails to
deliver the amount of such Premium in immediately available funds to a
Holder on or before the close of business on the Delivery Date therefor
(a "Premium Cash Default"), such amount will bear interest at an annual
rate equal to at the lower of (x) ten percent (10%) and (y) the highest
interest rate permitted by applicable law (the "Default Interest
Rate"), accruing on a daily basis from and after such Delivery Date
until such amount is paid in full.
h. Conversion at Maturity. On the date which is five (5) years
following the Issue Date (the "Maturity Date"), each Series D Preferred
Share then outstanding shall be automatically converted into the number
of shares of Common Stock equal to the Liquidation Preference of such
shares divided by the Conversion Price then in effect (a "Conversion at
Maturity"); provided, however, that if, on the Maturity Date, (i) the
number of shares of Common Stock authorized, unissued and unreserved
for all other purposes, or held in the
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<PAGE> 31
Corporation's treasury, is not sufficient to effect the issuance and
delivery of the number of Conversion Shares into which all outstanding
Series D Preferred Shares are then convertible, or (ii) the Common
Stock is not designated for quotation or listed on the Nasdaq SmallCap
Market, the Nasdaq National Market or the New York Stock Exchange or
trading in the Common Stock on such market or exchange has been
suspended, each Holder shall have the option, upon written notice to
the Corporation, to retain its rights as a holder of Series D Preferred
Shares, including without limitation, the right to convert such Series
D Preferred Shares in accordance with the terms of paragraphs 4(a)
through 4(e) hereof and, upon delivery of such notice, such Series D
Preferred Shares shall not be subject to a Conversion at Maturity
hereunder until the thirtieth (30th) day following the later of (a) the
date on which the event specified (i) or (ii) is no longer continuing
and (b) the date on which the Corporation delivers to each Holder
written notice to such effect, and in such event, such thirtieth day
shall be deemed to be the Maturity Date for purposes of this
Certificate of Designation. If a Conversion at Maturity occurs, the
Corporation and each Holder shall follow the procedures for Conversion
set forth in this Section 4 of Article FOURTH: B., with the Maturity
Date deemed to be the Conversion Date, except that the Holder shall not
be required to send a Conversion Notice as contemplated by paragraph
4(b).
5. Adjustments To Conversion Price.
a. Adjustment to Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the Conversion of all of the Series D
Preferred Shares, (A) the number of outstanding shares of Common Stock
is increased by a stock split, a stock dividend on the Common Stock, a
reclassification of the Common Stock, or other similar event, the
Conversion Price shall be proportionately reduced, or (B) the number of
outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares or other similar
event, the Conversion Price shall be proportionately increased. In such
event, the Corporation shall notify the Transfer Agent of such change
on or before the effective date thereof.
b. Adjustment Due to Merger, Consolidation, Etc. If, prior to
the Conversion of all of the Series D Preferred Shares, there shall be
any merger, consolidation, business combination, tender offer, exchange
of shares, recapitalization, reorganization, redemption or other
similar event, as a result of which shares of Common Stock shall be
changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Corporation or
another entity (an "Exchange Transaction"), then such Holder shall (A)
upon the consummation of such Exchange Transaction, have the right to
receive, with respect to any shares of Common Stock then held by such
Holder, or which such Holder is then entitled to receive pursuant to a
Conversion Notice previously delivered by such Holder (and without
regard to whether such shares contain a restrictive legend or are
freely-tradable), the same amount and type of consideration (including
without limitation, stock, securities and/or other assets) and on the
same terms as a holder of shares of Common Stock would be entitled
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<PAGE> 32
to receive in connection with the consummation of such Exchange
Transaction (the "Exchange Consideration"), and (B) upon the Conversion
of Series D Preferred Shares occurring subsequent to the consummation
of such Exchange Transaction (a "Subsequent Conversion"), have the
right to receive the Exchange Consideration which such Holder would
have been entitled to receive in connection with such Exchange
Transaction had such shares been converted immediately prior to such
Exchange Transaction at the Conversion Price applicable on the
Conversion Date relating to such Subsequent Conversion, and in any such
case appropriate provisions shall be made with respect to the rights
and interests of such Holder to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the
Conversion Price and of the number of shares of Common Stock issuable
upon a Conversion) shall thereafter be applicable as nearly as may be
practicable in relation to any securities thereafter deliverable upon
the Conversion of such Series D Preferred Shares. The Corporation shall
not effect any Exchange Transaction unless (i) it first gives to each
Holder twenty (20) days prior written notice of such Exchange
Transaction (an "Exchange Notice"), and makes a public announcement of
such event at the same time that it gives such notice (it being
understood that the filing by the Corporation of a Form 8-K for the
purpose of disclosing the anticipated consummation of the Exchange
Transaction shall constitute an Exchange Notice for purposes of this
provision) and (ii) the resulting successor or acquiring entity (if not
the Corporation) assumes by written instrument the obligations of the
Corporation hereunder, including the terms of this subparagraph 5(b),
and under the Securities Purchase Agreement and the Registration Rights
Agreement.
c. Distribution of Assets. If the Corporation or any of its
subsidiaries shall declare or make any distribution of cash, evidences
of indebtedness or other securities or assets (other than cash
dividends or distributions payable out of earned surplus or net profits
for the current or the immediately preceding year), or any rights to
acquire any of the foregoing, to holders of Common Stock (or to a
holder of the common stock of any such subsidiary) as a partial
liquidating dividend, by way of return of capital or otherwise,
including any dividend or distribution in shares of capital stock of a
subsidiary of the Corporation (collectively, a "Distribution"), then,
upon a Conversion by a Holder occurring after the record date for
determining stockholders entitled to such Distribution, the applicable
Conversion Price for Series D Preferred Shares not converted prior to
the record date of a Distribution shall be reduced by an amount equal
to the fair market value of the assets so distributed with respect to
each share of Common Stock, such fair market value to be determined by
an investment banking firm selected by all of the holders of Series D
Preferred Shares then outstanding and reasonably acceptable to the
Corporation.
d. Adjustments to Conversion Price for Diluting Issues:
(1) Special Definitions. For purposes of this
subparagraph 5(d), the following definitions shall apply:
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<PAGE> 33
(a) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise
acquire Common Stock or Convertible Securities.
(b) "Original Issue Date" shall mean the
date on which a Series D Preferred Share was first
issued.
(c) "Convertible Securities" shall mean any
evidences of indebtedness, shares or other securities
directly or indirectly convertible into or
exchangeable for Common Stock.
