-----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, HF3YX1VquIJcng6SV9Qo2zg9kESrcQo6EjZHzSW3myNsAVZ0DDwwoBEBcU2M7acN d+gdn40qHquBOp52f3k/pw== 0000914039-01-000122.txt : 20010402 0000914039-01-000122.hdr.sgml : 20010402 ACCESSION NUMBER: 0000914039-01-000122 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 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: 1587385 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD STREET 2: SUITE 104 CITY: WETHERSFIELD STATE: CT ZIP: 06109 BUSINESS PHONE: 8602582409 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 y47139e10-k.txt FORM 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, 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 (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 23, 2001 was approximately $915,000 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 23, 2001, there were 15,476,000 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 products and services provider. The Company offers prepaid wireless, Internet service and appliances, paging, long distance and local services through various national distribution channels. The Company also rents cellular telephones to business and leisure travelers and to individuals at special events. The rental program is primarily marketed to car rental customers nationwide under a STC/Nextel co-branding name. STC is capable of delivering cellular service to approximately 98% of the U.S. population, which allows customers from coast to coast to utilize the Company's cellular products and services, and activate these phones with a local cellular phone number. 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, 2000, the Company had approximately 3,000 cellular telephones available to rent at approximately 200 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 post-paid cellular 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 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. 2 3 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 16, 2001. 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 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 3 4 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. As of March 23, 2001, approximately 7,000 of such Series C Shares had been converted into 1,886,000 shares of Common Stock. In July 1999, as amended in August 2000, the Company entered into a $2,500,000 revolving credit facility with Citizens Bank of Massachusetts ("Citizens"). The availability of the credit facility was based on a percentage of eligible receivables and includes covenants requiring certain levels of prepaid customers and operating results through the term of the agreement. At December 31, 2000, the Company had approximately $98,000 outstanding under the credit facility and had $575,000 in standby letters of credit to certain vendors that were collateralized by the credit facility. The August 2000 amendment also modified the termination date of the credit facility to December 29, 2000. In March 2001, the Company's Chairman and Chief Executive Officer, Anthony D. Autorino, assumed the position as the Company's primary lender from Citizens. Mr. Autorino subsequently assigned his rights and obligations under such loan to Mobile Investments, LLC ("Mobile"), which agreed to increase the facility to $5 million, subject to certain conditions (see Note 9 of the Notes to the Consolidated Financial Statements for a detailed discussion). 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, 2000, the Company had issued 275,000 Common Stock purchase warrants to RDI. The Common Stock purchase warrants were valued at $69,000 and the value was treated as a sales expense. Also, RCI entered into a Consulting Agreement with RDI, expiring June 30, 2001, pursuant to which RDI provides certain sales and marketing services. The Services Agreement and the Consulting Agreement, both as amended July 2000, include monthly payments to RDI through June 2001 that total $1,896,000. These transactions were all treated as a services agreement, and as such were expensed over the useful terms of the Agreements, which the Company determined was through December 31, 2000. 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. As of March 23, 2001, 6,000 of such Series D Shares had been converted into 1,577,000 shares of Common Stock. In August 2000, the Company raised $2,975,000 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. The Company raised $1,500,000 with the sale of 600,000 new shares of Common Stock and the exchange of 6,000 shares of Series D Convertible Preferred Stock into 1,577,000 shares of Common Stock. An additional $1,475,000 was raised through the exercise of certain warrants into 1,008,000 shares of Common Stock. The proceeds were used to meet working capital requirements. (b) Financial Information about Industry Segments - The Company is currently engaged in two industry segments within the telecommunications industry, providing a wide range of services including, prepaid cellular phone service 4 5 and short-term cellular phone rentals. 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. (c) Narrative Description of Business (1)(i) Products and Services PREPAID SERVICES The Company offers prepaid wireless, paging, long distance and local services through various national distribution channels. STC is capable of delivering cellular service to 98% of the U.S. population, which allows clients from coast to coast to utilize the Company's cellular products and services, and activate these phones with a local cellular phone number. STC has created an innovative Nationwide Integrated Communications Program (NICP). This turnkey program will allow Retailers to create a new prepaid "Communications" destination in their store locations, which will promote prepaid wireless, paging, Internet, long-distance, local and E-mail services at very competitive prices. Customers can allocate their purchase to various services (i.e. a $50 card could have $20 allocated to Internet and $30 to a cellular account). With STC's "One card does it all(TM)" approach to managing communications expenses, the potential for each customer wanting or using several of these products dramatically increases. The present success of the prepaid cellular program only serves to reinforce customer demand for prepaid communications services. Most important, this total communication program is supported by STC's CellEase(R) 2000 Universal Platform, with back office facilities that handle activations, redemptions, customer service, reporting, fulfillment and account management. STC's DIRECT TO RETAIL PROGRAM is marketed directly to retailers, regardless of their size or scope. Retailers can choose from different prepaid product/services, such as cellular, paging, long distance, Internet, and local access. 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. The Company's cellular rate plan (with rates as low as $0.39 per minute) makes it'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 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 one of the most widely distributed payment system in the industry today. Offered 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 The Hertz Corporation ("Hertz"), Budget Rent-a-Car Corporation and Avis Rent-A-Car System, 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 37 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 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, Internet access 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. The Company has upgraded its fleet of cellular rental phones to Nextel i1000 plus to better support the business traveler at the car rental locations which has also opened the door for incremental business directly to corporate groups through national meeting planners. (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". (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 $72,000,000 through December 31, 2000. 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 22%, 14% and 10% of the Company's revenues for 2000 were attributable to MCI WorldCom, Hertz and Home Shopping Network, respectively. The Company has good relationships with Hertz and Home Shopping Network. MCI WorldCom is no longer promoting the sale of prepaid cellular phones, but is distributing CellEase compatible prepaid cards. Nevertheless, the longevity of these relationships is generally subject to contractual termination provisions that are effective upon relatively short notice. 6 7 (viii) BACKLOG At any given time the Company maintains approximately 3,000 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 prepaid market include: national carriers such as Sprint, Verizon, AT&T, SBC and local carriers and resellers. In addition, TracFone, a subsidiary of TelMex Telefonos de Mexico, is a nationwide provider of prepaid cellular telephones. They are marketed under the "TRACFONE" brand name. They state to be available in more than 30,000 retail locations across the U.S. Some of the major retailers they are in include Radio Shack, Kmart, Ames, Eckerd Drug and Circle K. (xiii) EMPLOYEES As of March 23, 2001, the Company had 207 employees; 13 in management, 21 in administration, 41 in sales and service, 120 in clerical and 12 in technical positions. The Company's employees are not represented by a labor union. The Company believes its relations with its employees are satisfactory. 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 19,000 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 $30,000 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 $11,000 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 $14,000 on this lease. In addition, the Company leases an aggregate of approximately 5,000 square feet in various locations nationwide for the purpose of direct sales by its sales force, for a total monthly rent of approximately $10,000. 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 7 8 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. SmarTalk has since disclosed approximately $847,000 in preference payments that it claims the bankrupt estate is entitled to recover from the Company, although the Company intends to aggressively defend against any such claim. The Company is involved in an eviction proceeding with respect to its Hartford office, which houses one of the Company's two call centers (Connecticut Constitution Assoc. L. P. v. Shared Technologies Cellular, Inc., Superior Court, State of Connecticut, Case No. HDSP 113363). However, the Company is actively engaged in settlement discussions with the landlord/plaintiff in this matter, and is optimistic that a satisfactory resolution will be reached soon. 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, 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. On July 28, 2000, the Company was notified by The Nasdaq Stock Market, Inc. that beginning July 31, 2000, its common stock would no longer be 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 on July 31, 2000 under the symbol: STCL.OB. The Company's shares of Common Stock 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. During 2000 and 1999, the quarterly high and low closing prices were as follows:
2000 2000 1999 1999 ---- ---- ---- ---- High Low High Low First Quarter $ 9.250 $ 4.625 $ 9.375 $ 6.125 Second Quarter $ 4.750 $ 1.500 $13.000 $ 7.500 Third Quarter $ 2.875 $ 1.125 $11.500 $ 8.000 Fourth Quarter $ 2.219 $ 0.125 $ 9.438 $ 7.125
The number of beneficial holders of the Company's Common Stock as of March 23, 2001 was approximately 1,590. 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 1997 and 1996 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. 8 9
2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Statement of Operations-Data: Revenues $ 32,744 $ 28,271 $ 28,200 $ 24,198 $ 20,914 Gross margin 4,606 6,344 7,941 10,667 6,305 Total operating expenses 24,002 22,628 18,629 14,120 14,173 Loss from operations (19,396) (16,284) (10,688) (3,453) (7,868) Interest expense, net 582 574 952 232 906 Net loss before income Taxes (19,978) (16,858) (11,640) (3,685) (8,774) Income taxes (6) (7) (6) (10) (22) Net loss (19,984) (16,865) (11,646) (3,695) (8,796) Preferred stock dividends (808) (5,786) -- -- (112) Net loss applicable to Common stock $(20,792) $(22,651) $(11,646) $ (3,695) $ (8,908) Net loss per common share, basic and diluted $ (1.83) $ (2.84) $ (1.58) $ (0.63) $ (2.18) Weighted average number of shares outstanding 11,335 7,985 7,375 5,900 4,082 Balance Sheet Data: Working Capital Deficit $(23,045) $ (8,248) $(16,099) $ (6,955) $ (8,975) Total assets 9,887 21,585 13,487 11,536 14,262 Notes payable (including current portion) 890 3,027 7,331 1,487 2,578 Other liabilities 25,574 20,180 14,840 7,832 8,768 Indebtedness to STFI -- -- 1,411 1,052 59 Series C and D Shares 8,649 20,861 -- -- -- Accumulated deficit (71,797) (51,005) (28,354) (16,708) (13,013) Stockholders' equity (deficit) $(25,226) $(22,483) $(10,095) $ 1,165 $ 2,857
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Revenues for 2000 were $32,744,000, compared to $28,271,000 for 1999, an increase of $4,473,000 (16%). The net loss applicable to Common Stock for 2000 was $20,792,000, compared to $22,651,000 for 1999. The net loss applicable to Common Stock for 1999 included a one-time non-cash preferred stock dividend of $4,018,000, $0.50 per share, attributable to the beneficial conversion feature in connection with the Company's issuance of its Series C Convertible Preferred Stock, in February 1999. The net loss per Common Share was $1.83 for 2000, compared to a net loss per Common Share of $2.84 for 1999. Revenues Prepaid operations had revenues of $22,450,000 for 2000, compared to $14,280,000 for 1999. The increase in revenues of $8,170,000 (57%) was due to the continued growth of the private label and the direct to retail programs, together with the continued purchase of new prepaid cards by existing customers. The growth of the prepaid program was assisted by two major developments during fiscal 1999 that continued into fiscal 2000. 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 9 10 Distributors, Inc. ("RDI") and entered into a Services Agreement with RDI for support in the marketing, sale and distribution of the Company's prepaid cellular services. The Company's cellular phone rental operations had revenues of $10,046,000 for 2000, compared to $12,939,000 for 1999. The decrease of $2,893,000 (22%) was mostly attributable to two car rental companies discontinuing their cellular phone rental programs, National Car Rental in June 2000 and Alamo Car Rental in September 2000. In addition, during fiscal 2000 the Company closed several non-profitable locations and began development of new market opportunities within the remaining car rental locations. The Company's cellular activation operations had revenues of $248,000 for 2000, compared to $1,052,000 for 1999. The Company closed the Connecticut activation location in November 1999 and terminated activations related to the MOVE program 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 14% of revenues for 2000, compared to 22% for 1999. The overall decrease in gross margin was primarily due to the growth in prepaid revenues, as compared to the revenues of the other operations. The following table summarizes the change in the revenues mix and the corresponding gross margins for the two periods:
2000 2000 1999 1999 ---- ---- ---- ---- Revenues Gross Margin Revenues Gross Margin Prepaid 68% (7)% 50% (14)% Rental 31% 60% 46% 62% Activation 1% 40% 4% 32% ---- ---- ---- ---- 100% 14% 100% 22%
