-----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, BvP1Bx6cuZ8M4jKtG7npZz2ZnDK07R9lcREOab4u+Pn7S7oKk3WUA3xELvqAA5no zURNcozG699n9fCcODxmRA== /in/edgar/work/20000814/0000914039-00-000379/0000914039-00-000379.txt : 20000921 0000914039-00-000379.hdr.sgml : 20000921 ACCESSION NUMBER: 0000914039-00-000379 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED TECHNOLOGIES CELLULAR INC CENTRAL INDEX KEY: 0000933583 STANDARD INDUSTRIAL CLASSIFICATION: [7385 ] IRS NUMBER: 061386411 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13558 FILM NUMBER: 698309 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD STREET 2: SUITE 104 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-Q 1 e10-q.txt FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number 1-13732 SHARED TECHNOLOGIES CELLULAR, INC. (Exact name of registrant as specified in its charter) Delaware 06-1386411 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.)
100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109 (Address of principal executive office) (Zip Code) (860) 258-2500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X___ No ___ As of August 11, 2000, there were 13,386,590 shares outstanding of the registrant's Common Stock, $.01 par value 2 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 INDEX
PART 1 FINANCIAL INFORMATION PAGE Item 1. Financial Statements (Unaudited). Report of Independent Public Accountants 3 Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 4 Consolidated Statements of Operations for the Six Months Ended June 30, 2000 and 1999 5 Consolidated Statements of Operations for the Three Months Ended June 30, 2000 and 1999 6 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 7-8 Notes to Consolidated Financial Statements 9-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 13-19 PART II OTHER INFORMATION Item 1. Legal Proceedings. 20 Item 4. Submission of Matters to Vote of Security Holders. 20-21 Item 6. Exhibits and Reports on Form 8-K. 21 SIGNATURE 22
-2- 3 Independent Accountants' Report To the Shareholders and Board of Directors of Shared Technologies Cellular, Inc. We have reviewed the accompanying consolidated balance sheet and statements of operations and cash flows of Shared Technologies Cellular, Inc. and Subsidiaries as of June 30, 2000, and for the three-month and six-month periods then ended. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. Roseland, New Jersey /s/ Rothstein, Kass & Company, P.C. August 9, 2000 -3- 4 ITEM 1. FINANCIAL STATEMENTS Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
June 30, 2000 December 31, 1999 -------------- ----------------- ASSETS CURRENT ASSETS: Cash $ 179,000 $ 1,635,000 Accounts receivable, less allowance for doubtful accounts of $559,000 and $495,000 in 2000 and 1999 2,482,000 3,612,000 Carrier commissions receivable, net 148,000 178,000 Inventories 1,704,000 2,316,000 Prepaid expenses and other current assets 3,990,000 4,526,000 ------------ ------------ Total current assets 8,503,000 12,267,000 ------------ ------------ TELECOMMUNICATIONS AND OFFICE EQUIPMENT, NET 1,303,000 1,514,000 ------------ ------------ OTHER ASSETS: Intangible assets, net 5,977,000 6,289,000 Deposits and other 745,000 1,515,000 ------------ ------------ Total other assets 6,722,000 7,804,000 ------------ ------------ $ 16,528,000 $ 21,585,000 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Current portion of long-term debt $ 873,000 $ 535,000 Accounts payable 8,233,000 8,580,000 Accrued expenses and other current liabilities 10,529,000 7,045,000 Deferred revenues 4,882,000 4,355,000 ------------ ------------ Total current liabilities 24,517,000 20,515,000 ------------ ------------ LONG-TERM DEBT, LESS CURRENT PORTION 626,000 2,492,000 ------------ ------------ REDEEMABLE PUT WARRANT 200,000 200,000 ------------ ------------ SERIES C AND D REDEEMABLE PREFERRED STOCK, issued and outstanding 14,100 shares in 2000 and 20,100 shares in 1999 14,629,000 20,861,000 ------------ ------------ STOCKHOLDERS' DEFICIT: Preferred Stock,$.01 par value, authorized 5,000,000 shares Common Stock, $.01 par value, authorized 30,000,000 shares, issued and outstanding 10,564,000 shares in 2000 and 8,452,000 in 1999 106,000 85,000 Capital in excess of par value 37,057,000 28,437,000 Accumulated deficit (60,607,000) (51,005,000) ------------ ------------ Total stockholders' deficit (23,444,000) (22,483,000) ------------ ------------ $ 16,528,000 $ 21,585,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -4- 5 Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) For the Six Months Ended June 30,
2000 1999 ------------ ------------ REVENUES $ 17,929,000 $ 12,082,000 COST OF REVENUES 15,029,000 9,421,000 ------------ ------------ GROSS MARGIN 2,900,000 2,661,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,443,000 9,672,000 BAD DEBT EXPENSE 399,000 669,000 ------------ ------------ LOSS FROM OPERATIONS (8,942,000) (7,680,000) INTEREST EXPENSE, NET (126,000) (249,000) ------------ ------------ LOSS BEFORE INCOME TAXES (9,068,000) (7,929,000) INCOME TAXES (5,000) (7,000) ------------ ------------ NET LOSS (9,073,000) (7,936,000) PREFERRED STOCK DIVIDENDS (529,000) (4,381,000) ------------ ------------ NET LOSS APPLICABLE TO COMMON STOCK ($ 9,602,000) ($12,317,000) ============ ============ BASIC AND DILUTED LOSS PER COMMON SHARE ($ 1.01) ($ 1.60) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 9,554,000 7,682,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -5- 6 Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) For the Three Months Ended June 30,
2000 1999 ------------ ------------ REVENUES $ 8,185,000 $ 6,461,000 COST OF REVENUES 6,952,000 4,829,000 ------------ ------------ GROSS MARGIN 1,233,000 1,632,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,578,000 4,869,000 BAD DEBT EXPENSE 191,000 289,000 ------------ ------------ LOSS FROM OPERATIONS (4,536,000) (3,526,000) INTEREST EXPENSE, NET (49,000) (55,000) ------------ ------------ LOSS BEFORE INCOME TAXES (4,585,000) (3,581,000) INCOME TAXES 0 0 ------------ ------------ NET LOSS (4,585,000) (3,581,000) PREFERRED STOCK DIVIDENDS (222,000) (227,000) ------------ ------------ NET LOSS APPLICABLE TO COMMON STOCK ($ 4,807,000) ($ 3,808,000) ============ ============ BASIC AND DILUTED LOSS PER COMMON SHARE ($ 0.47) ($ 0.49) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 10,333,000 7,739,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -6- 7 Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 30,
2000 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss, before preferred stock dividend ($ 9,073,000) ($ 7,936,000) Adjustments to reconcile net loss to net cash used in operating activities; Accretion of interest 50,000 31,000 Depreciation and amortization 1,929,000 587,000 Common stock issued for compensation and services 58,000 71,000 Change in assets and liabilities: Accounts receivable 1,113,000 (594,000) Carrier commissions receivable 30,000 581,000 Inventories 612,000 (502,000) Prepaid expenses and other current assets (22,000) (879,000) Accounts payable and other current liabilities 3,139,000 326,000 Deferred revenues 527,000 (437,000) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (1,637,000) (8,752,000) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in deposits 2,000 11,000 Purchases of equipment (113,000) (200,000) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (111,000) (189,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings from financial facility 549,000 0 Repayments of long-term debt and capital lease obligations (377,000) (4,268,000) Payments to former parent 0 (1,411,000) Proceeds from issuance of preferred stock 0 14,506,000 Proceeds from exercise of warrants and options 120,000 1,200,000 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 292,000 10,027,000 ------------ ------------ NET INCREASE (DECREASE) IN CASH (1,456,000) 1,086,000 CASH, BEGINNING OF PERIOD 1,635,000 229,000 ------------ ------------ CASH, END OF PERIOD $ 179,000 $ 1,315,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. -7- 8 Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (continued) For the Six Months Ended June 30,