(d) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or,
pursuant to subparagraph 5(d)(3) below, deemed to be
issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or
issuable:
(i) upon conversion of any
Convertible Securities outstanding on the
Original Issue Date, or upon exercise of any
Options outstanding on the Original Issue
Date;
(ii) as a dividend or distribution
on the Preferred Stock;
(iii) by reason of a dividend,
stock split, split-up or other distribution
on shares of Common Stock that is covered by
subparagraph 5(a) or 5(c) above;
(iv) to employees or directors of,
or consultants to, the Corporation pursuant
to a stock option, restricted stock or other
plan or arrangement approved by the Board of
Directors of the Corporation, such number of
shares not to exceed 15% of the total number
of shares of Common Stock from time to time
outstanding, calculated on a fully diluted
basis; plus any shares of Common Stock
subject to options that terminate
unexercised (and are eligible to be
regranted under the terms of the applicable
plan or arrangement) and shares of
restricted stock repurchased from employees
upon termination of employment; or
(v) in connection with joint
venture and corporate partnering
relationships approved by the Board of
Directors of the Corporation, and in
connection with acquisition transactions
approved by the Board of Directors of the
Corporation.
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<PAGE> 34
(2) No Adjustment of Conversion Price. No
adjustment in the number of shares of Common Stock
into which the Series D Preferred Stock is
convertible shall be made by adjustment in the
applicable Conversion Price thereof: (a) unless the
consideration per share (determined pursuant to
subparagraph 5(d)(5)) for an Additional Share of
Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Conversion
Price in effect on the date of, and immediately prior
to, the issue of such Additional Shares, or (b) if
prior to such issuance, the Corporation receives
written notice from the holders of at least a
majority of the then outstanding shares of Series D
Preferred Stock, agreeing that no such adjustment
shall be made as the result of the issuance of
Additional Shares of Common Stock.
(3) Issue of Securities Deemed Issue of
Additional Shares of Common Stock. If the Corporation
at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible
Securities, then the maximum number of shares of
Common Stock (as set forth in the instrument relating
thereto without regard to any provision contained
therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue,
provided that Additional Shares of Common Stock shall
not be deemed to have been issued unless the
consideration per share (determined pursuant to
subparagraph 5(d)(5) hereof) of such Additional
Shares of Common Stock would be less than the
applicable Conversion Price in effect on the date of
and immediately prior to such issue, and provided
further that in any such case in which Additional
Shares of Common Stock are deemed to be issued:
(a) No further adjustment in the
Conversion Price shall be made upon the
subsequent issue of Convertible Securities
or shares of Common Stock upon the exercise
of such Options or conversion or exchange of
such Convertible Securities;
(b) If such Options or Convertible
Securities by their terms provide, with the
passage of time or otherwise, for any
increase in the consideration payable to the
Corporation, upon the exercise, conversion
or exchange thereof, the Conversion Price
computed upon the original issue thereof (or
upon the occurrence of a record date with
respect thereto), and any subsequent
adjustments based thereon, shall, upon any
such increase becoming effective, be
recomputed to reflect such increase insofar
as it affects such Options or the rights of
conversion or exchange under such
Convertible Securities;
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<PAGE> 35
(c) Upon the expiration or
termination of any unexercised Option, the
Conversion Price shall be readjusted to
reflect the Conversion Price in effect at
the time of the issuance of the expired or
terminated Options, with such additional
adjustments as would have been made to the
Conversion Price had the expired or
terminated Options not been issued, and the
Additional Shares of Common Stock deemed
issued as the result of the original issue
of such Option shall not be deemed issued
for the purposes of any subsequent
adjustment of the Conversion Price;
(d) In the event of any change in
the number of shares of Common Stock
issuable upon the exercise, conversion or
exchange of any Option or Convertible
Security, including, but not limited to, a
change resulting from the anti-dilution
provisions thereof, the Conversion Price
then in effect shall forthwith be readjusted
to such Conversion Price as would have
obtained had the adjustment, which was made
upon the issuance of such Option or
Convertible Security which has not been
exercised or converted prior to such change,
been made upon the basis of such change; and
(e) No readjustment pursuant to
clause (b) or (d) above shall have the
effect of increasing the Conversion Price to
an amount which exceeds the lower of (i) the
Conversion Price on the original adjustment
date, or (ii) the Conversion Price that
would have resulted from any issuances of
Additional Shares of Common Stock between
the original adjustment date and such
readjustment date.
(4) Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common Stock. In the
event the Corporation shall at any time after the
Original Issue Date issue Additional Shares of Common
Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to subparagraph 5(d)(3),
but excluding shares issued as a stock split or
combination as provided in subparagraph 5(a) or upon
a dividend or distribution as provided in
subparagraph 5(c)), without consideration or for a
consideration per share less than the applicable
Conversion Price in effect on the date of and
immediately prior to such issue, then and in such
event, such Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated
to the nearest cent) determined by multiplying such
Conversion Price by a fraction, (A) the numerator of
which shall be (1) the number of shares of Common
Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which
the aggregate consideration received or to be
received by the Corporation for the total number of
Additional Shares of Common
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<PAGE> 36
Stock so issued would purchase at such Conversion Price; and
(B) the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issue plus
the number of such Additional Shares of Common Stock so
issued; provided that, (i) for the purpose of this
subparagraph 5(d)(4), all shares of Common Stock issuable upon
exercise or conversion of Options or Convertible Securities
outstanding immediately prior to such issue shall be deemed to
be outstanding, and (ii) the number of shares of Common Stock
deemed issuable upon exercise or conversion of such
outstanding Options and Convertible Securities shall not give
effect to any adjustments to the conversion price or
conversion rate of such Options or Convertible Securities
resulting from the issuance of Additional Shares of Common
Stock that is the subject of this calculation.
(5) Determination of Consideration. For purposes of
this subparagraph 5(d), the consideration received by the
Corporation for the issue of any Additional Shares of Common
Stock shall be computed as follows:
(a) Cash and Property: Such consideration
shall:
(i) insofar as it consists of cash,
be computed at the aggregate of cash
received by the Corporation, excluding
amounts paid or payable for accrued
interest;
(ii) insofar as it consists of
property other than cash, be computed at the
fair market value thereof at the time of
such issue, as determined in good faith by
the Board of Directors; and
(iii) in the event Additional
Shares of Common Stock are issued together
with other shares or securities or other
assets of the Corporation for consideration
which covers both, be the proportion of such
consideration so received, computed as
provided in clauses (i) and (ii) above, as
determined in good faith by the Board of
Directors.
(b) Options and Convertible Securities. The
consideration per share received by the Corporation
for Additional Shares of Common Stock deemed to have
been issued pursuant to subparagraph 5(d)(3),
relating to Options and Convertible Securities, shall
be determined by dividing
(i) the total amount, if any,
received or receivable by the Corporation as
consideration for the issue of such Options
or Convertible Securities, plus the minimum
aggregate amount of additional consideration
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein for a subsequent
adjustment of such consideration) payable to
the
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<PAGE> 37
Corporation upon the exercise of such
Options or the conversion or exchange of
such Convertible Securities, or in the case
of Options for Convertible Securities, the
exercise of such Options for Convertible
Securities and the conversion or exchange of
such Convertible Securities, by
(ii) the maximum number of shares
of Common Stock (as set forth in the
instruments relating thereto, without regard
to any provision contained therein for a
subsequent adjustment of such number)
issuable upon the exercise of such Options
or the conversion or exchange of such
Convertible Securities.