Gross margin for prepaid operations improved significantly in 2000, compared to 1999. Fiscal 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 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 prepaid 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 2000 was also negatively impacted by subsidies offered by the Company on the sale of prepaid cellular phones. The Company sold approximately 103,000 cellular prepaid phones in 2000 with a gross margin of 13%, compared to approximately 49,000 cellular prepaid phones with a gross margin of 35% in 1999. Gross margin for cellular phone rental operations decreased slightly in 2000, compared to 1999. During the fourth quarter of 2000, the Company expensed the unamortized book value of its Motorola cellular phone inventory and resolved a commission issue with one of the Company's car rental partners. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") were $23,147,000 for 2000, compared to $21,411,000 for 1999, an increase of $1,736,000 (8%). The increase included $2,685,000 related to the services agreement with Retail Distributors, Inc. entered into in early 1999. The services agreement, as amended, was valued at approximately $5.5 million and was amortized over the life of the services agreement. As a percentage of revenues, SG&A decreased to 71% for 2000, compared to 76% for 1999. Excluding the charge related to the services agreement, SG&A decreased to 58% of revenues for 2000, compared to 71% of revenues for 1999. The decrease, or improvement, was attributable to several factors. SG&A for 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 10 11 1999 compared to the prior year. As revenues increased through the latter part of 1999 and 2000, the Company was able to improve, or reduce, SG&A as a percentage of revenues. In addition, in the latter part of 2000, the Company implemented SG&A cost reductions that should reduce SG&A by approximately $400,000 (20%) per month in fiscal 2001. Bad Debt Expense Bad debt expense was $855,000 for 2000, compared to $1,217,000 for 1999, a decrease of $362,000 (30%). As a percentage of revenues, bad debt expense was approximately 3% for 2000, compared to 4% for 1999. The improvement in bad debt expense for 2000, compared to 1999, was due to two main factors. The prepaid operations, which had significant revenue growth between the two years compared to the rental operation, historically has had lower bad debt than rental operations. The rental operations continued to show improvement in its collection procedures. The predominant amounts of these rental 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 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 uncollectible 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 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 $582,000 for 2000, compared to $574,000 for 1999. Interest expense for 2000 was mainly attributable to the revolving credit facility with Citizens Bank of Massachusetts. Interest expense in 1999 was mainly due to debt from prior year acquisitions, debt financing completed in May 1998 and the revolving credit facility with 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 Preferred stock dividends were $808,000 for 2000, compared to $5,786,000 for 1999. Preferred stock dividends represented the 6% premium on the outstanding Series C and D Shares. The Series C Shares were issued in February 1999 and the Series D Shares were issued in October 1999. As of December 31, 2000, approximately 49% of the Series C Shares and 98% of the Series D Shares had been converted into Common Shares. In fiscal 1999, in accordance with Emerging Issues Task Force Topic D-60, the Company recognized a $4,018,000 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. 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 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. 11 12 Revenues 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 prepaid revenues, compared to revenues of $9,127,000 for 1998. The balance of the 1998 prepaid 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 prepaid cellular services. The 1998 prepaid 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 prepaid 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 Prepaid 50% (14)% 45% 4% Rental 46% 62% 50% 48% Activation 4% 32% 5% 45% ---- ---- ---- ---- 100% 22% 100% 28%
Gross margin for prepaid 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 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 12 13 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 improved by 14% 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 prepaid 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 prepaid 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 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. 13 14 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. LIQUIDITY AND CAPITAL RESOURCES The Company had a working capital deficit of $23,045,000 at December 31, 2000, compared to a deficit of $8,248,000 at December 31, 1999. Stockholders' deficit at December 31, 2000 was $25,226,000, compared to stockholders' deficit of $22,483,000 at December 31, 1999. Stockholders' deficit at December 31, 2000 and 1999 did not include $8,649,000 and $20,861,000, respectively, related to the Series C and D Convertible Preferred Stock, since each shareholder of the Series C and D Shares has the right, upon the occurrence of certain events, to require the Company to redeem all or any part of such purchaser's Series C or D Shares. Net cash used in operations for the year ended December 31, 2000 was $4,459,000. This was mainly attributable to the net loss for the period, offset by the non-cash depreciation and amortization expense, as well as the amortization of the services agreement with RCI. In addition, the Company increased accounts payable and accrued expenses by $4,985,000 as the Company delayed the payment to vendors beyond normal terms. The Company was able to significantly reduce receivables at year-end primarily by working closely with MCI WorldCom. Inventories are primarily comprised of prepaid cellular phones, which were kept to a minimum due to purchasing constraints. 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 the end of fiscal 1999, compared to prior year, as a result of the prepaid program. At December 31, 1999, the Company had approximately $3,554,000 of prepaid receivables, of which $2,396,000 was due from MCI WorldCom, compared to an insignificant amount of prepaid receivables at December 31, 1998. In the fourth quarter of 1999, the Company purchased $2,000,000 of prepaid cellular phones and accessories from DTR Associates Limited Partnership. Most of the phones and the corresponding liability existed at the end of fiscal 1999. Deferred revenues at the end of fiscal 1999 increased significantly due to the prepaid program. The Company recognizes 14 15 prepaid card revenues over the estimated period in which the Company provides prepaid services to its customers. Customers purchase prepaid cellular service by buying prepaid cards at retailers throughout the nation and calling the Company to activate, or redeem, the prepaid cards. Customers may also call the Company directly to purchase prepaid 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 prepaid 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, 2000 and 1999 consisted of the unused portion of the prepaid cards activated plus the prepaid cards sold but not yet activated. Net cash from investing activities for the year ended December 31, 2000 was $25,000. This was mainly attributable to a reduction in deposits offset by purchases of computers and office equipment to support the prepaid programs. 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, 2000, the Company raised $2,947,000, net of expenses, 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. In addition, the Company received $120,000 from the exercise of 24,000 unrelated warrants. 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 has suffered significant losses from operations and has a working capital deficit. These conditions raise substantial doubt about the Company's ability to continue as a going concern. An immediate infusion of cash from debt or equity financing is required to meet the Company's short-term and long-term liquidity requirements. In March 2001, the Company's Chairman and Chief Executive Officer, Anthony D. Autorino, assumed the position as the Company's primary lender from Citizens and, in turn, assigned his rights and obligations under such loan to Mobile Investments, LLC ("Mobile"), which agreed to increase the facility to $5 million, subject to certain conditions (see Note 9 of the Notes to the Consolidated Financial Statements for a detailed discussion). An additional infusion of cash from debt or equity financing will be required to meet the Company's short-term and long-term liquidity requirements. Although the Company is optimistic that it will be successful in raising additional funding, there can be no assurance of its success. 2001 COMPANY OUTLOOK The wireless industry continues to diversify and expand with abundant opportunities. The Company hopes to capitalize on some of these opportunities and generate revenue growth by expanding its product lines, strengthening partnerships and growing subscription lines and/or increasing revenues to existing customers. With PCS and other wireless available today, the Company intends to try to reach an expanded audience that will open up additional retailers that appeal to more middle-class America. The Company also plans to cross market its prepaid and rental products to increase its customer base. With a more extensive line of communications services, more direct sales channels, such as HSN and e-commerce sites, STC hopes to reach more people with diverse offerings to improve the Company's revenue stream. In our Prepaid Division, emphasis will be placed on nurturing existing accounts, developing new partnerships, increasing direct sales efforts, opening new markets, and strengthening our technological platform to accommodate more products and services. In addition, new pricing has been implemented to ensure that we can compete successfully in all markets. STC was first to market with the One Card Does It All platform, which is intended to serve as the driver for generating new revenue opportunities in 2001. In fiscal 2000, the Company teamed up with new high-profile partners to launch its Integrated Communications Program (ICP). Agreements with Rush Communications, Inc., VTech Connect, Ltd., and Child Watch of North America (Chris Kirkpatrick of N'Sync is the national spokesman) should result in new retail launches in the third quarter of 2001, that should open up niche distribution outlets, including record stores, check cashing outlets, and small 15 16 convenience stores. In 2001, STC plans to offer an expanded line of products and services to existing private label agents. The Company will endeavor to achieve revenue growth in the rental operations by adding new programs through the Company's car rental partners. New promotions designed to capture the attention of travelers who rent cellular phones, coupled with prepaid offerings developed solely for the travelers, should invigorate this business. In addition, the car partners have agreed to spur revenues by integrating these products and services on each of our web sites. Special attention also will be directed to the premier traveler programs, such as Avis Preferred and Hertz gold, to reach the high-volume wireless users. Also, in 2001 we plan to introduce frequent renter programs with direct benefits to the customer. The Company intends to try to increase demand for short-term cellular phone rentals with the Nextel product to corporate meeting planners and international travelers at major gateway airport locations. "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, LIQUIDITY, 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 PREPAID 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. Independent Auditors' Report Consolidated Balance Sheets as of December 31, 2000 and 1999. Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998. Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 2000, 1999 and 1998. Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998. 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 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-8-22 FINANCIAL STATEMENT SCHEDULE (a): Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 2000, 1999 and 1998 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, 2000 and 1999, 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, 2000. 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 consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 16, 2001 F-2 19 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999
2000 1999 ------------ ------------ ASSETS Current assets: Cash $ 84,000 $ 1,635,000 Accounts receivable, less allowance for doubtful accounts of $179,000 in 2000 and $495,000 in 1999 845,000 3,612,000 Carrier commissions receivable, net 178,000 Inventories 641,000 2,316,000 Prepaid expenses and other current assets 1,174,000 4,526,000 ------------ ------------ Total current assets 2,744,000 12,267,000 ------------ ------------ Telecommunications and office equipment, net 891,000 1,514,000 ------------ ------------ Other assets: Intangible assets, net 5,666,000 6,289,000 Deposits and other 586,000 1,515,000 ------------ ------------ 6,252,000 7,804,000 ------------ ------------ $ 9,887,000 $ 21,585,000 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Short-term debt $ 98,000 $ -- Current portion of long-term debt 317,000 535,000 Accounts payable 10,121,000 8,580,000 Accrued expenses and other current liabilities 10,307,000 7,045,000 Deferred revenues 4,946,000 4,355,000 ------------ ------------ Total current liabilities 25,789,000 20,515,000 ------------ ------------ Long-term debt, less current portion 475,000 2,492,000 ------------ ------------ Redeemable put warrant 200,000 200,000 ------------ ------------ Series C and D redeemable preferred stock, issued and outstanding 7,800 shares in 2000 and 20,100 in 1999 8,649,000 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 30,000,000 shares, issued and outstanding 13,903,000 shares in 2000 and 8,452,000 shares in 1999 139,000 85,000 Capital in excess of par value 46,432,000 28,437,000 Accumulated deficit (71,797,000) (51,005,000) ------------ ------------ Total stockholders' deficiency (25,226,000) (22,483,000) ------------ ------------ $ 9,887,000 $ 21,585,000 ============ ============
See accompanying notes to consolidated financial statements F-3 20 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 ------------ ------------ ------------ REVENUES $ 32,744,000 $ 28,271,000 $ 28,200,000 COST OF REVENUES 28,138,000 21,927,000 20,259,000 ------------ ------------ ------------ GROSS MARGIN 4,606,000 6,344,000 7,941,000 ------------ ------------ ------------ SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 23,147,000 21,411,000 15,075,000 BAD DEBT EXPENSE 855,000 1,217,000 3,554,000 ------------ ------------ ------------ 24,002,000 22,628,000 18,629,000 ------------ ------------ ------------ LOSS FROM OPERATIONS (19,396,000) (16,284,000) (10,688,000) INTEREST EXPENSE, NET (582,000) (574,000) (952,000) ------------ ------------ ------------ LOSS BEFORE INCOME TAXES (19,978,000) (16,858,000) (11,640,000) INCOME TAXES (6,000) (7,000) (6,000) ------------ ------------ ------------ NET LOSS (19,984,000) (16,865,000) (11,646,000) PREFERRED STOCK DIVIDENDS (808,000) (5,786,000) ------------ ------------ ------------ NET LOSS APPLICABLE TO COMMON STOCK $(20,792,000) $(22,651,000) $(11,646,000) ============ ============ ============ BASIC AND DILUTED LOSS PER COMMON SHARE $ (1.83) $ (2.84) $ (1.58) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 11,335,000 7,985,000 7,375,000 ============ ============ ============