2000 1999 ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for - Interest $ 131,000 $ 318,000 ========== ========== Income taxes $ 5,000 $ 7,000 ========== ========== SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Issuance of warrants in connection with issuance of preferred stock $ 0 $ 75,000 ========== ========== Redeemable preferred stock issued as preferred stock dividends and beneficial conversion feature $ 519,000 $4,154,000 ========== ========== Conversion of convertible notes into common stock $1,700,000 $ 0 ========== ========== Conversion of convertible preferred stock into common stock $6,762,000 $ 0 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. -8- 9 Shared Technologies Cellular, Inc. and Subsidiary Notes to Consolidated Financial Statements June 30, 2000 (Unaudited) 1. BASIS OF PRESENTATION. The consolidated financial statements included herein have been prepared by Shared Technologies Cellular, Inc. ("STC" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to present a fair statement of the financial position, results of operations and cash flows for interim periods. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements are read in conjunction with the consolidated financial statements and the notes thereto included in the Company's December 31, 1999 report on Form 10-K. Certain reclassifications to prior year financial statements were made in order to conform to the 2000 presentation. The consolidated financial statements included herein are not necessarily indicative of the results for the fiscal year ending December 31, 2000. 2. INVENTORIES. Inventories, consisting of telecommunications equipment and parts expected to be sold to customers, are valued at the lower of cost, on the first-in, first-out (FIFO) method, or market. 3. REVENUE RECOGNITION. Debit, or prepaid, card revenue is recognized over the estimated period in which the Company provides debit cellular service to its customers. Customers purchase debit cellular service by buying debit cards at various national retailers and calling the Company to activate, or redeem, the debit cards. Customers may also call the Company directly to purchase debit cellular service. The Company gives the customer a series of numeric codes that are input into the customer's phone that allow it to be activated for a specific number of minutes and days. The actual number of minutes will vary based upon the denomination of the card and the type of calls made (local or roaming). A typical debit card with a face value of $30 expires 60 days after redemption. However, the Company's experience indicates that most of the airtime is used within the first 30 days of redemption. Rental and activation revenues are recognized as the services are provided. 4. LOSS PER COMMON SHARE. Basic earnings per share excludes dilution and is computed by dividing the loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock and then shared in the earnings of the entity. Diluted loss per common share was the same as basic loss per common share for the three and six-month periods ended June 30, 2000 and 1999 because all other securities would have been antidilutive as a result of the Company's losses. -9- 10 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS. Prepaid expenses and other current assets consist of the following at June 30, 2000 and December 31, 1999:
2000 1999 Prepaid consulting agreement $1,969,000 $2,492,000 Prepaid telephone line charges 735,000 695,000 Prepaid access fees 456,000 672,000 Note receivable 500,000 500,000 Other 331,000 167,000 ---------- ---------- $3,990,000 $4,526,000
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES. Accrued expenses and other current liabilities consist of the following at June 30, 2000 and December 31, 1999:
2000 1999 Sales and other taxes $ 6,025,000 $ 5,512,000 Payroll and payroll taxes 247,000 200,000 Commissions 0 178,000 Carrier usage 2,936,000 672,000 Other 1,321,000 483,000 ----------- ----------- $10,529,000 $ 7,045,000
7. REVOLVING CREDIT FACILITY. In July 1999, as amended in August 2000, the Company entered into a $2,500,000 two-year revolving credit facility with Citizens Bank of Massachusetts. The availability of the credit facility is based on a percentage of eligible receivables and includes covenants requiring certain levels of debit customers and operating results through the term of the agreement. At June 30, 2000, the Company had $549,000 in direct borrowings outstanding under the facility and had $825,000 in standby letters of credit to certain vendors that were collateralized by the credit facility. At June 30, 2000, the Company was not in compliance with certain loan covenants. However, such covenant violations were waived pursuant to the August 2000 amendment. Such amendment also modified the termination date of the facility to December 29, 2000 and imposed a requirement that the Company obtain additional capital and equity contributions of $5 million by August 31, 2000. 8. LITIGATION. In January 1999, the Company filed a lawsuit against SmarTalk TeleServices, Inc. ("SmarTalk") and certain individuals in the U.S. District Court for the District of Connecticut. The Company's complaint includes allegations of breach of contract and fraud in connection with various agreements between SmarTalk and the Company. SmarTalk subsequently filed for federal bankruptcy protection. The Company's complaint seeks recovery of $25 million in damages, and the Company has filed a proof of claim with the bankruptcy court (U.S. Bankruptcy Court, District of Delaware) for $14.4 million. The Company intends to aggressively prosecute its claim, although -10- 11 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. 9. LIQUIDITY. Cash requirements for the foreseeable future will include funds needed to sustain operations and for existing obligations. Management believes that an infusion of cash from debt or equity financing is required. In August 2000, the Company raised approximately $2.7 million through a private placement of equity. See "Note 11. Subsequent Events" for a detailed description. The Company is currently in discussions with various financial institutions to raise the additional funding that the Company believes is required. Pursuant to the August 2000 amendment to the Company's credit facility with Citizens Bank of Massachusetts, the Company has committed to raise a total of $5,000,000 of such funding by August 31, 2000. The Company is also seeking other opportunities to improve operations through strategic business alliances. 10. SEGMENT INFORMATION. Segment information listed below reflects the three principal business units of the Company. Each segment is managed according to the products that 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, a segment balance sheet is not prepared or used by the CODM. Operating segment information for the six-month periods ended June 30, 2000 and 1999 is summarized as follows:
Debit Rental Activation Corporate Consolidated 2000 Revenues $ 12,307,000 $ 5,410,000 $ 212,000 $ 17,929,000 ------------ ------------ ------------ ------------ Income (loss) before income taxes $ (6,569,000) $ 299,000 $ 21,000 $ (2,819,000) $ (9,068,000) ------------ ------------ ------------ ------------ ------------
Debit Rental Activation Corporate Consolidated 1999 Revenues $ 5,095,000 $ 6,443,000 $ 544,000 $ 12,082,000 ------------ ------------ ------------ ------------ Income (loss) before income taxes $ (5,351,000) $ 221,000 $ (28,000) $ (2,770,000) $ (7,929,000) ------------ ------------ ------------ ------------ ------------
-11- 12 Operating segment information for the three-month periods ended June 30, 2000 and 1999 is summarized as follows:
Debit Rental Activation Corporate Consolidated 2000 Revenues $ 5,284,000 $ 2,815,000 $ 86,000 $ 8,185,000 ----------- ----------- ----------- ----------- Income (loss) before income taxes $(3,495,000) $ 337,000 $ 6,000 $(1,433,000) $(4,585,000) ----------- ----------- ----------- ----------- -----------
Debit Rental Activation Corporate Consolidated 1999 Revenues $ 2,874,000 $ 3,313,000 $ 274,000 $ 6,461,000 ----------- ----------- ----------- ----------- Income (loss) before income taxes $(2,511,000) $ 277,000 $ 25,000 $(1,372,000) $(3,581,000) ----------- ----------- ----------- ----------- -----------