(6) Multiple Closing Dates. In the event the
Corporation shall issue on more than one date Additional
Shares of Common Stock which are comprised of shares of the
same series or class of Preferred Stock, and such issuance
dates occur within a period of no more than 120 days, then the
Conversion Price shall be adjusted only once on account of
such issuances, with such adjustment to occur upon the final
such issuance and to give effect to all such issuances as if
they occurred on the date of the final such issuance.
e. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this
Section 5 of Article FOURTH: B., the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series D Preferred Stock a
certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of
any holder of Series D Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in
effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which then would be received upon the
conversion of Series D Preferred Stock.
f. No Fractional Shares. If any adjustment under this Section
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon
Conversion shall be rounded to the nearest whole number of shares.
6. Mandatory Conversion.
a. Mandatory Conversion. The Corporation shall have the right,
upon the satisfaction of each of the Mandatory Conversion Conditions
(as defined below), to require conversion of all of the Series D
Preferred Shares outstanding on the Mandatory Conversion Date (as
defined below)(a "Mandatory Conversion"). In
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<PAGE> 38
the event of a Mandatory Conversion, the Corporation and each Holder
shall follow the procedures for Conversion set forth in Section 4 of
Article FOURTH: B. above, with the Mandatory Conversion Date (as
defined below) deemed to be the Conversion Date, except that a Holder
shall not be required to send a Conversion Notice as contemplated by
paragraph (b) of Section 4 of Article FOURTH: B.
b. Mandatory Conversion Notice. In order to effect a Mandatory
Conversion hereunder, the Corporation must deliver to each Holder
written notice thereof (a "Mandatory Conversion Notice") on or before
5:00 p.m. (eastern time) on a Business Day (the "Mandatory Conversion
Notice Date") that (i) occurs on or before the third Business Day
immediately following the last Trading Day of the Mandatory Conversion
Period (as defined below) and (ii) is not less than fifteen (15)
Trading Days prior to the date on which such Mandatory Conversion is to
be effected (the "Mandatory Conversion Date") and, at the same time
that it delivers such notice, the Corporation shall confirm delivery
thereof with each Holder by telephone, either personally or by
voicemail message. Notwithstanding the delivery by the Corporation of a
Mandatory Conversion Notice, nothing contained herein shall be deemed
to limit in any way the right of a Holder to convert Series D Preferred
Shares prior to the Mandatory Conversion Date.
c. Mandatory Conversion Conditions. The Mandatory Conversion
Conditions are as follows:
(1) at any time after the 365-day period following
the Closing Date, the Closing Sale Price shall have been
greater than $18.00 for fifteen (15) consecutive Trading Days
(such 15-Trading Day period being referred to herein as a
"Mandatory Conversion Period"); and
(2) during the Mandatory Conversion Period, on the
Mandatory Conversion Notice Date and at all times during the
period from the Mandatory Conversion Notice Date through the
Mandatory Conversion Date, (y) the Common Stock shall be
listed on the Nasdaq SmallCap Market, the Nasdaq National
Market System or the New York Stock Exchange, and (z) trading
in the Common Stock, or trading generally, shall not have been
suspended by the principal market on which the Common Stock is
traded;
7. Redemption.
Mandatory Redemption by the Holder.
a. Mandatory Redemption. In the event that a Mandatory
Redemption Event (as defined below) occurs, each Holder shall have the
right to require the Corporation to redeem all or any portion of the
Series D Preferred Shares held by such Holder (a "Mandatory
Redemption") at the Mandatory Redemption Price (as defined herein). In
order to exercise its right to effect a Mandatory Redemption, a
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<PAGE> 39
Holder must deliver a written notice (a "Mandatory Redemption Notice")
to the Corporation at any time on or before 5:00 p.m. (eastern time) on
the third (3rd) Business Day following the Business Day on which the
Mandatory Redemption Event to which such Mandatory Redemption Notice
relates is no longer continuing. The Mandatory Redemption Notice shall
specify the effective date of such Mandatory Redemption (the "Mandatory
Redemption Date") and the number of such shares to be redeemed.
b. Mandatory Redemption Event. Each of the following events
shall be deemed a "Mandatory Redemption Event":
(1) the Corporation fails for any reason (including
without limitation as a result of not having a sufficient
number of shares of Common Stock authorized and reserved for
issuance) to issue shares of Common Stock to a Holder and
deliver certificates representing such shares to such Holder
as and when required by the provisions hereof upon Conversion
of any Series D Preferred Shares, as a result of any willful
action or willful failure to act on the part of the
Corporation, and such failure continues for twenty (20)
Business Days;
(2) the Corporation breaches, in a material respect,
any covenant or other material term or condition of this
Certificate, the Securities Purchase Agreement, the
Registration Rights Agreement, or any other agreement,
document, certificate or other instrument delivered in
connection with the transactions contemplated thereby, and
such breach continues for a period of five (5) Business Days
after written notice thereof to the Corporation from a Holder;
(3) any material representation or warranty made by
the Corporation in the Securities Purchase Agreement, the
Registration Rights Agreement or any other agreement,
document, certificate or other instrument delivered in
connection with the transactions contemplated hereby or
thereby is inaccurate or misleading in any material respect as
of the date such representation or warranty was made;
(4) The effectiveness of any demand Registration
Statement required to be maintained pursuant to the terms of
the Registration Rights Agreement lapses for any reason
(including without limitation, the issuance of a stop order)
or is unavailable to the Holder for the sale of Conversion
Shares in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a
period of five (5) consecutive Business Days (other than as
permitted under the Registration Rights Agreement), in any
twelve (12) month period, provided that such lapse or
unavailability occurs as a result of any willful action or
willful failure to act on the part of the Corporation; and
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<PAGE> 40
(5) the Common Stock is not quoted on the Nasdaq
SmallCap Market or the Nasdaq National Market or listed on the
New York State Exchange, or trading in the Common Stock on
such market or exchange is suspended and such suspension is in
effect for more than five consecutive (5) Trading Days, and
such suspension or failure to be so quoted or listed occurs as
a result of any willful action or willful failure to act on
the part of the Corporation.
c. Mandatory Redemption Price. The "Mandatory Redemption
Price" shall be equal to the greater of (i) the Liquidation Preference
of the Series D Preferred Shares being redeemed multiplied by one
hundred and fifteen percent (115%) and (ii) an amount determined by
dividing the Liquidation Preference of the Series D Preferred Shares
being redeemed by the Conversion Price in effect on the Mandatory
Redemption Date and multiplying the resulting quotient by the average
Closing Trade Price for the Common Stock on the five (5) Trading Days
immediately preceding (but not including) the Mandatory Redemption
Date.
d. Payment of Mandatory Redemption Price.