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, 2000, 1999 and 1998
Total Capital in Stockholders' Common Stock Excess of Accumulated Equity Shares Amount Par Value Deficit (Deficiency) ------------ ------------ ------------ ------------- ------------ Balances, January 1, 1998 7,216,000 $ 72,000 $ 17,801,000 $ (16,708,000) $ 1,165,000 Issuances of common stock and warrants 271,000 3,000 201,000 204,000 Exercise of warrants and options 180,000 2,000 547,000 549,000 Cancellation of common stock (100,000) (1,000) (366,000) (367,000) Net loss (11,646,000) (11,646,000) ------------ ------------ ------------ ------------- ------------ Balances, December 31, 1998 7,567,000 76,000 18,183,000 (28,354,000) (10,095,000) Issuances of common stock and warrants 337,000 3,000 3,410,000 3,413,000 Preferred stock dividend 4,018,000 (5,786,000) (1,768,000) Conversion of redeemable preferred stock 149,000 2,000 1,038,000 1,040,000 Exercise of warrants and options 399,000 4,000 1,788,000 1,792,000 Net loss (16,865,000) (16,865,000) ------------ ------------ ------------ ------------- ------------ Balances, December 31, 1999 8,452,000 85,000 28,437,000 (51,005,000) (22,483,000) Issuances of common stock 765,000 8,000 1,726,000 1,734,000 Preferred stock dividend (808,000) (808,000) Conversion of redeemable preferred stock 3,314,000 33,000 12,987,000 13,020,000 Conversion of debt 340,000 3,000 1,697,000 1,700,000 Exercise of warrants 1,032,000 10,000 1,585,000 1,595,000 Net loss (19,984,000) (19,984,000) ------------ ------------ ------------ ------------- ------------ Balances, December 31, 2000 13,903,000 $ 139,000 $ 46,432,000 $ (71,797,000) $(25,226,000) ============ ============ ============ ============= ============
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, 2000, 1999 and 1998
2000 1999 1998 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(19,984,000) $(16,865,000) $(11,646,000) Adjustments to reconcile net loss to net cash used in operating activities: Accretion of interest on notes payable 195,000 107,000 75,000 Write-off of assets held for disposition 153,000 Amortization of services agreement 3,555,000 1,417,000 Depreciation and amortization 1,377,000 1,473,000 1,332,000 Bad debt expense 855,000 1,217,000 3,554,000 Common stock issued for compensation and services 263,000 646,000 104,000 Changes in assets and liabilities: Accounts receivable 1,659,000 (3,933,000) (3,086,000) Carrier commissions receivable 178,000 814,000 (829,000) Inventories 1,675,000 (2,082,000) (103,000) Prepaid expenses and other current assets 192,000 (2,109,000) (1,903,000) Accounts payable, accrued expenses and other current liabilities 4,985,000 2,033,000 6,204,000 Deferred revenues 591,000 3,107,000 1,204,000 ------------ ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (4,459,000) (14,175,000) (4,941,000) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment (136,000) (486,000) (744,000) (Increase) decrease in deposits 161,000 (27,000) (389,000) ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 25,000 (513,000) (1,133,000) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings from financial facility 98,000 Proceeds from issuance of notes payable 6,400,000 Payments for debt issuance costs (171,000) Payments on long-term debt (310,000) (4,527,000) (530,000) Payments of notes to former parent (1,411,000) (239,000) Issuance of common and redeemable preferred stock 1,500,000 20,240,000 Exercise of warrants and options 1,595,000 1,792,000 549,000 ------------ ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 2,883,000 16,094,000 6,009,000 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH (1,551,000) 1,406,000 (65,000) CASH, beginning of year 1,635,000 229,000 294,000 ------------ ------------ ------------ CASH, end of year $ 84,000 $ 1,635,000 $ 229,000 ============ ============ ============
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, 2000, 1999 and 1998
2000 1999 1998 ------------ ------------ -------- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 237,000 $ 640,000 $863,000 ============ ============ ======== Income taxes $ 6,000 $ 7,000 $ 6,000 ============ ============ ======== 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 $ 808,000 $ 4,018,000 $ -- ============ ============ ======== Conversion of redeemable preferred stock and convertible notes into common stock $ 14,720,000 $ 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 and prepaid 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 special events. 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 (SFAS) No. 107 "Disclosures About Fair Value of Financial Instruments", 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 less accumulated depreciation. 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. 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 $167,000, $58,000 and $83,000 in 2000, 1999 and 1998, 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. 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, 2000, 1999 and 1998 were approximately $84,000, $265,000 and $308,000, 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 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 income tax assets to the amount expected to be realized. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 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. Since the effect of the outstanding warrants, options, and convertible debentures and preferred stock is antidilutive, they have been excluded from the Company's computation of loss per common share. Reclassification Certain of the 1999 amounts have been reclassified to conform to the 2000 presentation. 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 $72 million through December 31, 2000, had a working capital deficit of approximately $23 million at December 31, 2000 and a stockholders' deficiency of approximately $25 million at December 31, 2000. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Although the Company has taken certain short-term measures to improve its condition, such as seeking an increased credit facility (see Note 9) and certain cost cutting measures, an additional infusion of cash from debt or equity financing, which the Company is seeking, will be required to meet the Company's short-term and long-term liquidity requirements. Further, management's plans also include the continued generation of revenue growth in both the prepaid and rental operations during 2001. Efforts to generate revenue growth in the Company's prepaid operations are focused on three of the Company's programs: Total Communications, Private Label Agent and CellEase Universal Platform Programs. Efforts to generate growth in the Company's rental operations are focused on the increased emphasis on the Company's car rental partners' locations. F-10 27 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS There can be no assurances that management's plans, as described in the preceding paragraph, will be realized. NOTE 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following at December 31, 2000 and 1999:
2000 1999 Prepaid access fees $ 725,000 $ 672,000 Prepaid telephone line charges 485,000 Note receivable 289,000 500,000 Prepaid consulting agreement 2,492,000 Other 160,000 377,000 ------------- ------------- $ 1,174,000 $ 4,526,000 ============= =============
In July 1999 (as amended in July 2000), the Company entered into a consulting agreement (the "Agreement") with Retail Distributor, Inc. (RDI) (an entity for which a Company director is an executive officer and principal stockholder), expiring in March 2001 (extended to June 2001) pursuant to which RDI was to provide certain services relating to the marketing, sale and distribution of the Company's prepaid cellular services. The Agreement was entered 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 fair market value of $10.56 per share. 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, and will make monthly payments over the term of the Agreement aggregating approximately $1,896,000, of which approximately $400,000 and $996,000 was paid during 2000 and 1999, respectively. All amounts payable under the Agreement were to be expensed over the services period expiring in March 2001 (extended to June 2001). However, the Company has changed its estimate and the remaining balance has been fully amortized at December 31, 2000. As of December 31, 2000, the Company issued 275,000 warrants to purchase shares of the Company's common stock. As part of the Agreement, the Company loaned RDI $500,000, bearing interest at the prime rate (9.5% at December 31, 2000) plus 1% per annum, which is due on demand. Through December 31, 2000, the Company has offset approximately $211,000 against the loan. F-11 28 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - TELECOMMUNICATIONS AND OFFICE EQUIPMENT Telecommunications and office equipment consist of the following at December 31, 2000 and 1999:
2000 1999 Telecommunications equipment $ 336,000 $ 400,000 Office equipment 2,004,000 2,141,000 ------------- ------------- 2,340,000 2,541,000 Accumulated depreciation 1,449,000 1,027,000 ------------- ------------- $ 891,000 $ 1,514,000 ============= =============
Depreciation expense for the years ended December 31, 2000, 1999 and 1998 was $759,000, $769,000 and $604,000, respectively. NOTE 6 - INTANGIBLE ASSETS Intangible assets consist of the following at December 31, 2000 and 1999:
2000 1999 Goodwill $ 8,426,000 $ 8,426,000 Rental car agreement 520,000 520,000 Debt issuance costs 171,000 171,000 ------------- ------------- 9,117,000 9,117,000 Accumulated amortization 3,451,000 2,828,000 ------------- ------------- $ 5,666,000 $ 6,289,000 ============= =============
Amortization expense for the years ended December 31, 2000, 1999 and 1998 was $623,000, $704,000 and $619,000, respectively. NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following at December 31, 2000 and 1999:
2000 1999 State and municipal obligations $ 6,462,000 $ 5,512,000 Payroll and payroll taxes 802,000 200,000 Commissions 99,000 178,000 Unbilled carrier fees 2,180,000 572,000 Other 764,000 583,000 ------------- -------------- $ 10,307,000 $ 7,045,000 ============= ==============
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, 2000 and 1999:
2000 1999 Promissory notes bearing interest at 10% per annum and payable in monthly installments of $8,500 through March 2002. $ 119,000 $ 204,000 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. 450,000 2,150,000 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 223,000 448,000 Promissory note bearing interest at 8% per annum and payable in semi-annual principal installments of $225,000 through May 2000. The note was collateralized by certain of the Company's assets. 225,000 ------------- ------------- 792,000 3,027,000 Less current portion 317,000 535,000 ------------- ------------- $ 475,000 $ 2,492,000 ============= =============
F-13 30 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - LONG-TERM DEBT (CONTINUED) Aggregate future principal payments are as follows:
Long-Term Capital Lease Year Ending December 31, Debt Obligation 2001 $ 94,000 $ 232,000 2002 25,000 2003 2004 2005 450,000 ------------- ------------- $ 569,000 232,000 ============= Less amount representing interest 9,000 ------------- Present value of future payments $ 223,000 =============
Telecommunications and office furniture includes assets under capital leases with a net book value of approximately $381,000 as of December 31, 2000. NOTE 9 - SHORT-TERM DEBT In July 1999, as amended in August 2000, the Company entered into a $2.5 million revolving credit facility with Citizens Bank of Massachusetts (Citizens). The availability of the credit facility was based on a percentage of eligible receivables and included covenants requiring certain levels of active debit/prepaid customers and operating results through the term of the agreement. Advances under the facility bore interest at the prime rate and were to be used for working capital and general corporate purposes. The credit facility was collateralized by substantially all of the Company's assets. In connection with the credit facility, the Company issued Citizens 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 Citizens any time after the third anniversary for a minimum redemption price of $200,000. The Company accounted for the warrant as additional interest. The August 2000 amendment terminated the credit facility at December 29, 2000. In March 2001, the Company's Chairman and Chief Executive Officer assumed the position as the Company's primary lender from Citizens and, in turn, assigned his rights and obligations under such loan to Mobile Investments, LLC (Mobile) (a related party), which agreed to increase the facility to $5,000,000, subject to certain conditions. Mobile's obligation to provide additional funding is expressly subject to its ability to obtain sufficient investment capital for the loan facility by March 31, 2001. Subject to funding, Mobile will receive certain Company warrants. Although the Company is confident that such funds will be secured by Mobile, and thus provided to the Company, there can be no assurance of such funding. At December 31, 2000, the Company had approximately $98,000 outstanding under the credit facility. As part of the credit facility, the Company had standby letters of credit to certain vendors in the aggregate of $575,000 at December 31, 2000. These letters of credit expire on various dates from February 2001 through March 2001. F-14 31 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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. 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 the years ended December 31, 2000 and 1999, holders of 6,313 and 1,000 shares, respectively, of Series C Preferred Stock converted their stock into an aggregate of approximately 1,737,000 and 149,000 shares, respectively, 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 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 dividend 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. During the year ended December 31, 2000, holders of 6,000 shares of Series D Preferred Stock converted their stock into an aggregate of approximately 1,577,000 shares of the Company's common stock. F-15 32 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - STOCKHOLDERS' DEFICIENCY The Company has reserved for issuance 2,677,000 shares of its common stock relating to common stock purchase warrants outstanding as of December 31, 2000, at prices ranging from $2.50 to $11.09 per share. During the year ended December 31, 2000, the Company raised $2,947,000, net of expenses, 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. In addition, the Company received $120,000 from the exercise of 24,000 unrelated warrants. 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 2,250,000 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, 2000, options to purchase 1,684,000 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. 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, 2000, options to purchase 132,000 shares of the Company's common stock were outstanding under the Director Plan. F-16 33 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - STOCK OPTION PLANS (CONTINUED) 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, 1998 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 1.63-4.75 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 Granted 850,000 .50-14.25 2.14 Expired (256,000) 2.13-12.00 9.02 ------------ ------------- --------- Balance outstanding, December 31, 2000 1,816,000 $ .50-14.25 $ 4.41 ============ ============= ========= Exercisable, December 31, 2000 948,000 $ 1.63-12.00 $ 4.96 ============ ============= =========