11. SUBSEQUENT EVENTS. In August 2000, the Company raised approximately $2.7 million through a private placement of equity with various investors. Such financing included the exchange of certain outstanding shares of Series D Convertible Preferred Stock for Common Stock, in conjunction with the purchase of new shares of Common Stock by such Series D holders, as well as the exercise of certain outstanding warrants for Common Stock. Upon completion of such financing, the Company will file a report on Form 8-K detailing such transactions. See Item 6 (b) "Reports on Form 8-K", regarding the July 31, 2000 delisting of the Company's Common Stock from the Nasdaq National Market to the OTC Bulletin Board. -12- 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Six Months Ended June 30, 2000 compared to Six Months Ended June 30, 1999 Revenues for the first half of 2000 were $17,929,000, compared to $12,082,000 for the first half of 1999, an increase of $5,847,000 or 48%. The net loss applicable to Common Stock for 2000 was $9,602,000, or $1.01 per share, compared to $12,317,000, or $1.60 per share, for 1999. The net loss applicable to Common Stock for 1999 included a one-time non-cash preferred stock dividend of $4,018,000, $.52 per share, attributable to the beneficial conversion feature in connection with the Company's issuance of its Series C Convertible Preferred Stock, in February 1999. Revenues Debit, or prepaid, operations had revenues of $12,307,000 for the first half of 2000, compared to $5,095,000 for the first half of 1999. The increase in revenues of $7,212,000 (142%) was due to the continued growth of the private label program, which is co-branded with MCI WorldCom and the Company's CellEase brand name. In February 1999, the Company signed an agreement with MCI WorldCom for the retail distribution of the Company's prepaid cellular services under the MCI WorldCom brand name, utilizing MCI WorldCom's extensive network of retail distribution locations. Subsequently, the Company worked closely with MCI WorldCom to significantly increase its number of prepaid cellular customers. Debit revenues for the first six months of 2000 also included the sale of approximately 44,000 prepaid cellular phones for $2,341,000, compared to the sale of approximately 9,000 prepaid cellular phones for $768,000, in the first six months of 1999. Fiscal 1999 debit revenues were negatively impacted by the Company's termination of its relationship with SmarTalk TeleServices, Inc. ("SmarTalk") in December 1998 (see "Legal Proceedings"). Throughout the first half of 1999, the Company's prepaid cellular customer base deteriorated, as customers were unable to purchase debit cards from retailers previously associated with SmarTalk. The Company's cellular telephone rental operations had revenues of $5,410,000 for the first half of 2000, compared to $6,443,000 for the first half of 1999. The decrease of $1,033,000 (16%) was attributable to a drop of 23% in the number of rental agreements to 43,000, partially offset with an increase in the average revenue per rental agreement to $125 for 2000, from $115 for 1999. During the first half of 2000, the Company converted its cellular phone inventory to a Nextel product, which required a partial reallocation of sales resources. In addition, during the first half of 1999, the Company ran various special promotions, such as "first 10 minutes free", that increased sales for that period. -13- 14 The Company's cellular activation operations had revenues of $212,000 for the first half of 2000, compared to $544,000 for the first half of 1999. The decrease of $332,000 (61%) was mainly attributable to the loss of revenues from the Connecticut activation location, which had revenues of $193,000 in the first half of 1999 and was closed in November 1999. The balance of the decrease in revenues was attributable to the de-emphasis on activations related to the MOVE program, such program was discontinued in the second quarter of 2000. The MOVE program provided cellular service activations for customers who move from one cellular market to another. Gross Margin Gross margin was 16% of revenues for the first half of 2000, compared to 22% for the first half of 1999. The decrease in gross margin was mainly due to a change in the revenue mix, with debit revenues significantly surpassing rental revenues, and the improvement of gross margin for debit operations. The following table summarizes the change in the revenue mix and the corresponding gross margins for the two periods:
2000 1999 Revenues Gross margin Revenues Gross margin Debit 69% (5%) 42% (28%) Rental 30% 63% 53% 60% Activation 1% 31% 5% 39% 100% 16% 100% 22%
Gross margin for debit operations improved significantly in the first half of 2000, compared to the first half of 1999. The first half of 1999 was negatively impacted by the termination of the Company's relationship with SmarTalk, in December 1998. As a result of this termination, during most of fiscal 1999 the Company had a significant gap between lines under contract with carriers and such carriers' lines that were active with customers, resulting in higher than normal carrier access charges during that period. Gross margin for the first half of 2000 was negatively impacted by a per minute rate reduction offered to customers. Effective mid-December 1999, the Company reduced its prepaid cellular rate from $.79 per minute to rates as low as $.39 per minute, depending on the denomination of the debit card redeemed. The negative impact on gross margin of the price decrease is expected to be offset by increased usage by customers and by continued reductions in carrier charges. Gross margin for the portable cellular rental operations increased slightly in the first half of 2000, compared to the first half of 1999, due to lower carrier charges. Gross margin for the activation operations decreased in the first half of 2000, compared to the first half of 1999, due to the national MOVE program representing all of the activation revenues in 2000, compared to 64% in 1999. The MOVE program historically has had lower gross margins than the Connecticut activation program. -14- 15 Selling, General & Administrative Expenses Selling, general and administrative expenses (SG&A) were $11,443,000 for the first half of 2000, compared to $9,672,000 for the first half of 1999, an increase of $1,771,000 (18%). As a percentage of revenues, SG&A decreased to 64% for the first half of 2000, compared to 80% for the first half of 1999. The decrease, or improvement, was attributable to several factors. SG&A for the first half of 1999, as a percentage of revenues, were negatively impacted by SmarTalk. The Company added a new call center in Hartford and expanded its existing call center in St. Louis in the fourth quarter of 1998, in anticipation of the significant growth the Company expected from its SmarTalk relationship. As previously discussed, the significant growth did not occur. Consequently, SG&A, as a percentage of revenues, increased dramatically in the first half of 1999 compared to the corresponding period in the prior year. As revenues increased throughout the remainder of 1999 and the first half of 2000, the Company was able to improve, or reduce, SG&A as a percentage of revenues. The $1,771,000 increase in SG&A included $1,103,000 related to the services agreement with Retail Distributors, Inc. entered into in early 1999 and the balance was mainly attributable to additional personnel in the call centers to accommodate the additional call volume. Bad Debt Expense Bad debt expense was $399,000 for the first half of 2000, compared to $669,000 for the first half of 1999, a decrease of $270,000 (40%). As a percentage of revenues, bad debt expense decreased to 2% for the first half of 2000, compared to 6% for the first half of 1999. The decrease in bad debt expense for 2000, compared to 1999, was mainly due to an improvement in collection procedures in cellular phone rental operations. In addition, debit operations, which had dramatic revenue growth between the two periods compared to rental operations, historically has had lower bad debt expense than rental operations. Interest Expense Interest expense was $126,000 for the first half of 2000, compared to $249,000 for the first half of 1999. Interest expense for the first half of 2000 was mainly due to the Company's revolving credit facility with Citizens Bank of Massachusetts and debt from acquisitions