(1) The Corporation shall pay the Mandatory
Redemption Price to the Holder exercising its right to
redemption on the later to occur of (i) the fifth (5th)
Business Day following the Mandatory Redemption Date and (ii)
the date on which the Series D Preferred Shares being redeemed
are delivered by the Purchaser to the Corporation for
cancellation (the "Mandatory Redemption Payment Date").
(2) If Corporation fails to pay the Mandatory
Redemption Price to the Holder on or before the Mandatory
Redemption Date, the Holder shall be entitled to interest
thereon, from and after the Mandatory Redemption Payment Date
until the Mandatory Redemption Price has been paid in full, at
an annual rate equal to the Default Interest Rate.
(3) If the Corporation fails to pay the Mandatory
Redemption Price within ten (10) Business Days of the
Mandatory Redemption Date, then the Holder shall have the
right to regain its rights as a Holder of the Series D
Preferred Stock and, upon written notice to such effect from
the Holder, the Corporation shall return to such Holder the
certificates representing the Series D Preferred Shares that
were delivered to the Corporation in connection with such
Mandatory Redemption; in such event, the Conversion Price
otherwise applicable to future Conversions of the Series D
Preferred Shares shall be reduced by one percent (1%) for each
day beyond such 10th Business Day in which the failure to pay
the Mandatory Redemption Price continued until the date of
such notice; provided, however, that the maximum percentage by
which such Conversion Price may be reduced hereunder shall be
fifty percent (50%).
8. Miscellaneous.
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<PAGE> 41
a. Transfer of Series D Preferred Shares. A Holder may sell or
transfer all or any portion of the Series D Preferred Shares to any
person or entity as long as such sale or transfer is the subject of an
effective registration statement under the Securities Act or is exempt
from registration thereunder and otherwise is made in accordance with
the terms of the Securities Purchase Agreement. From and after the date
of such sale or transfer, the transferee thereof shall be deemed to be
a Holder. Upon any such sale or transfer, the Corporation shall,
promptly following the return of the certificate or certificates
representing the Series D Preferred Shares that are the subject of such
sale or transfer, issue and deliver to such transferee a new
certificate in the name of such transferee.
b. Notices. Except as otherwise provided herein, any notice,
demand or request required or permitted to be given pursuant to the
terms hereof, the form or delivery of which notice, demand or request
is not otherwise specified herein, shall be in writing and shall be
deemed delivered (i) when delivered personally or by verifiable
facsimile transmission on or before 5:00 p.m., eastern time, on a
Business Day or, if such day is not a Business Day, on the next
succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the Business Day actually
received if deposited in the U.S. mail (certified or registered mail,
return receipt requested, postage prepaid), addressed to the parties as
follows:
If to the Corporation:
Shared Technologies Cellular, Inc.
100 Great Meadow Road
Suite 100
Wethersfield, CT 06109
Attn: Legal Department
Tel: (860) 258-2500
Fax: (860) 258-2455
with a copy to:
Day, Berry & Howard LLP
260 Franklin Street
Boston MA 02110
Attn: Jeffrey A. Clopeck, Esq.
Tel: (617) 345-4600
Fax: (617) 345-4745
and if to any Holder, to such address for such Holder as shall be
designated by such Holder in writing to the Corporation.
c. Lost or Stolen Certificate. Upon receipt by the Corporation
of evidence of the loss, theft, destruction or mutilation of a
certificate representing Series D Preferred Shares, and (in the case of
loss, theft or destruction) of
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<PAGE> 42
indemnity or security reasonably satisfactory to the Corporation, and
upon surrender and cancellation of such certificate if mutilated, the
Corporation shall execute and deliver to the Holder a new certificate
identical in all respects to the original certificate.
d. No Voting Rights. Except as provided by applicable law and
paragraph 8(g) below, the Holders of the Series D Preferred Shares
shall have no voting rights with respect to the business, management or
affairs of the Corporation; provided that the Corporation shall provide
each Holder with prior notification of each meeting of stockholders
(and copies of proxy statements and other information sent to such
stockholders).
e. Remedies, Characterization, Other Obligations, Breaches and
Injunctive Relief. The remedies provided to a Holder in this
Certificate of Designation shall be cumulative and in addition to all
other remedies available to such Holder under this Certificate of
Designation or under any Transaction Document (as defined in the
Securities Purchase Agreement), at law or in equity (including without
limitation a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing
contained herein shall limit such Holder's right to pursue actual
damages for any failure by the Corporation to comply with the terms of
these Certificate of Designation. The Corporation agrees with each
Holder that there shall be no characterization concerning this
instrument other than as specifically provided herein. Amounts set
forth or provided for herein with respect to payments, conversion and
the like (and the computation thereof) shall be the amounts to be
received by the Holder hereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Corporation
(or the performance thereof). The Corporation acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm
to the Holders and that the remedy at law for any such breach may be
inadequate. The Corporation agrees, in the event of any such breach or
threatened breach, each Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach,
without the necessity of showing economic loss and without any bond or
other security being required.
f. Failure or Delay not Waiver. No failure or delay on the
part of a Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
g. Protective Provisions. So long as shares of Series D
Preferred Stock are outstanding, the Corporation shall not, without
first obtaining the approval of the Holders of a majority of the
outstanding shares of Series D Preferred Stock:
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<PAGE> 43
(1) alter, change, modify or amend (x) the terms of
the Series D Preferred Stock in any way or (y) the terms of
any other capital stock of the Corporation so as to affect
adversely the Series D Preferred Stock;
(2) create any new class or series of capital stock
having a preference over or ranking pari passu with the Series
D Preferred Stock as to redemption or distribution of assets
upon a Liquidation Event or any other liquidation, dissolution
or winding up of the Corporation;
(3) increase the authorized number of shares of
Series D Preferred Stock;
(4) re-issue any shares of Series D Preferred Stock
which have been converted or redeemed in accordance with the
terms hereof;
(5) issue any Pari Passu Securities or Senior
Securities (other than non-convertible debt securities or debt
securities which are convertible into or exchangeable for
Common Stock or any other equity or convertible security of
the Corporation junior to the Series D Preferred Stock);
(6) redeem, or declare, pay or make any provision for
any dividend or distribution with respect to, the Common Stock
or any other capital stock of the Corporation ranking junior
to the Series D Preferred Stock as to the distribution of
assets upon liquidation, dissolution or winding up of the
Corporation; or
(7) issue any Series D Preferred Stock except
pursuant to the terms of the Securities Purchase Agreement.