The Company has adopted the disclosure requirements of 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 stockholders and net loss per share applicable to common stockholders would have been adjusted to the pro forma amounts indicated below:
2000 1999 1998 Net loss applicable to common stockholders: As reported $ (20,792,000) $ (22,651,000) $ (11,646,000) Pro forma (22,981,000) (23,735,000) (12,024,000) Net loss per share applicable to common stockholders: As reported $ (1.83) $ (2.84) $ (1.58) Pro forma (2.03) (2.98) (1.63)
F-17 34 \ SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - STOCK OPTION PLANS (CONTINUED) 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 2000, 1999 and 1998, respectively: risk-free interest rate of 5.5%, 5.5% and 5%, respectively; no dividend yield; expected lives of 3 to 10 years; and expected volatility of 108%, 81%, and 91%, respectively. NOTE 13 - SAVINGS AND RETIREMENT PLAN The Company has 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 are 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, 2000, 1999 and 1998, the Company's matching contributions were approximately $133,000, $165,000, and $104,000, respectively. NOTE 14 - INCOME TAXES A reconciliation of income tax benefit, to the federal statutory rate for the years ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998 Income tax benefit on reported pretax loss at federal statutory rate (35.0)% (35.0)% (35.0)% State net operating losses (6.0) (6.0) (6.0) Net operating loss carryforward not recognized 41.0 41.0 41.0 ---- ---- ----- Income taxes 0.0 % 0.0 % 0.0 % ==== ==== =====
At December 31, 2000 and 1999, the Company recorded net deferred tax assets of approximately $25,524,000 and $16,835,000, respectively, and valuation allowances in the same amounts. The valuation allowances were increased by $8,689,000, $7,133,000, and $4,191,000, for the years ended December 31, 2000, 1999 and 1998, 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. F-18 35 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - INCOME TAXES (CONTINUED) The net deferred tax asset as of December 31, 2000 and 1999 is comprised of the following:
2000 1999 Deferred tax assets: Net operating loss carryforwards $ 25,316,000 $ 16,510,000 Allowance for doubtful accounts 73,000 237,000 Asset basis difference, intangible and other assets 135,000 88,000 ------------ ------------ Deferred tax asset, gross 25,524,000 16,835,000 Valuation allowance on deferred tax asset (25,524,000) (16,835,000) ------------ ------------ $ -- $ -- ============ ============
At December 31, 2000, the Company has federal net operating loss carryforwards of approximately $61,000,000, which can be utilized against future taxable income and expire through the year 2020. Net operating losses available for state income tax purposes are less than those for federal purposes and generally expire earlier. NOTE 15 - COMMITMENTS AND CONTINGENCIES The Company has leases for office facilities and equipment, which expire in various years through December 2004. Future aggregate minimum annual rental payments as of December 31, 2000 are as follows:
Year ending December 31, 2001 $1,027,000 2002 264,000 2003 130,000 2004 91,000
Rent expense for the years ended December 31, 2000, 1999 and 1998 was approximately $1,014,000, $815,000, and $558,000, respectively. Leased equipment expense for the year ended December 31, 2000 was approximately $64,000. F-19 36 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED) 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 $14.4 million 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 is involved in an eviction proceeding with respect to its one of its offices, which houses one of the Company's two call centers. However, the Company is actively engaged in settlement discussions with the landlord/plaintiff in this matter, and is optimistic that a satisfactory resolution will be reached soon. 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 the consolidated results of operations, cash flows or financial position of the Company. NOTE 16 - OTHER RELATED PARTY TRANSACTIONS The Company sub-leases certain office space to affiliates, expiring in December 31, 2001. For the years ended December 31, 2000 and 1999, aggregate monthly rental payments were approximately $140,000 and $64,000, respectively, plus operating expenses, property taxes and rent escalations. During 1999, the Company entered into a capitalized lease obligation with an affiliate, expiring in November 2001. Aggregate monthly payments are approximately $21,000. NOTE 17 - DEPENDENCE UPON KEY RELATIONSHIPS AND MAJOR CUSTOMERS Approximately 22%, 14% and 10% of the Company's revenues for 2000 were attributable to three customers. Approximately 18%, 16% and 16% of the Company's revenues for 1999 were attributable to three customers. Approximately 24%, 19%, 12% and 10% of the Company's revenues for 1998 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. F-20 37 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - SELECTED QUARTERLY RESULTS (UNAUDITED)
First Second Third Fourth Quarter Quarter Quarter Quarter 2000 Revenues $ 9,744,000 $ 8,185,000 $ 8,307,000 $ 6,508,000 ============= ============ ============ ============= Gross margin $ 1,667,000 $ 1,233,000 $ 1,280,000 $ 426,000 ============= ============ ============ ============= Net loss $ (4,488,000) $ (4,585,000) $ (3,981,000) $ (6,930,000) ============= ============ ============ ============= Loss per common share: Basic and diluted $ (0.55) $ (0.47) $ (0.33) $ (0.48) ============= ============ ============ ============= 1999 Revenues $ 5,621,000 $ 6,461,000 $ 7,893,000 $ 8,296,000 ============= ============ ============ ============= Gross margin $ 1,029,000 $ 1,632,000 $ 2,262,000 $ 1,421,000 ============= ============ ============ ============= Net loss $ (4,355,000) $ (3,581,000) $ (3,409,000) $ (5,520,000) ============= ============ ============ ============= Loss per common share: Basic and diluted $ (1.12) $ (0.49) $ (0.45) $ (0.78) ============= ============ ============ =============
NOTE 19 - SEGMENT INFORMATION The Company complies with 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. F-21 38 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - SEGMENT INFORMATION (CONTINUED) Operating segment information for 2000, 1999, and 1998 is summarized as follows:
Rental Debit Activation Corporate Consolidated Revenues 2000 $ 10,046,000 $ 22,450,000 $ 248,000 $ -- $ 32,744,000 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 Depreciation and amortization 2000 320,000 283,000 11,000 763,000 1,377,000 1999 326,000 280,000 22,000 845,000 1,473,000 1998 429,000 101,000 10,000 792,000 1,332,000 Bad debt expense 2000 645,000 210,000 855,000 1999 883,000 306,000 28,000 1,217,000 1998 1,441,000 2,097,000 16,000 3,554,000 Operating income (loss) 2000 236,000 (13,856,000) 55,000 (5,831,000) (19,396,000) 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) Interest expense, net 2000 (582,000) (582,000) 1999 (574,000) (574,000) 1998 (952,000) (952,000) Income (loss) before income taxes 2000 236,000 (13,856,000) 55,000 (6,413,000) (19,978,000) 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)
F-22 39 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2000, 1999 and 1998
Balance at Charged to Balance at Beginning Costs and End Description of Year Expenses Deductions(1) of Year ---------- ---------- ---------- ---------- Year Ended December 31, 2000: Allowance for doubtful accounts $ 495,000 $ 855,000 $1,171,000 $ 179,000 ========== ========== ========== ========== 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 ========== ========== ========== ==========
(1) Represents write off of uncollectible accounts, net of recoveries. S-1 40 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11 EXECUTIVE COMPENSATION ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company incorporates by reference items 10, 11, 12 and 13 in its Proxy Statement for its Annual Meeting of Stockholders to be held on May 31, 2001 (to be filed with the Securities and Exchange Commission on or before April 30, 2001). 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 November 14, 2000, the Company filed a report on Form 8-K, Item 5, concerning the executed definitive agreement and plan of merger with SATX, Inc. pursuant to which SATX, Inc. would have merged into Shared Technologies Cellular, Inc. and shareholders of SATX, Inc. would have received 17 million shares of the surviving company. On February 7, 2001, the Company issued a press release announcing that the Company had ceased negotiations with SATX, Inc., due to the absence of necessary financing to consummate the merger and the mutual decision of SATX and the Company to terminate the agreement and plan of merger. (c) EXHIBITS EXHIBIT NO. DESCRIPTION OF EXHIBIT 3.(i) Second Restated Certificate of Incorporation dated February 29, 2000. Incorporated by reference from exhibit 3.(i) to the Company's Form 10-K dated March 27, 2000. 3.(ii) Certificate of Amendment of Certificate of Incorporation, dated June 30, 2000. Incorporated by reference from exhibit 3.(i) to the Company's Quarterly Report on Form 10-Q dated August 13, 2000. 3.(iii) Amended and Restated By-laws, dated July 7, 1999. Incorporated by reference from Exhibit 3.(ii) to the Company's Form 10-K dated March 27, 2000. 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. 17 41 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. 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. 18 42 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. 4.17 First Amendment to Loan Agreement by and between the Company and Citizens Bank of Massachusetts dated December 3, 1999. Incorporated by Reference from Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated May 11, 2000. 4.18 Second Amendment to Loan Agreement by and between the Company and Citizens Bank of Massachusetts dated May 1, 2000. Incorporated by Reference from Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q dated May 11, 2000. 4.19 Third Amendment to Loan Agreement by and between the Company and Citizens Bank of Massachusetts dated August 8, 2000. Incorporated by Reference from Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated August 13, 2000. 4.20 Fourth Amendment to Loan Agreement by and among the Company, Citizens Bank of Massachusetts and Mobile Investments LLC dated March 1, 2001. 4.21 Referral Agreement by and between the Company and William Bolles dated November 28, 2000, as amended (the "Agreement"). 4.22 First Amendment to the Agreement, dated January 7, 2001. 10.1 Lease Agreement by and between Putnam Park Associates 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. 10.2 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. 10.3 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. 10.4 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. 10.5 1994 Stock Option Plan, as amended, June 28, 2000. 10.6 1994 Director Option Plan, as amended, July 7, 1999. 10.7* 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. 10.8 Employment Agreement by and between Anthony D. Autorino and the Company, effective October 1, 1999. Incorporated by reference from Exhibit 10.12 to the Company's Form 10-K dated March 27, 2000. 10.9 Employment Agreement by and between Sean P. Hayes and the Company, effective October 1, 1999. Incorporated by reference from Exhibit 10.14 to the Company's Form 10-K dated March 27, 2000. 19 43 10.10 Employment Agreement by and between Kenneth M. Dorros and the Company, effective October 1, 1999. Incorporated by reference from Exhibit 10.15 to the Company's Form 10-K dated March 27, 2000. 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. 20 44 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, 2001 \s\ Ismael Pinho By Ismael Pinho Chief Financial Officer Date: March 27, 2001 POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Anthony D. Autorino and Ismael Pinho, 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/ Nicholas E. Sinacori Anthony D. Autorino William A. DiBella Nicholas E. Sinacori Chief Executive Officer Director Director and Director Date: March 27, 2001 Date: March 27, 2001 Date: March 27, 2001 By: /s/ Ajit G. Hutheesing By: /s/ Thomas H. Decker By: /s/ Victor Grillo, Sr. Ajit G. Hutheesing Thomas H. Decker Victor Grillo, Sr. Director Director Director Date: March 27, 2001 Date: March 27, 2001 Date: March 27, 2001 * By: /s/ Anthony D. Autorino Anthony D. Autorino Attorney-in-fact
21 EX-4.20 2 y47139ex4-20.txt EXHIBIT 4.20 1 EXHIBIT 4.20 FOURTH AMENDMENT AGREEMENT THIS Fourth AMENDMENT AGREEMENT (the "Agreement") is entered as of March 1, 2001 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 MOBILE INVESTMENTS LLC, a Connecticut limited liability company with an address at c/o Oakes, Fitzwilliams & Co., Inc., c/o Speer & Fulvio, 60 East 42nd Street, New York, NY 10165 ("Mobile") assignee of Anthony Autorino, and CITIZENS BANK OF MASSACHUSETTS ("Citizens"), for itself and as Collateral Agent. RECITALS: On July 7, 1999, State Street (as predecessor in interest to Citizens) and the Borrower entered into a Loan Agreement, as amended by that certain First Amendment Agreement dated as of December 3, 1999, that certain Second Amendment Agreement dated as of May 1, 2000, and that certain Third Amendment Agreement dated August 8, 2000 (referred to herein collectively as the "Credit Agreement") pursuant to which Citizens extended to the Borrower a Revolving Credit Facility which is presently existing in the maximum aggregate line availability of Two Million Five Hundred Thousand Dollars ($2,500,000.00). The Borrower executed and delivered to State Street 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 Amended and Restated Secured Revolving Credit Promissory Note in the original principal amount of Five Million Dollars ($5,000,000.00) dated May 1, 2000 delivered to Citizens and that certain Amended and Restated Secured Revolving Credit Promissory Note in the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00) dated August 8, 2000 delivered to Citizens (collectively the "Original Note"). Pursuant to a Nonrecourse Assignment and Acceptance agreement dated as of March 1, 2001, Citizens assigned its interest in said Loan to Anthony Autorino, subject to and expressly reserving its rights against the Borrower with respect to a certain outstanding Letter of Credit No. 041082 in the original and principal amount of $500,000, wherein GTE Mobilemet Services Corp. is the beneficiary, expiring March 29, 2001 (the "Retained Letter of Credit"). Anthony Autorino assigned the Loan to Mobile pursuant to a certain Nonrecourse Assignment and Acceptance agreement dated of even date herewith, subject to the same reservation of rights with respect to Citizens. The Borrower is obligated to Citizens pursuant to a certain Letter of Credit Reimbursement Agreement (the "Reimbursement Agreement"). Citizens has agreed to hold all collateral securing the obligations of the Borrower under the Credit Agreement and the Retained Letter of Credit as agent for itself and Mobile, (the "Collateral Agent") pursuant to the terms of Section X below. 