-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DsBN96HuX7cOGCyU6YBWPSeJwUaWSEoVS55s40WdR+4WvuXAsaKA+nRxyu22RggD T6sk5QrnAg3KnmS6HLbAFg== 0000914039-00-000165.txt : 20000331 0000914039-00-000165.hdr.sgml : 20000331 ACCESSION NUMBER: 0000914039-00-000165 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED TECHNOLOGIES CELLULAR INC CENTRAL INDEX KEY: 0000933583 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] IRS NUMBER: 061386411 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13558 FILM NUMBER: 588048 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD STREET 2: SUITE 102 CITY: WETHERSFIELD STATE: CT ZIP: 06109 BUSINESS PHONE: 8602582500 MAIL ADDRESS: STREET 1: C/O SHARED TECHNOLOGIES CELLULAR INC STREET 2: 100 GREAT MEADOW ROAD SUITE 102 CITY: WETHERSFIELD STATE: CT ZIP: 06109 10-K 1 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K _ X _ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT Of 1934 For the fiscal year ended December 31, 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 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes_ _X_ _ No _ _ _ _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's Common Stock held by nonaffiliates as of March 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. 2 PART I ITEM 1. BUSINESS. (a) General Development of Business - Shared Technologies Cellular, Inc. ("STC" or the "Company"), a Delaware corporation incorporated in 1989, is a national 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 2 3 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 3 4 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. 4 5 (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. 5 6 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. 6 7 (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. 7 8 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:
1999 1999 1998 1998 ------ ------ ----- ----- High Low High Low 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
8 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.
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- 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
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 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:
1999 1999 1998 1998 ---- ---- ---- ---- Revenues Gross Margin Revenues Gross Margin Debit 46% (14)% 45% 4% Rental 50% 62% 50% 48% Activation 4% 32% 5% 45% --- --- --- --- 100% 22% 100% 28%
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 10 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 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 12 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:
1999 1999 1998 1998 ---- ---- ---- ---- Revenues Gross Margin Revenues Gross Margin Debit 45% 4% 26% 43% Rental 50% 48% 63% 46% Activation 5% 45% 11% 37% --- --- --- --- 100% 28% 100% 44%
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 13 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. 14 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 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 17 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE (ITEM 8)
Page ---- FINANCIAL STATEMENTS: Independent Auditors' Report F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders' Equity (Deficiency) F-5 Consolidated Statements of Cash Flows F-6-7 Notes to Consolidated Financial Statements F-8-21 FINANCIAL STATEMENT SCHEDULE (a): Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 1999, 1998 and 1997 S-1
NOTE: (a) All other schedules are not submitted because they are either not applicable, not required or the required information is included in the consolidated financial statements or notes thereto. F-1 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 19 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998
1999 1998 ------------ ------------ 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 ============ ============
See accompanying notes to consolidated financial statements F-3 20 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------ ------------ ------------ 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 ============ ============ ============
See accompanying notes to consolidated financial statements F-4 21 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) Years Ended December 31, 1999, 1998 and 1997
Series B Preferred Stock Common Stock ------------------------------- ------------------------------ Shares Amount Shares Amount --------------- -------------- -------------- -------------- 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 =============== ============== ============== ==============
Total Capital in Stockholders' Excess of Accumulated Equity Par Value Deficit (Deficiency) ---------------- ------------------ ---------------- 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) ================ ================== ================
See accompanying notes to consolidated financial statements F-5 22 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------ ------------ ------------ 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 ============ ============ ============
See accompanying notes to consolidated financial statements F-6 23 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------------- ------------------ ------------------ 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 $ -- $ -- =================== ================== ==================
See accompanying notes to consolidated financial statements F-7 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 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 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 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:
1999 1998 ---------- ---------- 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 ========== ==========
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:
1999 1998 ---------- ---------- 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 ========== ==========
F-11 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:
1999 1998 ---------- ---------- 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 ========== ==========
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:
1999 1998 ---------- ---------- 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 ========== ==========
F-12 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:
1999 1998 ---------- ---------- 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 ========== ==========
F-13 30 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - NOTES PAYABLE (CONTINUED) Aggregate future principal payments are as follows:
Long-Term Capital Lease Year Ending December 31, Debt Obligation ---------- ------------- 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 ==========
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 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 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:
Exercise Price Per Share Number of Weighted Options Range Average --------------- ----------------- ------------- 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 =============== ================= =============
F-16 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:
1999 1998 1997 ---- ---- ---- 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)
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 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:
1999 1998 1997 ---- ---- ---- 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% ======== ======== ========
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:
1999 1998 ----------------- ------------------ 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) ----------------- ------------------ $ -- $ -- ================= ==================
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 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: Year ending December 31 2000 $ 798,000 2001 753,000 2002 138,000
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 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 37 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - SEGMENT INFORMATION (CONTINUED)
Rental Debit Activation Corporate Consolidated ------ ----- ---------- --------- ------------ 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)
F-21 38 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1999, 1998 and 1997
Balance at Charged to Balance at Beginning Costs and End Description of Year Expenses Deductions (1) of Year ----------- --------------- --------------- --------------- --------------- 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 =============== =============== =============== ===============
(1) Represents write off of uncollected accounts, net of recoveries. S-1 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.