In the event that the Holders of at a majority of the outstanding
shares of Series D Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of
Series D Preferred Stock pursuant to the terms hereof, then the
Corporation will deliver notice of such approved change to the holders
of the Series D Preferred Stock that did not agree to such alteration
or change (the "Dissenting Holders") and the Dissenting Holders shall
have the right for a period of thirty (30) days following such delivery
to convert their Series D Preferred Shares pursuant to the terms hereof
as they existed prior to such alteration or change, or to continue to
hold such Series D Preferred Shares. No such change shall be effective
to the extent that, by its terms, it applies to less than all of the
Holders of Series D Preferred Shares then outstanding.
h. BHCA Compliance. Notwithstanding the provisions of Section
4 and Section 6 of Article FOURTH: B. hereof, with respect to any
Holder subject to the Bank Holding company Act of 1956 (the "BHCA"),
only such number of the Series D Preferred Shares held by such Holder
shall be convertible into Conversion Shares as may be permitted at any
time under the BHCA. Any Series D Preferred Shares which are not
convertible into Conversion Shares pursuant to the preceding sentence
may be held by such Holder until such time as such Series
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<PAGE> 44
D Preferred Shares may, in the opinion of counsel reasonable
acceptable to such Holder, be converted into Conversion Shares
without violating the BHCA.
FIFTH: [Omitted.]
SIXTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director for any act or omission; provided, however, that the
foregoing shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty or loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the GCL, or
(iv) for any transaction from which the director derived an improper personal
benefit. If the GCL is hereafter amended to permit further elimination or
limitation of the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the GCL as so amended. Any repeal or modification of this Article
EIGHTH by the stockholders of the Corporation or otherwise shall not apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omission of such director
occurring prior to such amendment or repeal.
NINTH: A. The Corporation shall, to the fullest extent permitted by
Section 145 of the GCL, indemnify any person who was or is a party or is
threatened to be made a party
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<PAGE> 45
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) against any and all of the expenses (including
attorneys' fees), judgment, fines and amounts paid in settlement actually or
reasonably incurred by such person by reason of having been an officer,
director, employee or agent at the request of the Corporation, any subsidiary of
the Corporation or of any other corporation, partnership, joint venture, trust
or other enterprise for which any and all persons who acted as officer,
director, employee or agent at the request of the Corporation, if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the Corporation, and with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
B. The Corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
C. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in sections (a) and (b) of this Article
NINTH, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
D. Any indemnification under sections (a) and (b) of this Article NINTH
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in sections (a) and (b) of this Article
NINTH. Such determination shall be made (1) by the Board by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
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<PAGE> 46
E. Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article NINTH. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the Board deems
appropriate.
F. The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article NINTH shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
G. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify a person against such liability under this Article NINTH.
H. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article NINTH shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
I. If a claim for indemnification pursuant to this Article NINTH is not
paid in full by the Corporation within thirty (30) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be
paid also the expenses of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the applicable standard of conduct
set forth in the GCL for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant is proper
in the circumstances because he or she has met the applicable standard of
conduct set forth in the GCL, nor an actual determination by the Corporation
(including its Board, independent legal counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
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<PAGE> 47
TENTH: The Corporation reserves the right to rescind, amend, alter,
change, or repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ELEVENTH: The number of directors constituting the entire Board of
Directors shall be as set forth in or pursuant to the Bylaws of the Corporation.
The Board of Directors shall be divided into three classes, designated Classes
I, II and III, which shall be as nearly equal in number as possible. Initially,
directors of Class I shall be elected to hold office for a term expiring at the
annual meeting of stockholders in 2000, directors of Class II shall be elected
to hold office for a term expiring at the annual meeting of stockholders in 2001
and directors of Class III shall be elected to hold office for a term expiring
at the annual meeting of stockholders in 2002. At each annual meeting of
stockholders following such initial classification and election, the respective
successors of each class shall be elected for three-year terms.
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<PAGE> 48
IN WITNESS WHEREOF, SHARED TECHNOLOGIES CELLULAR, INC. has caused this
Second Restated Certificate of Incorporation to be signed by Anthony D.
Autorino, its Chairman and Chief Executive Officer, this 29th day of February,
2000.
SHARED TECHNOLOGIES CELLULAR, INC.
By: /s/ Anthony D. Autorino
------------------------
Anthony D. Autorino
Chairman and Chief Executive Officer
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<PAGE> 49
EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series ___ Convertible
Preferred Stock (the "Preferred Stock"), represented by stock certificate No(s).
_______ (the "Preferred Stock Certificates"), into shares of common stock
("Common Stock") of Shared Technologies Cellular, Inc. according to the terms
and conditions of the Certificate of Designation relating to the Preferred Stock
(the "Certificate of Designation"), as of the date written below. Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Certificate of Designation.
Date of Conversion: ________________________
Number of Shares of
Preferred Stock to be Converted: ___________
Amount of Accrued Premium: _________________
Applicable Conversion Price: _______________
Number of Shares of Common
Stock to be Issued: ________________________
Name of Holder: ____________________________
Address: ___________________________________
___________________________________
___________________________________
Signature: _________________________________
Name:
Title:
Holder Requests Delivery to be made: (check one)
By Delivery of Physical Certificates to the Above Address
Through Depository Trust Corporation
(Account_________________________________)
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<PAGE> 1
Exhibit 3(ii)
AMENDED AND RESTATED BY-LAWS
OF
SHARED TECHNOLOGIES CELLULAR, INC.