made in the prior years. Interest expense for the first half of 1999 was mainly due to debt from acquisitions made in prior years, debt to the Company's former parent, and debt financing completed in May 1998. In February 1999, the Company used a portion of the $15 million private equity placement proceeds to repay $1,411,000 of the debt to its former parent debt and approximately $4 million of the May 1998 debt. Preferred Stock Dividend Preferred stock dividends were $529,000 for the first half of 2000, compared to $4,381,000 for the first half of 1999. Preferred stock dividends for the first half of 2000 represented the 6% premium on the outstanding Series C and D Shares. As of June 30, 2000, approximately 49% of the Series C -15- 16 Shares had been converted into Common Shares. Preferred stock dividends for the first half of 1999 represented the 6% premium on the Series C Shares and the $4,018,000 beneficial conversion feature associated with the Series C Shares. In accordance with Emerging Issues Task Force Topic D-60, the Company recognized a beneficial conversion feature as a one-time non-cash preferred stock dividend. The amount represented the difference between the conversion price of $7 per share at the date of the issuance of the Series C Shares, February 5, 1999, and the $8 7/8 market price of the Common Stock at that date. Three Months Ended June 30, 2000 compared to Three Months Ended June 30, 1999 Revenues for the second quarter of 2000 were $8,185,000, compared to $6,461,000 for the second quarter of 1999, an increase of $1,724,000 (27%). The net loss applicable to Common Stock for 2000 was $4,807,000, compared to $3,808,000 for 1999. The net loss per Common Stock was $0.47 for the second quarter of 2000, compared to $0.49 for the second quarter of 1999. Revenues In the second quarter, the Company's debit operations had revenues of $5,284,000 for 2000, compared to $2,874,000 for 1999. The increase in revenues of $2,410,000 (84%) was due to the growth of the private label program, which is co-branded with MCI WorldCom and the Company's CellEase brand name. In the second quarter, the Company's cellular telephone rental operations had revenues of $2,815,000 for 2000, compared to $3,313,000 for 1999. The decrease of $498,000 (15%) was attributable to a drop of 22% in the number of rentals, partially offset by an increase in the average revenue per rental to $131 for 2000, from $120 for 1999. During the first half of 1999, the Company ran various special promotions, such as "first 10 minutes free", which increased the number of rentals, but also reduced the revenue per rental. In the second quarter, the Company's cellular activation operations had revenues of $86,000 for 2000, compared to $274,000 for 1999. The decrease of $188,000 (68%) was partially attributable to the loss of revenues from the Connecticut activation location, which had revenues of $89,000 in the first half of 1999 and was closed in November 1999. The balance of the decrease was related to the MOVE activation program, which the Company discontinued in the second quarter of 2000. Gross Margin In the second quarter, gross margin was 15% of revenues for 2000, compared to 25% for 1999. The decrease in gross margin was mainly due to a change in the revenue mix, with debit revenues significantly surpassing rental revenues. The following table summarizes the revenues by segment and the corresponding gross margins for the two periods: -16- 17
2000 1999 Revenues Gross margin Revenues Gross margin Debit 65% (12%) 45% (19%) Rental 34% 66% 51% 63% Activation 1% 29% 4% 38% 100% 15% 100% 25%
In the second quarter, gross margin for the debit operations was negatively impacted by the per minute rate reduction previously discussed and by debit phones sales subsidies to stimulate sales during the historically slow summer months. The gross margin for the portable cellular rental operations improved due to lower carrier charges. The gross margin for the activation operations decreased due to the national MOVE program making up a larger portion of the activation revenues. The MOVE program historically has had lower gross margins than the Connecticut activation program. Selling, General & Administrative Expenses In the second quarter, SG&A were $5,578,000 for 2000, compared to $4,869,000 for 1999, an increase of $709,000 (15%). As a percentage of revenues, SG&A decreased to 68% for 2000, compared to 75% for 1999. The decrease, or improvement, was mainly attributable to the combination of the significant growth in debit revenues together with better expense controls. The $709,000 increase in SG&A included $480,000 related to the services agreement with Retail Distributors, Inc. entered into in early 1999 and the balance was mainly attributable to additional personnel in the call centers to accommodate the additional call volume. Bad Debt Expense In the second quarter, bad debt expense was $191,000 for 2000, compared to $289,000 for 1999, a decrease of $98,000 (34%). As a percentage of revenues, bad debt expense decreased to 2% for 2000, compared to 4% for 1999. The decrease in bad debt expense was due to an improvement in collection procedures in cellular phone rental operations. Interest Expense In the second quarter, interest expense was $49,000 for 2000, compared to $55,000 for 1999. Interest expense for 2000 was mainly due to the Company's revolving credit facility with Citizens Bank of Massachusetts and debt from acquisitions made in the prior years. Interest expense for 1999 was mainly due to debt from acquisitions made in prior years, debt to the Company's former parent, and debt financing completed in May 1998. -17- 18 Preferred Stock Dividend In the second quarter, preferred stock dividends were $222,000 for 2000, compared to $227,000 for 1999. Preferred stock dividends for 2000 represented the 6% premium on the outstanding Series C and D Shares. Preferred stock dividends for 1999 represented the 6% premium on the outstanding Series C Shares. LIQUIDITY AND CAPITAL RESOURCES: The Company had a working capital deficit of $16,014,000 at June 30, 2000, compared to a deficit of $8,248,000 at December 31, 1999. Stockholders' deficit at June 30, 2000 was $23,444,000, compared to a deficit of $22,483,000 at December 31, 1999. Net cash used in operations for the six-month period ended June 30, 2000 was $1,637,000. This was mainly due to the operating loss for the period, offset by a $3,139,000 increase in accounts payable and other current liabilities as the Company delayed the payment to vendors beyond the normal 30 day terms, a $1,113,000 decrease in receivables, and a $612,000 reduction in the debit cellular phones inventory. For the six-month period ended June 30, 1999 net cash used in operations was $8,752,000. This was primarily due to the operating loss for the period. Net cash used in investing activities for the six-month period ended June 30, 2000 was $111,000. This was mainly for the purchase of computers and related accessories. For the six-month period ended June 30, 1999, net cash used in investing activities was $189,000. This was mainly attributable to the purchase of computer equipment to handle the CellEase program. During the six-month period ended June 30, 2000, the Company received $120,000 from the exercise of 24,000 warrants. The Company also borrowed $549,000 under its revolving credit facility with Citizens Bank of Massachusetts. The Company continued to make required payments on its existing debt. For the six-month period ended June 30, 1999, the Company raised $14,506,000, net of expenses, in a private equity placement. The Company used a portion of the proceeds to repay the debt owed to its former parent and approximately $4,000,000 of a debt-financing package that was completed in May 1998. In addition, approximately 275,000 warrants were exercised, raising another $1,200,000. Cash requirements for the foreseeable future will include funds needed to sustain operations and for existing obligations. Management believes that an infusion of cash from debt or equity financing is required. In August 2000, the Company raised approximately $2.7 million through a private placement of equity. See "Note 11. Subsequent Events" for a detailed description. The Company is currently in discussions with various financial