1 2 The parties 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 Lender, 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. Citizens as Collateral Agent shall act solely with respect to the Collateral and such of the Loan Documents as relate to the Collateral. All references to the "Lender", the "Secured Party" or the "Assignee" under the Credit Agreement and the Loan Documents which relate to the Collateral, and relate to such of the Loan Documents as relate to the Collateral, shall be deemed amended hereby, subject to the Agency Expiration Date, to refer solely to Citizens as Collateral Agent for Citizens and for Mobile. All references in the Credit Agreement to the "Lender", other than those which relate to the Collateral and such of the Loan Documents as relate to the Collateral as described in the immediately preceding paragraph, shall from and after even date be deemed amended to refer to Mobile, subject, however, to Citizens' reservation of rights, in its capacity as a lender, under the Credit Agreement with regard to the repayment in full to it of any and all obligations under the Retained Letter of Credit. By way of example and without limitation hereby, Mobile shall have the right, in its sole discretion, to exercise any and all rights and remedies to accelerate or otherwise negotiate the Revolving Line of Credit with respect to the Borrower's or The Cellular One's failure to comply with regard to covenants under the Credit Agreement, subject, however, to Citizen's aforementioned reservation of rights regarding the Retained Letter of Credit. 2. The Borrower acknowledges and agrees that the collateral security granted pursuant to the Credit Agreement and other Security Documents secures the obligations evidenced by the Original Note in favor of Mobile and the Retained Letter of Credit in favor of Citizens, and that the Collateral Agent is holding such collateral for the benefit of Mobile and Citizens. 3. The date "December 29, 2000" in the definition of the "Commitment Termination Date" is hereby changed to "August 31, 2001." 4. On the date hereof Mobile shall make an Advance of $290,000, representing an Advance of $240,000 plus an Advance of $50,000 for the Extension Fee more fully described in Section VII.3 below. No further Advances will be made under the Revolving Credit Loan, and any obligation of Citizens to make any further Advances is hereby terminated. 5. Section 2.1(e) of the Credit Agreement regarding the Liquidity Management Control System is deleted. 2 3 6. Section 2.4 of the Credit Agreement regarding prepayment is amended in its entirety to read as follows: "2.4 Prepayment. The Loan may be prepaid, in full or in part, prior to the Commitment Termination Date, subject to Mobile's rights under the Letter Agreement between Mobile and Borrower of even date with respect to the conditional commitment of Mobile for Advances up to $6,000,000." 7. 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 for the period March 1, 2001 through the Commitment Termination Date shall be payable monthly on the first day of each month at the fixed rate of 12% per annum." 8. 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 15%." 9. The covenants set forth in Section 5.6 through 5.12 of the Credit Agreement are hereby deleted." 10. The following new definitions are added to the Credit Agreement: "Fourth Amendment Agreement" shall mean that certain Fourth Amendment Agreement entered into between the Borrower and the Lender dated as of March 1, 2001." 11. Whenever notice is contemplated to be given to the "Lender" or the "Secured Party" or the "Assignee" under the Security Documents, notice shall also be given as follows: If to the Lender: Mobile Investments LLC Attn: Herbert Oakes, Jr. c/o Oakes, Fitzwilliams & Co., Inc. c/o Speer & Fulvio 60 East 42nd Street New York, NY 10165 3 4 With a Copy to: Brown Rudnick Freed & Gesmer 185 Asylum Street Hartford, CT 06103 Attn: Brian Courtney. Esq. SECTION II. AMENDMENT TO THE ORIGINAL NOTE. The Original Note is amended to extend the maturity date to the new Commitment Termination Date. SECTION III. 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. Borrower represents and agrees that, in addition to the amounts advanced in Section I.2. above, there is currently outstanding (a) the principal amount of $98,333.25 under the Credit Agreement and Original Note, together with accrued interest in the amount of $2,173.71 ($26.63 per diem), and default fees of $237,500, all of which are due and owing without setoff, defense, or counterclaim, and Borrower hereby waives any such setoff, defense or counterclaim it may have against Mobile, together with (b) its obligation to pay Citizens under the Credit Agreement the amount of any draw on the Retained Letter of Credit. SECTION IV. RESERVATION OF RIGHTS. Citizens, Mobile 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: Mobile and Citizens 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; and iii) Except for this Amendment, there are no other understandings, express or implied between Mobile and Citizens and the Borrower regarding the Credit Agreement and the Original Note. SECTION V. 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: 4 5 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 Mobile and Citizens or any of Mobile's and Citizens' rights with respect to such liabilities; and b) be in all respects ratified and affirmed. 2. The Borrower acknowledges that all of the liabilities and obligations of the Borrower to Mobile and Citizens now existing and hereafter incurred are secured by the security described in the Security Documents defined in the Credit Agreement; the Borrower further acknowledges that Mobile and Citizens 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 Mobile and Citizens. SECTION VI. WAIVER. Mobile hereby waives all existing Events of Default under the Credit Agreement, 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 Mobile 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. 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 Mobile shall affect Lender's rights to later take any such action with respect to any such default. SECTION VII. GENERAL. 1. Construction. Except as amended hereby, incorporated herein by reference are the representations, warranties, agreements, affirmative and negative covenants, definitions, terms and conditions all as set forth in the Credit Agreement and the Original Note and all documents executed in connection therewith or pursuant thereto. This Agreement, the Credit Agreement, the Original Note, and the other Loan 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. 2. Governing Law. This Agreement, the Original Note and the Credit Agreement and all Security Documents thereunder, and the rights and obligations 5 6 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. Extension Fee. In consideration of this Fourth Amendment Agreement, the Borrower shall pay, as of the date hereof, an Extension Fee to Mobile in the amount of Fifty Thousand Dollars ($50,000.00). SECTION VIII. SECURITY DOCUMENTS. The Borrower and The Cellular Hotline, Inc., each with respect to itself, 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, 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 Lender or any of the Lender's rights with respect to such liabilities; and c) the Security Documents, as amended hereby, shall continue to secure the Borrower's obligations under the Credit Agreement, the Original Note, the Retained Letter of Credit and all other obligations of the Borrower and of The Cellular Hotline, Inc. to the Lender, whether now existing or hereafter arising. SECTION IX. WAIVER OF TRIAL BY JURY. BORROWER, THE CELLULAR HOTLINE, INC., AND LENDER 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 LENDER TO ACCEPT THIS AGREEMENT AND TO AMEND THE REVOLVING CREDIT FACILITY. 6 7 SECTION X. AGENCY PROVISIONS 1. Appointment. Lenders hereby appoint Citizens as Collateral Agent and Collateral Agent agrees to act as such for the benefit of Lenders under the Credit Agreement and the other Loan Documents ( as defined in the Credit Agreement) whereby the Collateral Agent has been authorized to hold all collateral for the Loans and to exercise such powers and take such actions as are delegated, assigned or granted to the Collateral Agent. 2. Lender Remedies. In the event that there is a draw on the Retained Letter of Credit that is not paid, in full, within five (5) days of date thereof, Citizens may direct the Collateral Agent to exercise the rights in Section X.10 below. However, nothing contained herein shall permit Collateral Agent or Citizens to accelerate the Loan as evidence by the Original Note or other indebtedness owing to Mobile, nor the right to waive any defaults under the Credit Agreement. Mobile agrees that it will not have any right to enforce or any right of collection with respect to the Retained Letter of Credit or the Collateral granted in the Credit Agreement or Security Documents. 3. Agreement of Requisite Lenders. The Collateral Agent shall have sole discretion to exercise all of Lender's or Secured Parties or Assignee's rights and remedies under the Loan Documents including, without limitation, control of the Collateral, direction of enforcement proceedings, commencement and prosecution of any action to pursue remedies including, without limitation, foreclosure on all matters until such time as the earlier of (the "Agency Expiration Date"): (a) the delivery to Citizens of cash collateral, in form and substance satisfactory to Citizens, in its sole discretion, with a face original amount of not less than $562,500.00, utilizing the form and substance of cash collateral documentation previously drafted, negotiated and discussed prior to even date between the Borrower, Citizens, and Autorino; or (b) the later date to occur of : (i) the date of expiration of the Retained Letter of Credit without any draw by the beneficiary thereof and the payment in full to Assignor of any outstanding fees, interest and expenses thereunder; or (ii) the date of reimbursement in full, by wire transfer, to Citizens of: any and all draws, and all interest, fees and expenses under the Retained Letter of Credit; and (iii) the date of payment in full of any and all obligations under that certain Limited Liability Guaranty of Anthony D. Autorino dated February 27, 2001, as reconfirmed March 8, 2001. Upon the satisfaction of the foregoing terms, the Agency shall terminate and Mobile shall automatically succeed to Collateral Agent's interests under the Credit Agreement 7 8 and other Loan Documents. Upon any occasion requiring or permitting an approval, consent, waiver, election or other action on the part of the Lenders, action shall be taken by the Collateral Agent for and on behalf or for the benefit of all Lenders, and any such action shall be binding on all Lenders. 4. Assignment and Participation. Neither Lender may sell, assign or grant a participation interest in, in whole or in part, its interests, rights or obligations in the Loans or Loan Documents. 5. Benefit of Agreement. The provisions of this Section X are solely for the benefit of the Lenders and the Collateral Agent and shall not benefit in any way or be deemed to be enforceable by the Borrower. 6. Representations and Warranties; No Responsibility for Appraisal of Creditworthiness. Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Borrower in connection with the making of the Loans and has made and shall continue to make its own appraisal of the creditworthiness of the Borrower. Collateral Agent shall not have any duty or responsibility either initially or on a continuing basis to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto whether coming into its possession before the making of the Loans or any time or times thereafter and Collateral Agent shall have no responsibility with respect to the accuracy of or the completeness of the information to Lenders. 7. Right to Indemnity. Each Lender severally agrees to indemnify Collateral Agent, (which indemnity shall survive any termination expiration of the Credit Agreement) to the extent Collateral Agent shall not have been reimbursed by Borrower, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Collateral Agent in performing its duties as Collateral Agent hereunder or in any way relating to or arising out of this Agreement; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements which are determined by a court of competent jurisdiction in a non-appealable proceeding to have resulted solely from Collateral Agent's gross negligence or willful misconduct. If any indemnity furnished to Collateral Agent for any purpose shall, in the opinion of Collateral Agent, be insufficient or become impaired, Collateral Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 8. Cooperation of Lenders. Each Lender shall (a) promptly notify any other Lender and the Collateral Agent of any failure to pay any amount due hereunder, under the Original Note or default under the Credit Agreement or known to such Lender and not reasonably believed to have been previously disclosed to each other Lender; (b) provide each other Lender and the Collateral Agent with such information and documentation as such other Lender or the Collateral Agent shall reasonably request in the performance of their respective duties hereunder, including all information relative to 8 9 the outstanding balance of principal, interest and other sums owed to such Lenders by the Borrower; and (c) cooperate with the Collateral Agent with respect to any and all collection and/or foreclosure procedures at any time commenced against the Borrower or the Borrower or otherwise in respect of the Collateral by the Collateral Agent in the name and on behalf of the Lenders 9. Agency Fee. Borrower and Mobile jointly and severally agree to pay Collateral Agent an agency fee of $2,600 if one of the events specified in Section X.3 above is not met by March 16, 2001. 10. Allocation of Proceeds. The parties acknowledge that Citizens has a first priority lien on the Collateral, and that Citizens shall be paid in full, in cash or by wire transfer, all principal, interest, fees and expenses, including without limitation reasonable attorneys fees, prior to payment to Mobile of any obligations owing to it by the Borrower. The Collateral Agent is hereby authorized to liquidate the Collateral under the Collateral Documents at its sole discretion in accordance with standards equal to the standard of care it would if it were the sole lender in a lending relationship. Mobile shall have no right to direct the liquidation of the Collateral until such time as the Collateral Agent has been repaid in full all obligations under the Retained Letter of Credit, and all interest, fees and expenses incurred in connection therewith. The parties acknowledge that Collateral Agent shall have the sole right to control liquidation of the Collateral and the exercise of any rights and remedies under the Loan Documents, including, without limitation, control of the Collateral, direction of enforcement proceedings, commencement and prosecution of any action to pursue remedies including, without limitation, foreclosure. The Collateral Agent will use the standard of care in its administration of its custodial duties hereunder (including, without limitation, its duties as custodial of the Loan Documents delivered to it by Borrower) equal to the standard of care it would if it were the sole lender in a lending relationship. 11. Additional Collateral Agent Duties. The Collateral Agent (which term, as used herein, shall include its affiliates and its own and its affiliates' officers, directors, employees and agents): (i) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Loan Documents and shall not, by reason of this Agreement or any other Loan Document, be a trustee for, or have a fiduciary relationship in respect of, any Lender; (ii) shall not with respect to the Collateral Security under the Loan Documents, be required to initiate or conduct any litigation or collection proceedings hereunder or thereunder; and (iii) may deem and treat the payee of a Note as the holder thereof for all purposes hereof unless and until a notice of the assignment or transfer thereof shall have been filed with the Collateral Agent. 