<PAGE> 2
AMENDED AND RESTATED BY-LAWS
OF
SHARED TECHNOLOGIES CELLULAR, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 STOCKHOLDERS..........................................................................1
1.1 Place of Meetings.....................................................................1
1.2 Annual Meeting........................................................................1
1.3 Special Meetings......................................................................1
1.4 Notice of Meetings....................................................................1
1.5 Voting List...........................................................................1
1.6 Quorum................................................................................2
1.7 Adjournments..........................................................................2
1.8 Voting and Proxies....................................................................2
1.9 Action at Meeting.....................................................................2
1.10 Action without Meeting................................................................2
ARTICLE 2 DIRECTORS.............................................................................3
2.1 General Powers........................................................................3
2.2 Number, Election and Term of Office...................................................3
2.3 Vacancies.............................................................................3
2.4 Resignation...........................................................................4
2.5 Regular Meetings......................................................................4
2.6 Special Meetings......................................................................4
2.7 Notice of Special Meetings............................................................4
2.8 Meetings by Telephone Conference Calls................................................4
2.9 Quorum................................................................................4
2.10 Action at Meeting.....................................................................5
2.11 Action by Consent.....................................................................5
2.12 Committees............................................................................5
2.13 Compensation of Directors.............................................................5
ARTICLE 3 OFFICERS..............................................................................5
3.1 Enumeration...........................................................................5
3.2 Election..............................................................................6
3.3 Qualification.........................................................................6
3.4 Tenure................................................................................6
3.5 Resignation and Removal...............................................................6
3.6 Vacancies.............................................................................6
3.7 Chairman of the Board and Vice-Chairman of the Board..................................6
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C>
3.8 President.............................................................................7
3.9 Vice-Presidents.......................................................................7
3.10 Secretary and Assistant Secretaries...................................................7
3.11 Treasurer and Assistant Treasurers....................................................7
3.12 Salaries..............................................................................8
ARTICLE 4 CAPITAL STOCK.........................................................................8
4.1 Issuance of Stock.....................................................................8
4.2 Certificates of Stock.................................................................8
4.3 Transfers.............................................................................8
4.4 Lost, Stolen or Destroyed Certificates................................................9
4.5 Record Date...........................................................................9
ARTICLE 5 GENERAL PROVISIONS....................................................................9
5.1 Fiscal Year...........................................................................9
5.2 Corporate Seal.......................................................................10
5.3 Waiver of Notice.....................................................................10
5.4 Voting of Securities.................................................................10
5.5 Evidence of Authority................................................................10
5.6 Certificate of Incorporation.........................................................10
5.7 Transactions with Interested Parties.................................................11
5.8 Severability.........................................................................11
5.9 Pronouns.............................................................................11
ARTICLE 6 AMENDMENTS...........................................................................11
6.1 By the Board of Directors............................................................11
6.2 By the Stockholders..................................................................11
</TABLE>
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<PAGE> 4
AMENDED AND RESTATED BY-LAWS
OF
SHARED TECHNOLOGIES CELLULAR, INC.
ARTICLE 1
STOCKHOLDERS
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on the third Tuesday in May in each
year, at a time fixed by the Board of Directors or the President. If this date
shall fall upon a legal holiday at the place of the meeting, then such meeting
shall be held on the next succeeding business day at the same hour. If no annual
meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the President, by the Board of Directors or by the holders of record
of no less than 10% of the then outstanding shares of stock entitled to vote.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in
<PAGE> 5
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, at a place within
the city where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time of the meeting,
and may be inspected by any stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of other corporation issued and outstanding and entitled to vote
at the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
1.10 Action without Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a
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meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
on such action were present and voted. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
ARTICLE 2
DIRECTORS
2.1 General Powers. The business and affairs of the corporation shall
be managed by the Board of Directors. The Board of Directors shall be divided
into three classes, designated Classes I, II and III, which shall be as nearly
equal in number as possible. The initial directors of Class I shall be elected
to hold office for a term expiring at the annual meeting of stockholders in
2000, the initial directors of Class II shall be elected to hold office for a
term expiring at the annual meeting of stockholders in 2001, and the initial
directors of Class III shall be elected to hold office for a term expiring at
the annual meeting of stockholders in 2002. At each annual meeting of
stockholders following such initial classification and election, the respective
successors of each class shall be elected for three-year terms.
2.2 Number, Election and Term of Office. The number of directors shall
be fixed from time to time by resolution of the Board of Directors, but shall
not be less than three (3) nor more than eleven (11). In case of any increase in
the number of directors in advance of an annual meeting of stockholders, each
additional director shall be elected by the directors then in office, although
less than a quorum, to hold office until the next election of the class for
which such director shall have been chosen, and until his successor shall have
been duly elected and qualified (subject to Section 2.3 of this Article 2). No
decrease in the number of directors shall shorten the term of any incumbent
director. Any newly-created or eliminated directorships resulting from an
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly equal as
possible. It shall not be a qualification of office that the directors be
residents of the State of Delaware or stockholders of the corporation.
2.3 Vacancies. In case of any vacancy in the Board of Directors through
death, resignation, retirement, removal, disqualification or other cause, the
remaining directors, by vote of a majority thereof, shall elect a successor to
hold office for the unexpired portion of the term of office of the class for
which such vacancy occurs, and until the election of his successor. Any director
elected by the remaining Board of Directors to fill a vacancy created by any of
the foregoing reasons or by an increase in the number of directors constituting
the entire Board of Directors must subsequently be approved or confirmed by the
holders of a majority of the shares of Common Stock of the corporation present
in person, or represented by proxy, and entitled to vote at the next annual
meeting of stockholders. If the director elected to fill such vacancy by the
Board
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of Directors is not subsequently approved by the stockholders, and if another
candidate is not elected at the annual meeting of stockholders in accordance
with federal securities laws and these bylaws, then the number of directors
constituting the entire Board of Directors will automatically be reduced and, if
necessary, the number of directors serving in each class will be reapportioned
so that the number of directors serving in each class will be as nearly equal as
possible.
2.4 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.5 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.6 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.7 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.8 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.9 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors
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present may adjourn the meeting from time to time without further notice other
than announcement at the meeting, until a quorum shall be present.
2.10 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.11 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.12 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.13 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3
OFFICERS
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of
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Directors shall determine, including a Chairman of the Board, a Vice-Chairman of
the Board, and one or more Vice Presidents, Assistant Treasurers, and Assistant
Secretaries. The Board of Directors may appoint such other officers as it may
deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
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3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 Vice-Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
Treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make
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proper accounts of such funds, and to render as required by the Board of
Directors statements of all such transactions and of the financial condition of
the corporation.
Any Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4
CAPITAL STOCK
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer
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agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or vote at a meeting of stockholders shall be
at the close of business on the day before the day on which notice is given, or,
if notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5
GENERAL PROVISIONS
5.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
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5.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certification of Incorporation or by these By-Laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or any
other available method, whether before, at or after the time stated in such
waiver, or the appearance of such person or persons at such meeting in person or
by proxy, shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of , and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith by
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
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5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6
AMENDMENTS
6.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a
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majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
As amended through July 7, 1999.
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Exhibit 10.12
EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is entered into as of the 1st day of
October, 1999, by and between SHARED TECHNOLOGIES CELLULAR, INC. ("STC"), having
its principal offices at 100 Great Meadow Road, Suite 104, Wethersfield, CT
06109, a Delaware corporation, and ANTHONY D. AUTORINO ("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 of one (1) year, commencing
October 1, 1999 (the "Effective Date") and expiring September 30, 2000, 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 CHAIRMAN AND CHIEF EXECUTIVE 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 8 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 8(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.
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 THREE HUNDRED SEVENTY-FIVE
THOUSAND DOLLARS ($375,000) per annum, less deduction and withholding required
by applicable law, or such greater amount as shall be approved by the Board of
Directors of the Company ("Base Salary"), payable in arrears in accordance with
the Company's regular payroll schedule.
(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 each year and Employee shall be notified thereof.
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.
(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.
(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.
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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 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 6.1 shall survive the termination of this Agreement.
This Section 6.2 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
6.2 shall survive the termination of this Agreement.