Director Age Director Since Year Term Position with the Company -------- --- -------------- Expires -------------------------- -------- 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
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 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.
OFFICER AGE POSITION WITH COMPANY ------- --- --------------------- 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
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 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."
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION SECURITIES ALL OTHER UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION - --------------------------- ---- ------ ----- ----------- ------------ 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
19 42 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
(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 $670. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth information on options granted during the fiscal year ended December 31, 1999 to the Named Executive Officers.
INDIVIDUAL GRANTS POTENTIAL REALIZED VALUE % OF TOTAL AT ASSUMED RATES OF OPTIONS EXERCISE STOCK PRICE APPRECIATION GRANTED TO OR BASE FOR OPTION TERM OPTIONS EMPLOYEES IN PRICE EXPIRATION NAME GRANTED(#) 1999 ($/SH) DATE 5%($) 10%($) - ---- ---------- ------------ ----------- ----------- ------------ --------- 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
(1) One-third exercisable at $9.00, $10.00 and $12.00 per share, respectively. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table sets forth information concerning outstanding options to purchase the Company's Common Stock as of December 31, 1999. No stock options were exercised during the fiscal year ended December 31, 1999 by 20 43 the Named Executive Officers.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS AT FISCAL OPTIONS AT FISCAL YEAR END($) YEAR END(#) EXERCISABLE/ EXERCISABLE/ UNEXERCISABLE UNEXERCISABLE ------------- ------------- 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
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 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 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]
Company Name/Index 4/21/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 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
23 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.
PERCENTAGE OF NAME AND ADDRESS (1) NUMBER OF SHARES COMMON STOCK DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWNED (2) OUTSTANDING - -------------------------------------------------------------------------------------------------- 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
24 47 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
* 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 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 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 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
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------- 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.
28 51 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.
29 52 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
* 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 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.
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
* By: /s/ Anthony D. Autorino Anthony D. Autorino Attorney-in-fact EX-3.I 2 EX-3.I 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. 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- 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- 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- 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- 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- 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. -7- 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- 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- 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: -10- 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- 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"):
Period Conversion Limit Amount During the 1st Year Following the Issue Date 3,975,000 During the 2nd Year Following the Issue Date 4,200,000 During the 3rd Year Following the Issue Date 4,425,000 During the 4th Year Following the Issue Date 4,650,000 Following the 4th Anniversary of the Issue Date 4,875,000
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 -12- 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- 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- 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) -15- 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. -16- 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; -17- 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"). -18- 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 -19- 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 -20- 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. -21- 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 -22- 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: -23- 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: -24- 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. -25- 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 -26- 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 -27- 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 -28- 29 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). -29- 30 (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 -30- 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 -31- 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: -32- 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. -33- 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; -34- 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 -35- 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 -36- 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 -37- 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 -38- 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 -39- 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. -40- 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 -41- 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: -42- 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 -43- 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 -44- 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. -45- 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. -46- 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. -47- 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 -48- 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_________________________________) -49- EX-3.II 3 EX-3.II 1 Exhibit 3(ii) AMENDED AND RESTATED BY-LAWS OF SHARED TECHNOLOGIES CELLULAR, INC. 2 AMENDED AND RESTATED BY-LAWS OF SHARED TECHNOLOGIES CELLULAR, INC. TABLE OF CONTENTS
Page ---- 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
3 TABLE OF CONTENTS (continued)
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
-ii- 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 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 2 6 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 3 7 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 4 8 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 5 9 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. 6 10 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 7 11 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 8 12 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. 9 13 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. 10 14 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 11 15 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. 12 EX-10.12 4 EX-10.12 1 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, 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. 2 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), 3 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 4 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 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 5 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. 6 7 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 7 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. 8 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. 9 10 [Remainder of this page intentionally left blank] 10 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: ------------------------------- ------------------------------------- Anthony D. Autorino Vincent DiVincenzo, CFO Date: September ___, 1999 Date: September ___, 1999 11 EX-10.13 5 EX-10.13 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 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. 2 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), 3 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 4 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 5 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 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. 6 7 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 7 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. 8 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. 9 10 [Remainder of this page intentionally left blank] 10 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: _____________________________ Vincent DiVincenzo Anthony D. Autorino, CEO Date: September ___, 1999 Date: September ___, 1999 11 EX-10.14 6 EX-10.14 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, 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. 2 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), 3 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 4 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 5 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. 6 7 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 7 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. 8 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. 9 10 [Remainder of this page intentionally left blank] 10 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 11 EX-10.15 7 EX-10.15 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 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. 2 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), 3 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 4 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 5 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%) 6 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. 7 8 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 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 EX-21 8 EX-21 1 Shared Technologies Cellular, Inc. Exhibit 21 List of subsidiaries of the registrant. The Cellular Hotline, Inc. Retail Cellular, Inc. EX-27 9 EX-27
5 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1,635 0 4,107 495 2,316 12,267 2,541 1,027 21,585 20,515 0 0 20,861 85 (22,568) 21,585 28,271 28,271 21,927 21,927 22,628 0 574 (16,858) 7 (16,865) 0 0 0 (22,651) (2.84) (2.84)
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