12. No Action Required. The Collateral Agent shall not be required to take any action hereunder, under the Loan Documents, or to prosecute or defend any suit in 9 10 respect of any of the Loan Documents, unless it is indemnified hereunder to its satisfaction. 13. Exculpation. NEITHER THE COLLATERAL AGENT NOR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR COLLATERAL AGENTS SHALL BE: (i) LIABLE TO ANY LENDER FOR ANY ACTION LAWFULLY TAKEN OR OMITTED TO BE TAKEN BY IT UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR IN CONNECTION HEREWITH OR THEREWITH, EXCEPT FOR THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF THE COLLATERAL AGENT OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR COLLATERAL AGENTS; NOR (ii) RESPONSIBLE FOR: ANY RECITALS OR REPRESENTATIONS OR WARRANTIES HEREIN OR THEREIN; OR APPRAISALS OF CREDIT WORTHINESS OF THE BORROWER OR OF ANY OTHER OBLIGOR; OR FOR THE EFFECTIVENESS, ENFORCEABILITY, VALIDITY OR DUE EXECUTION OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT; FOR THE CREATION, PERFECTION OR PRIORITY OF ANY LIENS PURPORTED TO BE CREATED BY ANY OF THE LOAN DOCUMENTS; OR THE VALIDITY, GENUINENESS, ENFORCEABILITY, EXISTENCE, VALUE OR SUFFICIENCY OF ANY COLLATERAL SECURITY; NOR (iii) RESPONSIBLE TO MAKE ANY INQUIRY RESPECTING THE PERFORMANCE BY THE BORROWER OF ITS OBLIGATIONS HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT. ANY SUCH INQUIRY WHICH MAY BE MADE BY THE COLLATERAL AGENT SHALL NOT OBLIGATE IT TO MAKE ANY FURTHER INQUIRY OR TO TAKE ANY ACTION. THE COLLATERAL AGENT SHALL BE ENTITLED TO RELY UPON ADVICE OF COUNSEL CONCERNING LEGAL MATTERS AND UPON ANY NOTICE, CONSENT, CERTIFICATE, STATEMENT OR WRITING WHICH THE COLLATERAL AGENT BELIEVES TO BE GENUINE AND TO HAVE BEEN PRESENTED BY A PROPER PERSON. SHOULD COLLATERAL AGENT OR ITS EMPLOYEES OR COLLATERAL AGENTS PERFORM ANY ANALYSIS OF BORROWER OR OF ANY OTHER OBLIGOR, AND THEN DELIVER COPIES OF SAME TO ANY LENDER, EACH LENDER BY ITS EXECUTION HEREOF AGREES THAT IT SHALL HAVE NO RECOURSE AGAINST COLLATERAL AGENT WITH RESPECT THERETO WITH REGARD TO ANY ASPECT THEREOF EXCEPT FOR COLLATERAL AGENT'S GROSS NEGLIGENCE WITH REGARD THERETO. 14. Successor. The Collateral Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and Lenders. If the Collateral Agent at any time shall resign, the Lenders may appoint another Lender as a successor Collateral Agent which shall thereupon become the Collateral Agent hereunder. If the Lenders do not make such appointment within 30 days, the retiring Collateral Agent may, on behalf of the Lenders, appoint a successor Collateral Agent, which shall be one of the Lenders 10 11 or, if no Lender shall accept such appointment, a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution having a combined capital and surplus of at least $500,000.000. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall be entitled to receive from the retiring Collateral Agent such documents of transfer and assignment as such successor Collateral Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, power, privileges and duties of the retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Collateral Agent's resignation hereunder as the Collateral Agent, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Collateral Agent under this Agreement. 15. Loans by the Collateral Agent. Citizens shall have the same rights and powers with respect to the Retained Letter of Credit, as any other Lender and may exercise the same as if it were not the Collateral Agent. Citizens and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Affiliate thereof as if Citizens were not the Collateral Agent hereunder. 16. Reliance by Collateral Agent. The Collateral Agent shall be entitled to rely upon any certification, notice or other communication (including, without limitation, any thereof by telephone, telecopy, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Collateral Agent. As to any matters not expressly provided for this by Agreement or any other Loan Document, the Collateral Agent shall, in all cases, be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by Mobile or all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. 17. Defaults. The Collateral Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Collateral Agent has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Collateral Agent receives such a notice of the occurrence of a Default, the Collateral Agent shall give prompt notice thereof to all Lenders. The Collateral Agent shall (subject to Section X.3 hereof) take such action with respect to such Default as shall be directed by Mobile if a default has not occurred under the Retained Letter of Credit, and Mobile acknowledges that if a default has occurred under the Retained Letter of Credit then Mobile will defer to any action taken by the Collateral Agent until the occurrence of the Agency Expiration Date, provided that, unless and until the Collateral Agent shall have received such directions, the Collateral Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Lenders. 11 12 18. Failure to Act. Except for action expressly required of the Collateral Agent hereunder and under the Loan Documents, the Collateral Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section X.7 hereof against any and all liability and expense that may be incurred by it by reason taking or continuing to take any such action. 19. Consents under Other Loan Documents. The Collateral Agent may, with prior consent of Mobile (but not otherwise), consent to any modification, supplement or waiver under any of the Loan Documents, provided that, without the prior consent of each Lender, the Collateral Agent shall not (except as provided herein or in the Loan Documents) release any collateral or otherwise terminate any Lien under Loan Document providing for collateral security, agree to additional obligations being secured by such collateral security (unless the Lien for such additional obligations shall be junior to the Lien in favor of the other obligations secured by such Loan Document), alter the relative priorities of the obligations entitled to the benefits of the liens created under the Loan Documents or release any Guarantor from its guarantee obligations under the Guaranty. 20. Legal Fees and Expenses. Borrower shall immediately pay any and all of Citizens' and Mobile's reasonable legal fees and expenses incurred in connection with the preparation and drafting, negotiation, execution and delivery of the Fourth Amendment, and in connection with the cash collateral account, if any, and in connection with the Agency Expiration Date, and with respect to advising the Collateral Agent of its rights and responsibilities under any of the Loan Documents, and incurred in connection with the exercise of the Collateral Agent's, and Citizens', respective rights and remedies under the Loan Documents and the Retained Letter of Credit. The fees and expenses of counsel to Citizens incurred with respect to the Fourth Amendment Agreement shall be wire transferred to counsel to Citizens contemporaneously and on the same day as Citizen's delivery to Mobile and the Borrower of this Agreement. 21. Multiple counterparts. This Agreement may be executed in multiple counterparts, the sum of which will constitute one document. [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 12 13 IN WITNESS WHEREOF, the Lender 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 - ------------------------------ ---------------------------------------- Title: Charman & CEO MOBILE INVESTMENTS LLC By: Oakes Fitzwilliams Executive Death Benefit & Retirement Scheme (No. 2) (HLO), Its Member By: /s/ HERBERT L. OAKES, JR. - ------------------------------ ---------------------------------------- Herbert L. Oakes, Jr. Trustee CITIZENS BANK OF MASSACHUSETTS, FOR ITSELF AND AS COLLATERAL AGENT By: /s/ CHRISTOPHER G. DANIEL - ------------------------------ ---------------------------------------- Christopher G. Daniel Its: Vice President CONSENT AND CONFIRMATION The undersigned consents to the amendment of the Credit Agreement pursuant to the Fourth Amendment Agreement, and the terms of the Fourth Amendment Agreement, 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 Lender, and confirms its obligations under all documents securing the Guaranty. 13 14 IN WITNESS WHEREOF, the undersigned has caused its duly authorized officer to execute this Consent and Confirmation as an instrument under Seal. WITNESS: THE CELLULAR HOTLINE, INC. By: /s/ ANTHONY D. AUTORINO - ------------------------------ --------------------------------- Its: President [NOTARIZATIONS FOR SIGNATURES ON PRIOR PAGE] STATE OF CONNECTICUT ) ) ss. COUNTY OF HARTFORD ) In Wethersfield on the _______ day of March, 2001, 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 ) ) ss. COUNTY OF HARTFORD ) In Wethersfield on the _______ day of March, 2001, before me personally appeared the above-named ______________________________________________________, ________________________________________ of THE CELLULAR HOTLINE, INC. to me known and known by me to be the party executing the foregoing instrument on behalf of said corporation and acknowledged said instrument so executed to be his free act and deed in said capacity and the free act and deed of said corporation. Notary Public My Commission Expires: STATE OF CONNECTICUT ) ) ss. COUNTY OF HARTFORD ) In Wethersfield, Connecticut on the ____ day of March, 2001, before me personally appeared the above-named Herbert Oakes, Jr., the Trustee of Oakes Fitzwilliams Executive Death Benefit & Retirement Scheme (No. 2) (HLO), member of Mobile Invest- 14 15 ments LLC to me known and known by me to be the party executing the foregoing instrument on behalf of said Lender and acknowledged said instrument so executed to be his free act and deed in said capacity and the free act and deed of said Lender. Notary Public My Commission Expires: STATE OF ) ) ss. COUNTY OF ) In _____________ on the ___ day of March, 2001, before me personally appeared the above-named Christopher Daniels, Vice President of Citizens Bank of Massachusetts to me known and known by me to be the party executing the foregoing instrument on behalf of said Lender and acknowledged said instrument so executed to be his free act and deed in said capacity and the free act and deed of said Lender. Notary Public My Commission Expires: 15 EX-4.21 3 y47139ex4-21.txt EXHIBIT 4.21 1 EXHIBIT 4.21 REFERRAL AGREEMENT ------------------ REFERRAL AGREEMENT This Agreement (the "Agreement") is made as of the 28th day of November, 2000, by and between SHARED TECHNOLOGIES CELLULAR, INC., a Delaware corporation, having offices at 100 Great Meadow Road, Wethersfield, CT 06109, (the "Company"), and WILLIAM BOLLES, an individual having a place of business at 26 Broadway, Suite 1615, New York, NY 10004 ("BOLLES"). WHEREAS, BOLLES has provided certain introductions to the Company with respect to certain prospective licensors ("Licensors"), whose trademark(s) or tradename(s) ("Marks") may be licensed to the Company in connection with the Company's prepaid communications products, such as cellular phones and pagers ("Equipment"), and prepaid communications services ("Services"), which such license agreements ("License Agreements") are identified in Exhibit A hereof; and WHEREAS, the Company agrees to compensate BOLLES in connection with each License Agreement, pursuant to the terms and conditions hereof. NOW THEREFORE, in consideration of the promises and covenants contained herein, the receipt and adequacy of which are acknowledged, the parties agree as follows. 1. BOLLES'S INTRODUCTION TO STC OF LICENSORS. BOLLES has introduced the Company to certain Licensors whose Marks may be used by the Company in connection with the marketing and sale of Equipment and Services branded with such Licensors' Marks. In particular, BOLLES has facilitated discussions between the Company and Licensors of the Marks "Puff Daddy" Combs ("PDC") and Jennifer Lopez ("Lopez"). In the event that the Company enters into License Agreements for the use of the PDC and Lopez Marks, then the Company shall Compensate BOLLES in accordance with Exhibit A hereof. The parties may amend Exhibit A from time to time to add additional Licensor programs, as the parties may mutually agree. 2. TERM AND TERMINATION. This Agreement shall be effective as of the date hereof and remain in effect until and for so long as any License Agreement identified in Exhibit A is in effect. Upon the termination or expiration of the last surviving License Agreement this Agreement shall automatically terminate without notice. In the event that the Company does not enter into a License Agreement for either the PDC or Lopez Mark within six (6) months of the date of this Agreement, then this Agreement shall be deemed to be null and void as of the date hereof. 3. COMMISSIONS. STC agrees to pay commissions ("Commissions") to BOLLES during the term hereof in accordance with Exhibit A attached hereto and made a part hereof. All Commissions payable by the Company to BOLLES hereunder shall be paid in arrears, within thirty (30) days after the end of each month in which each Commission accrues. The Company agrees to provide a report to BOLLES along with each Commission payment, detailing the basis for such Commission. 4. RELATIONSHIP OF THE PARTIES. BOLLES shall at all times hereunder be deemed to be an independent contractor of the Company. In no event shall BOLLES's personnel be considered employees of the Company. Under no circumstances shall the Company be responsible for workers' compensation premiums, disability benefits, withholding taxes, social security, unemployment insurance or any other taxes or benefits with respect to BOLLES or its personnel. BOLLES has no authority to bind the Company in contract with any third party, including, without limitation, any Licensor. 5. LIMITATIONS OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER, DIRECTLY OR INDIRECTLY, FOR INCIDENTAL, CONSEQUENTIAL (INCLUDING LOST PROFITS), INDIRECT, PUNITIVE OR SPECIAL DAMAGES ARISING IN ANY WAY OUT OF THIS AGREEMENT. 2 6. 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 overnight courier. Notice shall be deemed to have been given at the time of receipt if personally delivered; three (3) days after mailing if sent by certified or registered mail; or upon delivery if sent by overnight courier. All notices shall be sent to the parties' respective addresses set forth at the beginning of this Agreement. Either party may change the address at which it is to receive notice by giving notice of the change to the other party pursuant to this Section. 7. GENERAL. (a) This Agreement shall be governed by the laws of the State of Connecticut, without giving effect to any principle of conflict of laws. (b) This Agreement, including any exhibits and attachments, constitutes the entire understanding between the parties relating to the subject matter hereof and supersedes any and all prior discussions, proposals or agreements, whether oral or written. No modification, addition or waiver to this Agreement shall be valid unless in writing signed by the parties hereto. (c) 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. (d) The waiver of any provision of this Agreement shall not be construed as a continuing waiver of the same or of other provisions hereof. (e) Any obligation of a party hereto relating to monies owed, as well as those provisions relating to confidentiality, limitation on liability, indemnification, noncompetition and any other provisions that by sense and context are intended to survive performance by either or both parties, shall survive termination of this Agreement. (f) The parties acknowledge that they have each read this Agreement in its entirety, understand it and agree to be bound by the terms and conditions contained herein. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized agents as of the date first written above. 3 Shared Technologies Cellular, Inc. William Bolles By: /s/ SEAN P. HAYES /s/ WILLIAM W. BOLLES ----------------------------- ----------------------------------- Its: Executive Vice President Date: November 28, 2000 Date: November 28, 2000 4 EXHIBIT A COMMISSION SCHEDULE Subject to the terms and conditions of this Agreement, Commissions payable under Section 5 of the Agreement will be based on monthly collected revenues received by the Company from the provision of Services and the sale of Equipment as follows. 1. "Puff Daddy" Combs and Jennifer Lopez Programs (a) Equipment Sales. STC agrees to pay to BOLLES monthly Commissions in an amount equal to $0.25 per unit of Equipment sold with respect to Equipment sold pursuant to a License Agreement for either the PDC or Lopez Mark. (b) Usage Sales (i) Direct Sales. STC agrees to pay to BOLLES monthly Commissions in an amount equal to one half (1/2%) of STC's collected monthly revenues from STC's direct sale of Services through STC's IVR (integrated voice response system) or its call center, to customers in connection with the use of Equipment sold pursuant to a License Agreement for either the PDC or Lopez Mark. (ii) Sales by Authorized Distributors. STC agrees to pay to BOLLES monthly Commissions in an amount equal to one-half percent (1/2%) of STC's collected monthly revenues from the sale by STC and its authorized distributors of usage cards for Services, which cards are branded with the Mark pursuant to a License Agreement for either the PDC or Lopez Mark. EX-4.22 4 y47139ex4-22.txt EXHIBIT 4.22 1 EXHIBIT 4.22 FIRST AMENDMENT --------------- FIRST AMENDMENT This First Amendment is made as of the 7th day of January, 2001, by and between SHARED TECHNOLOGIES CELLULAR, INC. (the "Company"), and WILLIAM BOLLES ("BOLLES"), hereby amending that certain referral agreement dated November 28, 2000 by and between the Company and BOLLES (the "Agreement"). NOW THEREFORE, in consideration of the promises and covenants contained herein, the receipt and adequacy of which are acknowledged, the parties agree as follows. 1. First Amended Exhibit A, Commission Schedule. Effective as of the date first written above, Exhibit A to the Agreement is hereby superseded in its entirety with the First Amended Exhibit A attached hereto and made a part hereof. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment by their duly authorized agents as of the date first written above. Shared Technologies Cellular, Inc. William Bolles By: /s/ SEAN P. HAYES /s/ WILLIAM BOLLES ------------------------------ ------------------------------- Its: Executive Vice President Date: January 7, 2001 Date: January 7, 2001 2 EFFECTIVE DATE: JANUARY 7, 2001 FIRST AMENDED EXHIBIT A COMMISSION SCHEDULE Subject to the terms and conditions of this Agreement, Commissions payable under Section 5 of the Agreement will be based on monthly collected revenues received by the Company from the provision of Services and the sale of Equipment as follows. 1. "Puff Daddy" Combs and Jennifer Lopez Programs (a) Equipment Sales. STC agrees to pay to BOLLES monthly Commissions in an amount equal to $0.50 per unit of Equipment sold with respect to Equipment sold pursuant to a License Agreement for either the PDC or Lopez Mark. (b) Usage Sales. (i) Direct Sales. STC agrees to pay to BOLLES monthly Commissions in an amount equal to one half (1/2%) of STC's collected monthly revenues from STC's direct sale of Services through STC's IVR (integrated voice response system) or its call center, to customers in connection with the use of Equipment sold pursuant to a License Agreement for either the PDC or Lopez Mark. (ii) Sales by Authorized Distributors. STC agrees to pay to BOLLES monthly Commissions in an amount equal to one-half percent (1/2%) of STC's collected monthly revenues from the sale by STC and its authorized distributors of usage cards for Services, which cards are branded with the Mark pursuant to a License Agreement for either the PDC or Lopez Mark. 2. Russell Simmons Program (a) Equipment Sales. STC agrees to pay to BOLLES monthly Commissions in an amount equal to $0.50 per unit of Equipment sold with respect to Equipment sold pursuant to a License Agreement for a Russell Simmons Mark. (b) Usage Sales. (i) Direct Sales. STC agrees to pay to BOLLES monthly Commissions in an amount equal to one (1%) of STC's collected monthly revenues from STC's direct sale of Services through STC's IVR (integrated voice response system) or its call center, to customers in connection with the use of Equipment sold pursuant to a License Agreement for a Russell Simmons Mark. (ii) Sales by Authorized Distributors. STC agrees to pay to BOLLES monthly Commissions in an amount equal to one percent (1%) of STC's collected monthly revenues from the sale by STC and its authorized distributors of usage cards for Services, which cards are branded with the Mark pursuant to a License Agreement for a Russell Simmons Mark. (c) STC Common Stock. (i) Issuance of Shares. In the event that STC obtains rights to a Russell Simmons Mark on or before February 15, 2001, whether through a License Agreement similar agreement, STC agrees to issue to BOLLES as additional consideration hereunder 1,500,000 shares of STC common stock, $.01 par value, (the "Shares"). 3 (ii) Registration Rights. In the event that the Shares are issued, STC shall use its reasonable best efforts to register the Shares as soon as reasonably practicable, pursuant to a Form S-8 registration statement or such other form as STC may determine in its reasonable discretion to be appropriate for such purpose. EX-10.5 5 y47139ex10-5.txt EXHIBIT 10.5 1 EXHIBIT 10.5 SHARED TECHNOLOGIES CELLULAR, INC. 1994 STOCK OPTION PLAN As amended, June 28, 2000 1. Purpose. The Shared Technologies Cellular, Inc. 1994 Stock Option Plan (the "Plan") is intended to encourage the ownership of stock of Shared Technologies Cellular, Inc., a Delaware corporation (the "Company"), by qualified and competent persons who are key to the success of the Company and its direct and indirect subsidiaries (the "Subsidiaries") and to provide additional incentive for them to promote the growth, development and financial success of the Company and its Subsidiaries business as determined by a committee consisting of two or more members of the Board of Directors of the Company (the "Board"), as appointed pursuant to Section 2 hereof, by offering them an opportunity to increase their proprietary interest in the Company through the grant of nonqualified stock options (the "Options") to purchase shares of Common Stock of the Company, par value $0.01 per share (the "Common Stock"). Consistent with these objectives, the Plan authorizes the granting of Options to acquire shares of Common Stock pursuant to the terms and conditions hereinafter set forth. The Options are not intended to qualify as "Incentive Stock Options" within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Administration of the Plan. a. Members of the Committee. The Plan shall be administered by a committee (the "Committee") duly appointed by the Board which shall consist of at least two members of the Board, each of whom shall be a "Non-Employee Director" as defined in subsection (b)(3)(i) of Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Members of the Committee shall serve at the pleasure of the Board of Directors of the Company. b. Authority of the Committee. The Committee shall adopt such rules as it may deem appropriate in order to carry out the purposes of the Plan. Subject to the provisions of this Plan, the Committee shall have the complete authority, in its discretion, to make the following determinations with respect to each Option to be granted by the Company: (A) the person to receive the Option; (B) the time of granting the Option; (C) the number of shares subject thereto; (D) the Option Price (as defined in Section 5(b) hereof); and (E) the Option Period (as defined in Section 5(d) hereof). In making such determinations the Committee may take into account the nature of the services rendered by the person, their present and potential contributions to the success of the Company and its Subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of this Plan, all questions of interpretation, administration, and application of the Plan shall be determined by a majority of the members of the Committee then in office, except that the Committee may 2 authorize any one or more of its members, or any officer of the Company, to execute and deliver documents on behalf of the Committee. The determination of such majority shall be final and binding in all matters relating to the Plan or all persons concerned. No member of the Committee shall be liable for any act done or omitted to be done by such member or by any other member of the Committee in connection with the Plan, except for such member's own willful misconduct or as expressly provided by statute. 3. Persons to Whom Options May be Granted. Options may be granted, at the discretion of the Committee: a. To one or more persons who are employees or employees and directors of the Company or of any of its present or future Subsidiaries, or any employee of a Parent Corporation (within the meaning of Code Section 424(e)) (collectively, an "Employee"); b. To one or more persons who provides services to the Company or of any of its present or future Subsidiaries as a consultant or otherwise in the capacity of an independent contractor and who is not otherwise an Employee. 4. Stock Subject to the Plan. The shares subject to the Plan shall consist of 2,250,000 shares of Common Stock, subject to adjustment pursuant to Section 5(h) hereof, which shares may be either authorized but unissued shares or previously issued shares of Common Stock reacquired and held by the Company as treasury shares, not reserved for any other purpose. The Company shall at all times during the term of this Plan and of the Options granted hereunder reserve and keep available such number of shares of the Company's stock as will be sufficient to satisfy the requirements of this Plan and shall pay all fees and expenses necessarily incurred by the Company in connection therewith. If any outstanding Option under the Plan for any reason expires or is canceled or otherwise terminated without having been exercised in full, the shares of Common Stock allocable to the unexercised portion of such Option shall (unless the Plan shall have been terminated) become available for subsequent grants of Options under the Plan. 5. Terms and Conditions of Options. Each Option granted pursuant to the Plan shall be evidenced by a written agreement (the "Option Agreement") between the Company and the person to whom such Option is awarded (the "Optionee"), which Option Agreement shall comply with and be subject to the following terms and conditions: a. Number of Shares. Each Option Agreement shall state the number of shares of Common Stock to which the Option relates. b. Option Price. Each Option Agreement shall state the option price, which shall not be less than seventy percent (70%) of the Fair Market Value (as defined below) of the shares of Common Stock on the date of grant of the Option (the "Option Price"). The term "Fair Market Value" of a share of Common Stock shall mean (i) if the 2 3 shares of Common Stock are then traded on an over-the-counter market, the average of the closing bid and asked prices for the shares of Common Stock in such over-the-counter market for the last preceding date on which there was a sale of such Common Stock in such market, (ii) if the shares of Common Stock are then listed on a national securities exchange, the closing sales price per share for the last preceding date on which there was a sale of such Common Stock on such exchange, or (iii) if the shares of Common Stock are not then traded in an over-the-counter market or listed on a national securities exchange, such value as the Committee in its discretion may determine. The Option Price shall be subject to adjustment as provided in Section 5(h) hereof. c. Payment of Option Price. (i) Shares of Common Stock shall be issued to the Optionee upon payment in full either in cash (or cash equivalent) or by an exchange of shares of Common Stock of the Company previously owned by the Optionee, or a combination of both, in an amount or having a combined value equal to the aggregate purchase price for the shares subject to the Option or portion thereof being exercised. The value of the previously owned shares of Common Stock exchanged in full or partial payment for the shares purchased upon the exercise of an Option shall be equal to the aggregate Fair Market Value of such shares on the date of the exercise of such Option. (ii) Whenever shares of Common Stock are to be issued under the Plan, the Company shall have the power to require the recipient of the Common Stock to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to issuance of the certificate for shares of Common Stock. The Option Agreement may provide that an Optionee shall be entitled to elect to pay all or a portion of all federal, state or local withholding taxes arising in connection with the exercise of an Option by electing to (1) have the Company withhold shares of Common Stock, or (2) deliver other shares of Common Stock previously owned by the Optionee having a Fair Market Value equal to the amount to be withheld; provided, however, that the amount to be withheld shall not exceed the Optionee's estimated total federal, state and local tax obligations associated with the transaction. The election shall be made in writing and shall be made according to such rules and in such form as the committee shall from time to time determine. The Fair Market Value of fractional shares remaining after payment of the withholding taxes shall be paid to the Optionee in cash. d. Terms and Exercise of Options. Options shall be exercisable over the exercise period as and at the times and upon such conditions as the committee may determine, as reflected in the Option Agreement, including the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate (the "Option Period"), provided however, that the Option period shall not exceed ten (10) years from the date of grant of such Option. The Option Period shall be subject to earlier termination as provided in Sections 5(e) and 5(f) hereof. An Option may be exercised, as to any or all full shares of Common Stock as to 3 4 which the Option has become exercisable, by giving written notice of such exercise to the Committee or to such individual(s) as the Committee may from time to time designate. e. Termination of Employment Other than for Death, Disability or Retirement In the event that the employment of an Optionee shall terminate (other than by reason of death, disability or retirement), all Options of such Optionee that are exercisable at the time of such termination may, unless earlier terminated in accordance with their terms, be exercised within three (3) months after such termination; provided, however, that if the employment of an Optionee shall terminate for Cause (as defined herein), all options theretofore granted to such Optionee shall, to the extent not theretofore exercised, terminate immediately. The term "Cause" means for purposes of whether and when an Optionee has incurred a termination of employment for Cause any act or omission which permits the Company