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 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),
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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 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. To the fullest extent permitted by law, Employee waives the
requirement that the Company make a showing of irreparable harm or injury and
any requirement to post a bond in order to obtain equitable relief hereunder. 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
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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 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:
(i) the willful and continued failure by Employee after
written notice from the Board of Directors to substantially perform his duties
hereunder, (ii) any act of dishonesty by Employee 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. In the event of termination for Cause, no payment
obligations shall accrue hereunder after the effective date of such termination.
(ii) 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"). 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
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termination, in equal semi-monthly installments or otherwise in accordance with
the Company's regular payroll schedule. Any payment of Severance 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.
(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 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) Additional 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 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 provided herein shall be deemed conclusive
and binding on Company and Employee. Company shall pay the fees and other costs
of the Tax Advisor hereunder.
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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 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 19(b) below, occurs.
(b) A "Trigger Event" shall be deemed to occur if (a) the
Company shall be merged or consolidated into another company, unless pursuant to
such transaction the shareholders of the Company holding, immediately prior to
such transaction, securities representing 50% or more of the aggregate voting
power of the Company, receive securities of the surviving company representing,
immediately after such transaction, 50% or more of the combined voting power of
the surviving company's then outstanding securities entitled to vote generally
in the election of directors, or (b) any "person" (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934, as amended, hereinafter
the "Exchange Act") becomes the "beneficial owner" (as defined in Rule 13d-3 of
the Exchange Act) of securities of the Company representing fifty percent (50%)
or more of the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors (the
"Threshold"). Notwithstanding anything to the contrary stated in this Section
10(b), a Trigger Event shall not include a public offering of the Company's
securities.
(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 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
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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 eighteen (18)
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 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 hereunder have been duly authorized by all appropriate action, and
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.
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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 all heirs, successors and permitted transferees or assigns of the
parties hereto.
(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 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 Company's Board of Directors reserves the right to amend this
Agreement in its sole discretion in order to eliminate any provisions that would
prevent "pooling" accounting treatment, but only to the extent necessary to
accomplish such objective.
(i) 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.
(j) 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.
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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: By:
------------------------------- -------------------------------------
Anthony D. Autorino Vincent DiVincenzo, CFO
Date: September ___, 1999 Date: September ___, 1999
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<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is entered into as of the 1st day of
October, 1999, by and between SHARED TECHNOLOGIES CELLULAR, INC. ("STC"), having
its principal offices at 100 Great Meadow Road, Suite 104, Wethersfield, CT
06109, a Delaware corporation, and VINCENT DIVINCENZO ("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 of one (1) year, commencing
October 1, 1999 (the "Effective Date") and expiring September 30, 2000, 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 SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
TREASURER 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 Chief
Executive Officer or 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
<PAGE> 2
responsibilities under Section 3 hereof faithfully, 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 Chief
Executive Officer or the Board of Directors of the Company. Except as provided
in Section 8 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 8(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.
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 ONE HUNDRED SEVENTY-FIVE
THOUSAND DOLLARS ($175,000) per annum, less deduction and withholding required
by applicable law, or such greater amount as shall be approved by the Chief
Executive Officer of the Company ("Base Salary"), payable in arrears in
accordance with the Company's regular payroll schedule.
(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 Chief Executive Officer each year and Employee shall be notified
thereof. 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.
(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.
(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.
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<PAGE> 3
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 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 6.1 shall survive the termination of this Agreement.
This Section 6.2 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
6.2 shall survive the termination of this Agreement.
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 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),
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<PAGE> 4
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 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. To the fullest extent permitted by law, Employee waives the
requirement that the Company make a showing of irreparable harm or injury and
any requirement to post a bond in order to obtain equitable relief hereunder. 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
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<PAGE> 5
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 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:
(i) the willful and continued failure by Employee after
written notice from the Chief Executive Officer to substantially perform his
duties hereunder, (ii) any act of dishonesty by Employee 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 Chief Executive
Officer, (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. In the event of termination for Cause, no payment
obligations shall accrue hereunder after the effective date of such termination.
(ii) 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"). 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
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termination, in equal semi-monthly installments or otherwise in accordance with
the Company's regular payroll schedule. Any payment of Severance 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.
(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 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) Additional 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 to the 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 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 provided herein shall be deemed conclusive and binding on Company and
Employee. Company shall pay the fees and other costs of the Tax Advisor
hereunder.
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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 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 19(b) below, occurs.
(b) A "Trigger Event" shall be deemed to occur if (a) the
Company shall be merged or consolidated into another company, unless pursuant to
such transaction the shareholders of the Company holding, immediately prior to
such transaction, securities representing 50% or more of the aggregate voting
power of the Company, receive securities of the surviving company representing,
immediately after such transaction, 50% or more of the combined voting power of
the surviving company's then outstanding securities entitled to vote generally
in the election of directors, or (b) any "person" (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934, as amended, hereinafter
the "Exchange Act") becomes the "beneficial owner" (as defined in Rule 13d-3 of
the Exchange Act) of securities of the Company representing fifty percent (50%)
or more of the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors (the
"Threshold"). Notwithstanding anything to the contrary stated in this Section
10(b), a Trigger Event shall not include a public offering of the Company's
securities.
(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 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
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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 eighteen (18)
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 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 hereunder have been duly authorized by all appropriate action, and
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.
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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 all heirs, successors and permitted transferees or assigns of the
parties hereto.
(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 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 Company's Board of Directors reserves the right to amend this
Agreement in its sole discretion in order to eliminate any provisions that would
prevent "pooling" accounting treatment, but only to the extent necessary to
accomplish such objective.
(i) 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.
(j) 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.
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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: ___________________________ By: _____________________________
Vincent DiVincenzo Anthony D. Autorino, CEO
Date: September ___, 1999 Date: September ___, 1999
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<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is entered into as of the 1st day of
October, 1999, by and between SHARED TECHNOLOGIES CELLULAR, INC. ("STC"), having
its principal offices at 100 Great Meadow Road, Suite 104, Wethersfield, CT
06109, a Delaware corporation, and SEAN P. HAYES ("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 of one (1) year,
commencing October 1, 1999 (the "Effective Date") and expiring September 30,
2000, 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 EXECUTIVE VICE PRESIDENT 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 Chief Executive Officer or 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 Chief Executive Officer or the Board of Directors of the
Company. Except as provided in Section 8 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 8(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.
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 ONE HUNDRED THIRTY THOUSAND
DOLLARS ($130,000) per annum, less deduction and withholding required by
applicable law, or such greater amount as shall be approved by the Chief
Executive Officer of the Company ("Base Salary"), payable in arrears in
accordance with the Company's regular payroll schedule.
(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 FORTY PERCENT (40%) 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 Chief Executive Officer each year and Employee shall be notified
thereof. 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.
(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.