institutions to raise the additional funding the Company believes is required. Pursuant to the August 2000 amendment to the Company's credit facility with Citizens Bank of Massachusetts, the Company has committed to raise a total of $5,000,000 of such funding by August 31, 2000. The Company is also seeking other opportunities to improve operations through strategic business alliances. -18- 19 "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: MANAGEMENT'S DISCUSSION AND ANALYSIS MAY INCLUDE FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN ANY FORWARD-LOOKING STATEMENT. SUCH RISKS AND UNCERTAINTIES MAY INCLUDE, WITHOUT LIMITATION, TECHNOLOGICAL OBSOLESCENCE, PRICE AND INDUSTRY COMPETITION, FINANCING CAPABILITIES, DEPENDENCE ON MAJOR CUSTOMERS AND RELATIONSHIPS, DEPENDENCE ON RELATIONSHIPS WITH TECHNOLOGY LICENSERS AND TELECOMMUNICATIONS CARRIERS, AND THE COMPANY'S ABILITY TO EFFECTIVELY EXECUTE ITS BUSINESS PLAN WITH RESPECT TO SIGNIFICANT PROJECTED GROWTH IN ITS DEBIT SERVICES DIVISION, IN PARTICULAR, WITH RESPECT TO ITS VENTURE WITH MCI WORLDCOM. -19- 20 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. In January 1999, the Company filed a lawsuit against SmarTalk TeleServices, Inc. ("SmarTalk") and certain individuals in the U.S. District Court for the District of Connecticut. The Company's complaint includes allegations of breach of contract and fraud in connection with various agreements between SmarTalk and the Company. SmarTalk subsequently filed for federal bankruptcy protection. The Company's complaint seeks recovery of $25 million in damages, and the Company has filed a proof of claim with the bankruptcy court (U.S. Bankruptcy Court, District of Delaware) for $14.4 million. The Company intends to aggressively prosecute its claim, although due to SmarTalk's impaired financial condition, the amount of any recovery against SmarTalk is questionable. The Company is not involved in any 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. The Annual Meeting of Stockholders of the Company was held on June 28, 2000. A total of 5,408,047 votes were cast, out of a total of 10,556,620 potential votes. The following proposals were adopted by the margins indicated: 1. To elect the following directors:
NUMBER OF SHARES Director FOR WITHHELD Anthony D. Autorino 5,268,422 139,625 David L. Bogue 5,268,422 139,625 Bruce Carswell 5,268,422 139,625 Thomas H. Decker 5,268,422 139,625 William A. DiBella 5,268,422 139,625 Vincent DiVincenzo 5,268,422 139,625 Ajit G. Hutheesing 5,268,422 139,625 Nicholas E. Sinacori 5,268,422 139,625
2. To approve an amendment to the Company's Second Restated Certificate of Incorporation to increase the authorized shares of the Company's Common Stock from 20 million to 30 million shares. For 5,330,537 Against 74,510 Abstain 3,000
-20- 21 3. To approve an amendment to the 1994 Stock Option Plan to increase the number of shares of the Company's Common Stock available for awards from 1,325,000 to 2,250,000 shares. For 5,283,611 Against 121,770 Abstain 2,666
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS 3.(i) Certificate of Amendment of Certificate of Incorporation, dated June 30, 2000. 4.1 Third Amendment to Loan Agreement by and between the Company and Citizens Bank of Massachusetts dated August 8, 2000. 27. Financial Data Schedule (filed only electronically with the SEC) (B) REPORTS ON FORM 8-K On July 31, 2000, the Company filed a report on Form 8-K, Item 5, concerning the Company's notification by The Nasdaq Stock Market, Inc. that beginning July 31, 2000, its common stock was no longer listed on The Nasdaq Stock Market due to the Company's failure to satisfy the minimum $50,000,000 market capitalization requirement for continued listing on The Nasdaq National Market or the minimum $35,000,000 market capitalization requirement for listing on The Nasdaq SmallCap Market. The Company's common stock was transferred to the OTC Bulletin Board System, and the shares began trading in this system beginning on July 31, 2000 under the "STCL" symbol. -21- 22 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned and thereunto duly authorized. SHARED TECHNOLOGIES CELLULAR, INC. Date: August 13, 2000 By: /s/ Vincent DiVincenzo Vincent DiVincenzo Chief Financial Officer (Chief Accounting Officer and Duly Authorized Officer)
-22- EX-3.I 2 ex3-i.txt EXHIBIT 3.I 1 EXHIBIT 3.(i) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION (PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE) SHARED TECHNOLOGIES CELLULAR, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the "General Corporation Law"), DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation duly adopted resolutions proposing to amend the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and in the best interests of the Corporation, which proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this Corporation be amended by changing the first paragraph of Article FOURTH thereof so that, as amended, said paragraph reads as follows: "The total number of shares of stock which the Corporation shall have authority to issue is 35,000,000 shares, of which 5,000,000 shall be Preferred Stock with a par value of $.01 per share and 30,000,000 shares shall be Common Stock with a par value of $.01 per share." SECOND: That thereafter, an annual meeting of the stockholders of said Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law, at which meeting the necessary number of shares as required by statute were voted in favor of the aforesaid amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation law. 2 IN WITNESS WHEREOF, SHARED TECHNOLOGIES CELLULAR, INC. has caused this Amendment to the Certificate of Incorporation to be signed by Anthony D. Autorino, its Chairman and Chief Executive Officer, this 30th day of June, 2000. SHARED TECHNOLOGIES CELLULAR, INC. By: /s/ Anthony D. Autorino ------------------------------------ Anthony D. Autorino Chairman and Chief Executive Officer -2- EX-4.1 3 ex4-1.txt EXHIBIT 4.1 1 Exhibit 4.1 THIRD AMENDMENT AGREEMENT THIS THIRD AMENDMENT AGREEMENT (the "Agreement") is entered as of August 8, 2000 between SHARED TECHNOLOGIES CELLULAR, INC., a Delaware corporation, with its principal place of business at 100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109 (the "Borrower") and CITIZENS BANK OF MASSACHUSETTS, a Massachusetts Bank, having an office and place of business at 28 State Street, Boston, MA 02109 (the "Bank"). RECITALS: On July 7, 1999, the Bank and the Borrower entered into a Loan Agreement, as amended by that certain First Amendment Agreement dated as of December 3, 1999, and as further amended by that certain Second Amendment Agreement dated as of May 1, 2000 (referred to herein collectively as the "Credit Agreement") pursuant to which the Bank extended to the Borrower a Revolving Credit Facility which is presently existing in the maximum aggregate line availability of Five Million Dollars ($5,000,000.00). The Borrower executed and delivered to the Bank on July 7, 1999 a Secured Revolving Credit Promissory Note in the original principal amount of Ten Million Dollars ($10,000,000.00), which was amended and restated by that certain Amendment and Restated Secured Revolving Credit Promissory Note in the original principal amount of Five Million Dollars ($5,000,000.00) dated May 1, 2000 (collectively the "Original Note"). The Borrower and the Bank have agreed to amend the Credit Agreement and the Original Note upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the provisions herein contained, Borrower and the Bank, each intending to be legally bound hereby, agree as follows: SECTION I. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is amended hereby as follows: 1. SECTION 1.1 OF THE CREDIT AGREEMENT IS AMENDED BY AMENDING AND RESTATING IN ITS ENTIRETY THE DEFINITION OF "COMMITMENT TERMINATION DATE" AS FOLLOWS: ""Commitment Termination Date" shall mean December 29, 2000. Expiration dates of Letters of Credit existing as of the date of the Third Amendment Agreement, as issued under the Revolving Credit Loan, shall not exceed the Commitment Termination Date." 2 2. SECTION 1.1 OF THE CREDIT AGREEMENT IS AMENDED BY AMENDING AND RESTATING IN ITS ENTIRETY THE DEFINITION OF "COMPLIANCE CERTIFICATE" AS FOLLOWS: ""Compliance Certificate" shall mean the certificate required by SECTION 4.1(b)(xiv) and SECTIONS 5.4(a) and SECTION 5.4(b), in the form of Exhibit A annexed to the Third Amendment Agreement." 3. SECTION 1.1 OF THE CREDIT AGREEMENT IS AMENDED BY AMENDING AND RESTATING IN ITS ENTIRETY THE DEFINITION OF "REVOLVING CREDIT COMMITMENT" AS FOLLOWS: ""Revolving Credit Commitment" shall mean Two Million Five Hundred Thousand Dollars ($2,500,000.00)." 4. SECTION 2.1(a) OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS: "2.1 Revolving Credit Loan. (a) Loan. Subject to the terms of this Agreement, the Lender agrees to make advances to the Borrower (each such advance being referred to herein as an "Advance" and all such Advances being collectively referred to herein as the "Revolving Credit Loan") from time to time from the Closing Date through and including the Commitment Termination Date in an aggregate principal amount not to exceed the lesser of: i) 70% of Eligible Receivables, minus Two Hundred Thousand Dollars ($200,000.00); or ii) the amount of the Revolving Loan Commitment; provided that notwithstanding the foregoing, the Lender shall have no obligation to make an Advance if an Event of Default exists or would result therefrom. The formula and conditions provided in this SECTION 2.1 (a) for the making of Advances are collectively referred to herein as the "Borrowing Base"." 5. SECTION 2.5 OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS: "2.5 "Rate of Interest". Interest on the Loan shall accrue at the rate per annum equal to the Prime Rate plus one and one-quarter percent (1.25%) (with such Interest Rate changing on the effective date of each change in the Prime Rate)." 2 3 6. SECTION 2.6 OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS: "2.6 "Default Rate of Interest". Notwithstanding SECTION 2.5 hereof, if an Event of Default shall have occurred, then in such event, to the extent permitted by law, the Interest Rate applicable to the Loan (the "Default Rate") shall be three and three-quarters percent (3.75%) in excess of the Prime Rate (with such Interest Rate changing on the effective date of each change in the Prime Rate)." 7. SECTION 5.6 OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS: "5.6 Minimum Prepaid Lines. Maintain, for each Fiscal Quarter commencing with the Fiscal Quarter ending September 30, 2000, Eighty Thousand (80,000) Minimum Prepaid Lines." 8. SECTION 5.7 OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS: "5.7 Minimum Current Ratio. Maintain, for each Fiscal Quarter commencing with the Fiscal Quarter ending September 30, 2000, a minimum Current Ratio of 0.5:1.0." 9. SECTION 5.8 OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS: "5.8 Maximum Net Loss/Minimum Net Income. Maximum Net Loss for such Fiscal Quarter commencing with the Fiscal Quarter ending September 30, 2000, shall not exceed Four Million Dollars (($4,000,000.00))." 10. SECTION 5.9 SHALL BE DELETED IN ITS ENTIRETY. 11. SECTION 5.10 OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS: "5.10 Minimum Total Stockholder's Equity. Maintain, for each Fiscal Quarter commencing with the Fiscal Quarter ending September 30, 2000, a minimum Total Stockholder's Equity of (Eight Million Dollars) (($8,000,000.00))." 3 4 12. SECTION 5.22 OF THE CREDIT AGREEMENT, AS ADDED BY THE SECOND AMENDMENT AGREEMENT, IS AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS: "5.22 Minimum Additional Capital. The Borrower shall have raised from July 21, 2000 through August 31, 2000 a minimum additional capital and equity contribution of not less than Five Million Dollars ($5,000,000.00), provided however that evidence thereof to be received by the Bank on or before August 31, 2000 shall consist of the following: a) copies of deposit receipts into the Equity Funds Account described in the Third Amendment Agreement or copies of deposit receipts into the Borrower's operating account maintained with the Bank." 13. SECTION 7.1(n) OF THE CREDIT AGREEMENT IS DELETED IN ITS ENTIRETY. 14. SECTION 7.4 OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS: 1. "Consent to Receiver. In addition to the foregoing remedies, the Lender may upon the occurrence and during the continuance of an Event of Default proceed to protect and enforce its rights by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained in any of the Loan Documents, or for an injunction against a violation of any of the terms hereof or thereof. If the Lender applies for the employment of, or taking possession by, a trustee, receiver, liquidator or other similar official, of the Borrower to hold or liquidate all or any substantial part of the properties or assets of the Borrower, the Borrower hereby consents to such appointment and agrees to execute and deliver any and all documents requested by the Lender relating to the appointment of such trustee, receiver, liquidator or other similar official (whether by joining in a petition for the voluntary appointment of such an official, by entering no contest to a petition for the appointment of such an official or otherwise, as appropriate under applicable law), immediately after the occurrence of an Event of Default. No right conferred upon the Lender hereby or by any Loan Document or the Note shall be exclusive of any other right referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise." 15. THE FOLLOWING NEW DEFINITIONS ARE ADDED TO THE CREDIT AGREEMENT: ""First Amendment Agreement" shall mean that certain Agreement entered into between the Borrower and the Bank dated as of December 3, 1999. 4 5 "Second Amendment Agreement" shall mean that certain Agreement entered into between the Borrower and the Bank dated as of May 1, 2000. "Third Amendment Agreement" shall mean that certain Agreement entered into between the Borrower and the Bank dated as of August , 2000." 16. WHENEVER NOTICE IS CONTEMPLATED TO BE GIVE TO THE "BANK" OR THE "LENDER" OR THE "SECURED PARTY" OR THE "ASSIGNEE" UNDER THE SECURITY DOCUMENTS, NOTICE SHALL BE GIVEN AS FOLLOWS: If to the Bank: Citizens Bank of Massachusetts 100 Summer Street Boston, Massachusetts 02110 Attn: Christopher Daniel, Vice President With a Copy to: CAMERON & MITTLEMAN, LLP 56 Exchange Terrace Providence, Rhode Island 02903 Attn: Amy L. Mower, Esquire 17. ANY AND ALL REFERENCES TO THE "SCHEDULES" TO THE CREDIT AGREEMENT SHALL REFER TO THE AMENDED AND RESTATED SCHEDULES DELIVERED TO THE BANK PURSUANT TO THE THIRD AMENDMENT AGREEMENT. 18. EXHIBIT C TO THE CREDIT AGREEMENT AND EXHIBIT D TO THE CREDIT AGREEMENT ARE AMENDED AND RESTATED IN THEIR ENTIRETY BY EXHIBIT A AND EXHIBIT B TO THE THIRD AMENDMENT AGREEMENT. ALL OTHER EXHIBITS TO THE CREDIT AGREEMENT SHALL NOT BE AMENDED AND SHALL REMAIN IN THEIR ORIGINAL FORM. SECTION II. AMENDMENT TO THE ORIGINAL NOTE. The Original Note is amended and restated in its entirety by the Borrower's execution and delivery to the Bank of that certain Amended and Restated Revolving Credit Promissory Note in the original principal amount of Two Million Five Hundred thousand ($2,500,000.00) a form of which is attached hereto as Exhibit B, with all blanks completed, and duly executed by the Borrower (referred to herein as the "Successor Note"). 5 6 SECTION III. CONDITIONS. A. CONDITION PRECEDENT - DELIVERY OF DOCUMENTS. The Bank shall have no obligation to make advances under the Credit Agreement unless the following conditions are satisfied or waived by the Bank: 1. The Borrower has delivered to the Bank the following documents in form and substance satisfactory to the Bank, the receipt of which is hereby acknowledged (the "Amendment Documents"): a) the Successor Note, duly executed by the Borrower; and b) Certificate of No Default from the Borrower, duly executed by the Borrower; and c) Corporate Borrowing Authorization and Certificate of Incumbency of Officers and Directors - the Borrower; and d) Corporate Guaranty Authorization and Certificate of Incumbency of Officers and Directors and Identification of Shareholders - The Cellular Hotline, Inc.; and e) a Twenty Five Thousand Dollar ($25,000.00) fee, payable on even date, for the Waiver by the Bank herein of certain Loan Covenant Defaults, which constitutes the first installment of the Waiver Fee of Two Hundred Fifty Thousand Dollars ($250,000.00), payable as required in SECTION III. G. 3. hereof; and f) Amended Schedules to the Credit Agreement, reflecting Borrower's disclosures therein of facts in existence as of the date hereof; and g) the delivery of such other documents reflected in that certain Closing Agenda attached hereto as Exhibit C and incorporated herein by reference, as may be reasonably required by the Bank in connection with the transaction contemplated hereby. 