(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.
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<PAGE> 3
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 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 6.1 shall survive the termination of this Agreement.
This Section 6.2 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
6.2 shall survive the termination of this Agreement.
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 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),
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<PAGE> 4
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 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. To the fullest extent permitted by law, Employee waives the
requirement that the Company make a showing of irreparable harm or injury and
any requirement to post a bond in order to obtain equitable relief hereunder. 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
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<PAGE> 5
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 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:
(i) the willful and continued failure by Employee after written
notice from the Chief Executive Officer to substantially perform his duties
hereunder, (ii) any act of dishonesty by Employee 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 Chief Executive
Officer, (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. In the event of termination for Cause, no payment
obligations shall accrue hereunder after the effective date of such termination.
(ii) 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"). 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
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<PAGE> 6
termination, in equal semi-monthly installments or otherwise in accordance with
the Company's regular payroll schedule. Any payment of Severance 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.
(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 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) Additional 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 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 provided herein shall be deemed conclusive
and binding on Company and Employee. Company shall pay the fees and other costs
of the Tax Advisor hereunder.
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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 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 19(b) below, occurs.
(b) A "Trigger Event" shall be deemed to occur if (a) the
Company shall be merged or consolidated into another company, unless pursuant to
such transaction the shareholders of the Company holding, immediately prior to
such transaction, securities representing 50% or more of the aggregate voting
power of the Company, receive securities of the surviving company representing,
immediately after such transaction, 50% or more of the combined voting power of
the surviving company's then outstanding securities entitled to vote generally
in the election of directors, or (b) any "person" (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934, as amended, hereinafter
the "Exchange Act") becomes the "beneficial owner" (as defined in Rule 13d-3 of
the Exchange Act) of securities of the Company representing fifty percent (50%)
or more of the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors (the
"Threshold"). Notwithstanding anything to the contrary stated in this Section
10(b), a Trigger Event shall not include a public offering of the Company's
securities.
(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 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
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<PAGE> 8
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 eighteen (18)
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 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 hereunder have been duly authorized by all appropriate
action, and 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.
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<PAGE> 9
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 all heirs, successors and permitted transferees or assigns of the
parties hereto.
(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 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 Company's Board of Directors reserves the right to amend this
Agreement in its sole discretion in order to eliminate any provisions that would
prevent "pooling" accounting treatment, but only to the extent necessary to
accomplish such objective.
(i) 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.
(j) 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.
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<PAGE> 11
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: ___________________________ By: _____________________________
Sean P. Hayes Vincent DiVincenzo, CFO
Date: September ___, 1999 Date: September ___, 1999
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<PAGE> 1
Exhibit 10.15
EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is entered into as of the 1st day of
October, 1999, by and between SHARED TECHNOLOGIES CELLULAR, INC. ("STC"), having
its principal offices at 100 Great Meadow Road, Suite 104, Wethersfield, CT
06109, a Delaware corporation, and KENNETH M. DORROS ("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 of one (1) year, commencing
October 1, 1999 (the "Effective Date") and expiring September 30, 2000, 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 SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
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 Chief Executive Officer
or 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
<PAGE> 2
responsibilities under Section 3 hereof faithfully, 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 Chief
Executive Officer or the Board of Directors of the Company. Except as provided
in Section 8 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 8(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.
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 ONE HUNDRED TEN THOUSAND
DOLLARS ($110,000) per annum, less deduction and withholding required by
applicable law, or such greater amount as shall be approved by the Chief
Executive Officer of the Company ("Base Salary"), payable in arrears in
accordance with the Company's regular payroll schedule.
(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 TWENTY-FIVE PERCENT
(25%) 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 Chief Executive Officer each year and Employee shall be notified
thereof. 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.
(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.
(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.
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<PAGE> 3
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 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 6.1 shall survive the termination of this Agreement.
This Section 6.2 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
6.2 shall survive the termination of this Agreement.
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 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),
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<PAGE> 4
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 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. To the fullest extent permitted by law, Employee waives the
requirement that the Company make a showing of irreparable harm or injury and
any requirement to post a bond in order to obtain equitable relief hereunder. 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
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<PAGE> 5
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 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:
(i) the willful and continued failure by Employee after written
notice from the Chief Executive Officer to substantially perform his duties
hereunder, (ii) any act of dishonesty by Employee 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 Chief Executive
Officer, (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. In the event of termination for Cause, no payment
obligations shall accrue hereunder after the effective date of such termination.
(ii) 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. 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 SIX (6) MONTHS BASE
SALARY PLUS SIX (6) MONTHS' TARGET BONUS, INCREASED BY A FACTOR OF TWENTY
PERCENT (20%) to account for Employee's loss of benefits ("Severance Pay"). 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 six (6)
month period, following the effective date
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<PAGE> 6
of termination, in equal semi-monthly installments or otherwise in accordance
with the Company's regular payroll schedule. Any payment of Severance 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.
(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 six (6) month 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 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.
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 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 19(b) below, occurs.
(b) A "Trigger Event" shall be deemed to occur if (a) the
Company shall be merged or consolidated into another company, unless pursuant to
such transaction the shareholders of the Company holding, immediately prior to
such transaction, securities representing 50% or more of the aggregate voting
power of the Company, receive securities of the surviving company representing,
immediately after such transaction, 50% or more of the combined voting power of
the surviving company's then outstanding securities entitled to vote generally
in the election of directors, or (b) any "person" (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934, as amended, hereinafter
the "Exchange Act") becomes the "beneficial owner" (as defined in Rule 13d-3 of
the Exchange Act) of securities of the Company representing fifty percent (50%)
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<PAGE> 7
or more of the combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of directors (the
"Threshold"). Notwithstanding anything to the contrary stated in this Section
10(b), a Trigger Event shall not include a public offering of the Company's
securities.
(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 SIX (6) MONTHS' BASE SALARY PLUS SIX (6) 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 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 six (6) 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 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.
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11. Compliance with Other Agreements. Employee represents and warrants
that the execution and delivery of this Agreement and the performance of the
obligations hereunder have been duly authorized by all appropriate action, and
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 all heirs, successors and permitted transferees or assigns of the
parties hereto.
(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 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.
8
<PAGE> 9
(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 Company's Board of Directors reserves the right to amend this
Agreement in its sole discretion in order to eliminate any provisions that would
prevent "pooling" accounting treatment, but only to the extent necessary to
accomplish such objective.
(i) 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.
(j) 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.
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: ___________________________ By: _____________________________
Kenneth M. Dorros Vincent DiVincenzo, CFO
Date: September ___, 1999 Date: September ___, 1999
9
<PAGE> 1
Shared Technologies Cellular, Inc.
Exhibit 21
List of subsidiaries of the registrant.
The Cellular Hotline, Inc.
Retail Cellular, Inc.
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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0
20,861
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