2. All legal matters incident to this Agreement and the transactions contemplated hereby shall be satisfactory to the Bank and its counsel. 6 7 B. CONDITIONS SUBSEQUENT. The Borrower acknowledges that the Bank will require a field examination (with a scope to be determined at the Bank's sole discretion) to be completed within thirty (30) days of execution of this Agreement, the terms and provisions of which must be satisfactory to the Bank in its sole discretion. The Borrower acknowledges that should the results of the field examination disclose any non-compliance with the terms or provisions of the Credit Agreement, or disclose any fraud or other credit issues determined by the Bank in its sole discretion, then any such event shall constitute an Event of Default under the Credit Agreement. The Borrower also acknowledges that as a condition subsequent to the execution of this Agreement, it must deliver to the Lender, as a condition subsequent to this Agreement, an Accord Certificate 27 indicating Hazard and Liability Insurance Coverage, which Certificate shall name the Bank as an additional insured and loss payee with respect to each of the Borrower and the Guarantor. The Borrower also acknowledges that a condition subsequent to the execution of this Agreement is the Bank's receipt of satisfactory Financing Statement Searches, Tax Searches and Judgment Searches against both the Borrower and the Guarantor in the States of Delaware, Missouri and Connecticut. The Borrower acknowledges that should any information be disclosed on such searches which is not satisfactory to the Lender in its sole discretion, that such disclosure shall constitute an Event of Default under the Credit Agreement. The Borrower acknowledges that failure to deliver the documents reflected in the foregoing paragraphs of this SECTION III (B) within the timetable contemplated in that certain Post-Closing Letter Agreement (listed on Exhibit C hereto) shall constitute an Event of Default for the purposes of the Credit Agreement. C. RECONFIRMATION OF COVENANTS, REPRESENTATIVES AND WARRANTIES. 1. The Borrower further reaffirms all of its obligations, as amended hereby, under the Credit Agreement, and under the Security Documents. 2. The Borrower acknowledges that upon its delivery to the Bank of the duly executed Amendment Documents, that all representations, warranties and covenants set forth in the Credit Agreement are deemed to be made again as of the date of the delivery hereof. The Borrower further represents and warrants that the Borrower does not have: a) any information contrary to any of the conclusions reflected in, or b) any information contrary to any of the assumptions or premises included in any of, or 7 8 c) any knowledge of any material adverse changes which have occurred in the Borrower's financial condition since the date of, the following: i) that certain set of forecast of operations dated June 28, 2000, prepared by Borrower and delivered to Lender; and ii) that certain July 26, 2000 e-mail which included revised covenant projections prepared by the Borrower in the form of "Exhibit C", sent by the Borrower to the Bank; and iii) the Borrower's 10Q Report for the fiscal quarter ending March 31, 2000, prepared by the Borrower and delivered to the Bank. D. RESERVATION OF RIGHTS. The Bank and the Borrower agree that: i) This Agreement evidences solely the amendment of the terms and provisions of the Borrower's obligations under the Credit Agreement and the Original Note, and is not a novation or discharge thereof; ii) Notwithstanding the terms hereof: the Bank hereby reserves its rights against the Borrower under the Credit Agreement and the Original Note, as provided under the Commonwealth of Massachusetts law and judicial precedent, as in effect from time to time; iii) There are no other understandings, express or implied between the Bank and the Borrower regarding the Credit Agreement and the Original Note; and iv) Notwithstanding any prior course of practice or conduct, the Borrower acknowledges that the Bank has not waived, and has no obligation to waive, any subsequent Events of Default under the Credit Agreement and the Original Note, or under this Agreement. 8 9 E. EFFECT OF AMENDMENT. 1. Except as amended hereby, the Credit Agreement and the Original Note and all other documents entered into in connection therewith shall: a) remain in full force and effect in accordance with their original terms and nothing herein shall be deemed to modify, abrogate, waive or extend any other provision in the Credit Agreement and the Original Note or in any other document, agreement or instrument executed in connection therewith or pursuant thereto prior to the execution of this Agreement, including without limitation any of the Borrower's liabilities to the Bank or any of the Bank's rights with respect to such liabilities; and b) be in all respects ratified and affirmed. Notwithstanding the foregoing, any amendments of the Credit Agreement and the Original Note to which the parties hereto have agreed previously and which are not incorporated herein by reference or otherwise, shall be deemed of no further force and effect upon the execution hereof. 2. The Borrower acknowledges that all of the liabilities and obligations of the Borrower to the Lender now existing and hereafter incurred are secured by the security described in the Security Documents defined in the Credit Agreement and by the security described in the Amendment Documents; the Borrower further acknowledges that the Bank is relying upon the security described above, both as entered into on July 9, 1999 and as entered into from time to time thereafter, as security for the financing represented by the Liabilities and as security for all other obligations of the Borrower to the Bank. F. WAIVER. Based upon the Bank's review of Borrower's most recent Financial Statements, Bank hereby waives: i) Borrower's compliance for the Fiscal Quarter ending June 30, 2000 and any previous Fiscal Quarter, with any and all financial covenant violations under the Credit Agreement; and ii) any Event of Default occurring on or prior to the date hereof, of which the Bank has written notice, with the express stipulation that this Waiver shall not operate as a waiver of any other failure by the Borrower to meet other covenants of which the Bank does not have notice as of the date hereof, or waiver of the failure of the Borrower to meet the same covenants on a future occasion. 9 10 Such Waiver shall not be construed as a course of action which would constitute a waiver of any other default under the Credit Agreement or under any other document executed in connection therewith or pursuant thereto. No delay in taking any action with respect to any such default, or any other course of action by the Bank shall affect Bank's rights to later take any such action with respect to any such default. G. GENERAL. 1. CONSTRUCTION. Incorporated herein by reference are the representations, warranties, agreements, affirmative and negative, definitions, terms and conditions all as set forth in (i) the Credit Agreement and the Original Note and all documents executed in connection therewith or pursuant thereto and (ii) the Amendment Documents. This Agreement and the Credit Agreement and the Original Note, and the Amendment Documents shall be construed collectively and in the event that any term, provision or condition of any of such documents is inconsistent with or contradictory to any term, provision or condition of any other such document, the terms, provisions and conditions of this Agreement shall supersede and control the terms, provisions and conditions of the Credit Agreement and the Original Note and the Amendment Documents. 2. GOVERNING LAW. This Agreement, the Successor Note, the Original Note and the Credit Agreement and all Security Documents thereunder, and the rights and obligations of the parties hereunder, shall in all respects be governed by, and interpreted and determined in accordance with, the laws of the Commonwealth of Massachusetts (excluding the laws applicable to conflicts or choice of law). 3. WAIVER FEE. In consideration of this Third Amendment Agreement, the Bank shall be entitled to, and the Borrower shall pay, as of the date hereof, a Waiver Fee in the amount of Two Hundred Fifty Thousand Dollars ($250,000.00), of which Twenty Five Thousand Dollars ($25,000.00) shall be payable upon the execution hereof, with the remaining Two Hundred Twenty Five Thousand Dollars ($225,000.00) of said Waiver Fee shall be due and payable on or before December 29, 2000. The Bank will waive the Two Hundred Twenty Five Thousand Dollars ($225,000.00) balance of the Waiver Fee due in the event that all of Borrower's Obligations and Liabilities are paid in full to the Bank and the Revolving Loan Commitment is canceled on or before December 29, 2000. THE BORROWER ACKNOWLEDGES SPECIFICALLY, WITHOUT LIMITATION HEREBY, THAT SHOULD THE BORROWER FAIL TO HAVE PAID ALL OBLIGATIONS AND LIABILITIES IN FULL TO THE BANK, AND OBTAIN CANCELLATION OF THE REVOLVING LOAN CREDIT COMMITMENT, ON OR BEFORE DECEMBER 29, 2000, THEN THE BANK SHALL BE ENTITLED TO IMMEDIATELY, ON DECEMBER 30, 2000, SET OFF AGAINST ANY AND ALL OF THE BORROWER'S ACCOUNTS MAINTAINED WITH THE BANK, WITH THE EXCEPTION OF THE EQUITY FUND ACCOUNT (AS DESCRIBED IN PARAGRAPH 4 BELOW), THE AMOUNT OF TWO HUNDRED TWENTY FIVE THOUSAND DOLLARS ($225,000.00) FOR SAID WAIVER FEE, PLUS THE AMOUNT OF ANY AND 10 11 ALL OTHER OUTSTANDING INDEBTEDNESS, OBLIGATIONS AND LIABILITIES OF THE BORROWER TO THE BANK, INCLUDING BUT NOT LIMITED TO INTEREST, PENALTIES, LEGAL FEES AND EXPENSES, AND ALL OTHER EXPENSES INCURRED FROM TIME TO TIME BY THE BANK AND REMAINING THEN OUTSTANDING TO THE BANK. 4. EQUITY FUND ACCOUNT. The Borrower may deposit any and all proceeds which are received from its current equity raising, in a specifically designated deposit account to be maintained by the Borrower with Prudential Securities (the "Equity Funds Account"). The Bank and the Borrower agree that the Equity Funds Account shall be independent and separate from the Borrower's regular operating account (the "Operating Account"). Borrower may transfer funds from the Equity Funds Account to the Operating Account at its sole discretion; however, Borrower may not, at any time, transfer funds from the Operating Account to the Equity Fund Account. Borrower acknowledges that the Bank will be monitoring the Operating Account and the Equity Funds Account on a day-to-day basis to ensure Borrower's compliance with this Section III. G. 4. Borrower also agrees to provide to the Bank, within five (5) days of Borrower's receipt, copies of all monthly statements issued by Prudential Securities for the Equity Funds Account. THE BANK SPECIFICALLY AGREES AND ACKNOWLEDGES THAT THE EQUITY FUNDS ACCOUNT SHALL NOT BE SUBJECT TO ANY SET OFF RIGHTS OF THE BANK, AT LAW OR IN EQUITY OR UNDER THE CREDIT AGREEMENT OR UNDER ANY SECURITY DOCUMENT, NOR SHALL THE EQUITY FUNDS ACCOUNT BE SUBJECT TO ANY LIEN OR ATTACHMENT OF THE BANK, NOTWITHSTANDING ANY TERMS OF THE CREDIT AGREEMENT OR THE TERMS OF ANY OF THE SECURITY DOCUMENTS OR ANY APPLICABLE PROVISIONS OF THE LAWS OR EQUITY RULES OF THE COMMONWEALTH OF MASSACHUSETTS, OR THE STATES OF CONNECTICUT OR DELAWARE, OR THE FEDERAL BANKRUPTCY LAWS. 5. SECURITY DOCUMENTS. The Borrower and The Cellular Hotline, Inc., by its signature hereto, agree that: a) the Security Documents (defined in the Credit Agreement) are amended to reflect that the obligations and liabilities secured thereby are deemed amended pursuant to this Amendment Agreement, as incorporated therein by reference; and b) except as specifically amended hereby, the Security Documents, and all indebtedness incurred pursuant thereto shall remain in full force and effect, in accordance with their original terms as previously amended, and nothing herein shall be deemed to modify, abrogate, waive or extend any other provision in the Security Documents, except as previously amended, or in any other document, agreement, or instrument executed in connection therewith or pursuant thereto prior to the execution of this Agreement, including without limitation any of the Borrower's or The Cellular Hotline, Inc.'s liabilities to the Bank or any of the Bank's rights with respect to such liabilities; and 11 12 c) the Security Documents, as amended hereby, shall continue to secure the Borrower's obligations under the Credit Agreement, the Original Note and all other obligations of the Borrower and of The Cellular Hotline, Inc. to the Bank, whether now existing or hereafter arising. 6. WAIVER OF TRIAL BY JURY. BORROWER, THE CELLULAR HOTLINE, INC., AND BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREIN, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ACCEPT THIS AGREEMENT AND TO AMEND THE REVOLVING CREDIT FACILITY. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 12 13 IN WITNESS WHEREOF, the Bank and the Borrower have caused their duly authorized officers to execute this Agreement as of the day and year first above written as an instrument under seal. WITNESS: SHARED TECHNOLOGIES CELLULAR, INC. By: /s/ Anthony D. Autorino ----------------------------- Anthony D. Autorino Title: Chairman and Executive Officer CITIZENS BANK OF MASSACHUSETTS By: /s/ Chritopher Daniel ------------------------- Christopher Daniel Title: Vice President CONSENT AND CONFIRMATION The undersigned consents to the amendment of the Credit Agreement pursuant to the Third Amendment Agreement, and the terms of the Third Amendment Agreement, including but not limited to Section III. G. 5 and 6 thereof, and of all underlying documents referred to therein and all documents entered into pursuant thereto or in connection therewith. The undersigned confirms its obligations under that certain Guaranty dated as of July 7, 1999 (the "Guaranty"), executed by the undersigned, of all Liabilities (as defined in the Guaranty), as amended hereby, of the Borrower to the Bank, and confirms its obligations under all documents securing the Guaranty. IN WITNESS WHEREOF, the undersigned has caused its duly authorized officer to execute this Consent and Confirmation as of the 8th day of August, 2000, as an instant under Seal. WITNESS: THE CELLULAR HOTLINE, INC. By: /s/ Anthony D. Autorino ----------------------- Its: Chairman and Chief Executive Officer [NOTARIZATIONS ON THE NEXT PAGE] 13 14 [NOTARIZATIONS FOR SIGNATURES ON PRIOR PAGE] STATE OF CONNECTICUT COUNTY OF HARTFORD In Whethersfield on the _____day of August, 2000, before me personally appeared the above-named _____________________________, of SHARED TECHNOLOGIES CELLULAR, INC. to me known and known by me to be the party executing the foregoing instrument on behalf of said corporation and acknowledged said instrument so executed to be his free act and deed in said capacity and the free act and deed of said corporation. Notary Public My Commission Expires: STATE OF CONNECTICUT COUNTY OF HARTFORD In Whethersfield on the_____day of August, 2000, before me personally appeared the above-named______________________________, of THE CELLULAR HOTLINE, INC. to me known and known by me to be the party executing the foregoing instrument on behalf of said corporation and acknowledged said instrument so executed to be his free act and deed in said capacity and the free act and deed of said corporation. Notary Public My Commission Expires: COMMONWEALTH OF MASSACHUSETTS COUNTY OF SUFFOLK In Boston on the______ day of August, 2000, before me personally appeared the above-named Christopher Daniel, Vice President of CITIZENS BANK OF MASSACHUSETTS, of Boston, Massachusetts to me known and known by me to be the party executing the foregoing instrument on behalf of said Massachusetts Bank and acknowledged said instrument so executed to be his free act and deed in said capacity and the free act and deed of said Massachusetts Bank. Notary Public My Commission Expires: 14 EX-27 4 ex27.txt EXHIBIT 27
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 179 0 3,041 559 1,704 8,503 2,654 1,351 16,528 24,517 0 14,629 0 106 (23,550) 16,528 17,929 17,929 15,029 15,029 11,842 0 126 (9,068) 5 (9,073) 0 0 0 (9,602) (1.01) (1.01)
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