or the Parent Corporation to terminate the written agreement or arrangement between such Optionee and the Company or the Parent Corporation, as the case may be; Cause as defined in such agreement or arrangement, or in the event there is no such agreement or arrangement or the agreement or arrangement does not define the term "Cause", than Cause shall mean (a) the conviction of the Optionee for committing a felony under Federal law or the law of the state in which such action occurred or (b) the willful or negligent failure on the part of such Optionee to perform his duties to the Company or the Parent Corporation, as the case may be. f. Termination of Employment Due to Death, Disability or Retirement of Optionee. If an Optionee shall die while employed by the Company, its Subsidiaries or the Parent Corporation, or within three (3) months after the termination of such Optionee's employment other than for Cause, or if the Optionee's employment shall terminate by reason of Disability (within the meaning of Section 22(e)(3) of the Code) or retirement, all Options theretofore granted to such Optionee (to the extent otherwise exercisable at the time of death or termination of employment) may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by the Optionee's estate or by a person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of death or disability of the Optionee, at any time within six months (or such longer period as may be determined by the Committee in its sole discretion) after the date of any such death, disability or retirement of the Optionee. g. Nontransferability of Options. Options granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution, and Options may be exercised, during the lifetime of the Optionee, only by the Optionee or by his guardian or legal representative. h. Effect of Certain Changes. (i) If there is any change in the number or class of shares of Common Stock through the declaration of stock or cash dividends, or, recapitalization resulting in stock splits, or combinations or exchanges of such shares, the number or class of shares 4 5 of Common Stock available for Options, the number or class of such shares covered by outstanding Options, and the exercise price per share of such Options may be proportionately adjusted by the Committee in its sole discretion to reflect any such change in the number or class of issued shares of Common Stock; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. In the event of any other extraordinary corporate transaction, including but not limited to distributions of cash or other property to the Company's shareholders, the Committee may equitably adjust outstanding Options as it deems appropriate in its sole discretion. (ii) In the event of the proposed dissolution or liquidation of the Company, in the event of any corporate separation or division, including, but not limited to, split-up, split-off or spin-off, or in the event of a merger or consolidation of the Company with another corporation, the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such Option (at its then Option Price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such dissolution, liquidation or corporate separation or division, or merger or consolidation by a holder of the number of shares of Common Stock for which such option might have been exercised immediately prior to such dissolution, liquidation, or corporate separation or division, or merger or consolidation. (iii) Paragraph (ii) of this Section 5(h) shall not apply to a merger or consolidation in which the Company is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation or merger of another corporation into the Company in which the Company is the surviving corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such Option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Company), property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of the number of shares of Common Stock for which such Option might have been exercised. (iv) In the event of a change in the Common Stock of the Company as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. 5 6 (v) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. (vi) Except as expressly provided in this Section 5(h), the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation; and any issue by the Company of shares of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option. The grant of any Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassification, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets. i. Rights as a Stockholder. An Optionee or a transferee of an Option shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a stock certificate to him or her for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 5(h) hereof. j. Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Optionee's employment at any time, nor confer upon any Optionee any right to continue in the employ of the Company, nor will anything in the Plan require an Optionee to continue in the employ of the Company. k. Other Provisions. The Option Agreements authorized under the Plan shall contain such other provisions not inconsistent with this Plan, including, without limitation, the imposition of restrictions upon the exercise of an Option as the Committee shall deem advisable. l. Change of Control. (i) In the event of a Change of Control of the Company, subject to the condition set forth in Section 5(l)(ii) below, all restrictions and conditions applicable to Options then outstanding shall be deemed satisfied, and such Options shall be deemed to be fully vested, as of the date of the Change of Control. For purposes of this Plan, a Change in Control shall be deemed to occur if the persons who were directors of the Company shall cease to constitute a majority of the Board of the Company in connection with any of the following transactions: (A) the acquisition by a third person, including a "person" as defined in Section 13(d)(3) of the Exchange Act, of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities of the 6 7 Company representing fifty percent (50%) or more of the total number of votes that may be cast for the election of the directors of the Company; or (B) as the result of, or in connection with, any tender or exchange offer, merger, consolidation or other business combination, sale of assets, or any combination of the foregoing transactions. (ii) Notwithstanding the occurrence of any Change of Control, an Option shall only receive the benefit of the removal of restrictions and accelerated vesting, as provided by Section 5(l)(i) above, if such Option is held by an employee of the Company and such employee's employment with the Company's terminates, for any reason, following such Change of Control. For the purposes hereof, termination shall include any reduction in compensation, geographic relocation of the employee, or any material diminution in job status or responsibilities. (iii) In the case of any tender or exchange offer, merger, consolidation or other business combination or sale of all or substantially all of the assets of the Company, which does not constitute a Change in Control, or in the case of a reorganization or liquidation of the Company, the Committee, or the board of directors of any corporation assuming the obligations of the Company hereunder shall, as to outstanding Options, (A) make appropriate provision for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable in respect of the shares of Company Stock, or (B) upon written notice to the Participants, provide that the Company or the merged, consolidated or otherwise reorganized corporation shall have the right, upon the effective date of any such merger, consolidation, sale of assets or reorganization, to purchase all Options held by each Participant as to which restrictions have not lapsed as of that date at an amount equal to the aggregate fair market value on such date of the shares, such amount to be paid in cash or, if stock of the merged, consolidated or otherwise reorganized corporation is issuable in respect of the shares of the Common Stock of the Company, then, in the discretion of the Committee, in stock of such merged, consolidated or otherwise reorganized corporation equal in fair market value to the aforesaid amount. In any such case the Committee shall, in good faith, determine fair market value. The Committee may, in its discretion, advance the lapse of restrictions and conditions applicable to Options outstanding as of the date of the merger, consolidation, sale of assets or reorganization. 6. Term of Plan. Options under this Plan may be granted pursuant to the Plan from time to time within a period of ten (10) years from the date the Plan is adopted by the Board, or the date the Plan is approved by the stockholders of the Company, whichever is earlier. 7. Amendment. The Board may at the time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part; provided, however, that no amendment which requires shareholder approval in order for the exemptions available under Rule 16b-3 to be applicable to the Plan and the Optionees, shall be effective unless the same shall be approved by the stockholders of the Company entitled to vote thereon 7 8 on or before the effective date of the amendment. Such approval shall be obtained in such manner as is required by the Company's Certificate of Incorporation, its By-Laws, and the laws of the State of Delaware as in effect at the time of such approval. Notwithstanding the foregoing, no amendment shall affect adversely any of the rights or obligations of any Optionee, without such Optionee's consent, under any Option theretofore granted under the Plan. 8. Headings. The headings of sections and subsections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of the Plan. 9. Governing Law. The Plan and all rights hereunder shall be construed in accordance with and governed by the laws of the State of Delaware. Dated as of June 28, 2000 - ------------------------------- Anthony D. Autorino Chairman and Chief Executive Officer 8 EX-10.6 6 y47139ex10-6.txt EXHIBIT 10.6 1 Exhibit 10.6 SHARED TECHNOLOGIES CELLULAR, INC. 1994 DIRECTOR OPTION PLAN As amended July 7, 1999 1. PURPOSE The purpose of this 1994 Director Option Plan (The "Plan") of Shared Technologies Cellular, Inc., a Delaware corporation (the "Company"), is to encourage ownership in the Company by outside directors of the Company whose continued services are considered essential to the Company's future progress and to provide them with a further incentive to remain as directors of the Company. 2. ADMINISTRATION The Board of Directors shall supervise and administer the Plan. Grants of stock options under the Plan and the amount and nature of the awards to be granted shall be automatic and nondiscretionary in accordance with Section 5. However, all questions of interpretation of the Plan or of any options issued under it shall be determined by the Board of Directors and such determination shall be final and binding upon all persons having an interest in the Plan. 3. DIRECTORS ELIGIBLE FOR PARTICIPATION Each director of the Company who is not an employee of the Company or any Subsidiary, or affiliate of the Company shall be eligible to participate in the Plan. 4. STOCK SUBJECT TO THE PLAN (a) The maximum number of shares which may be issued under the Plan shall be 200,000 shares of the Company's Common Stock. $.01 par value per share ("Common Stock") (b) If any outstanding option under the Plan for any reason expires or is terminated without having been exercised in full, the shares allocable to the unexercised portion of such option shall again become available for grant pursuant to the Plan. (c) All options granted under the Plan shall be non-statutory options not entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended to date and as may be amended from time to time (the "Code"). 2 5. TERMS, CONDITIONS AND FORMS OF OPTIONS Each option granted under the Plan shall be evidenced by a written agreement in such form as the Board of Directors shall from time to time approve, which agreements shall comply with and be subject to the following terms and conditions: (a) Option Grant Dates. Each eligible director will automatically receive an option to purchase 15,000 thousand shares of Common Stock at the commencement of such director's three (3) year term. All options granted under the Plan will be immediately vest and become exercisable at the rate of one thirty-sixth (1/36) per full month of service from the date of grant. For directors elected to less than a three (3) year term, such directors shall receive an option to purchase five thousand (5,000) shares per year to be served as a director, with vesting pro rated on a monthly basis. A director joining the Board of Directors at any time other than the annual meeting of the Company's stockholders shall receive an option that is reduced, pro rata, based on the time elapsed since the most recent annual stockholders meeting. (b) Option Exercise Price. The option exercise price per share for each option granted under the Plan shall be equal to: (i) if the Common Stock is then traded on the over-the-counter market, the average of the Closing bid and ask prices for the shares of Common Stock in such over-the-counter market for the last preceding date on which there was a sale of such Common Stock in such market; (ii) if the Common Stock is then listed on a national securities exchange, the closing sales price per share for the last preceding date on which there was a sale of such Common Stock on such exchange; or (iii) if, on the relevant date, the Common Stock is not publicly traded or reported as described in (i) or (ii), the value determined in good faith by the Board of Directors. (c) Options Non-Transferable. Each option granted under the Plan by its terms shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and shall be exercised during the lifetime of the optionee only by him. No option or interest therein may be transferred, assigned, pledged or hypothecated by the optionee during his lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. (d) Exercise Period. Except as otherwise provided in the Plan, each option may be exercised fully on the date of grant of such option, provided that, subject to the provisions of Section 5(e), no option may be exercised more than ninety (90) days after the optionee ceases to serve as a director of the Company. No option shall be exercisable after the expiration of ten (10) years from the date of grant or prior to approval of the Plan by the stockholders of the Company, whichever is earlier. (e) Exercise Period Upon Disability or Death. Notwithstanding the 2 3 provisions of Section 5(d), any option granted under the Plan: (i) may be exercised in full by an optionee who becomes disabled (within the meaning of Section 22(e) (3) of the Code or any successor provision thereto) while serving as a director of the Company; or (ii) may be exercised (x) in full upon the death of an optionee while serving as a director of the Company, or (y) to the extent then exercisable upon the death of an optionee within ninety (90) days of ceasing to serve as a director of the Company, by the person to whom it is transferred by will, by the laws of descent and distribution, or by written notice filed pursuant to Section 5(h); in each such case within six months (or such longer period as may be determined by the Board of Directors in its sole discretion) after the date the optionee ceases to be such a director; provided, that in no option shall be exercisable after the expiration of ten (10) years from the date of grant. (f) Exercise Procedure. Options may be exercised only by written notice to the Company at its principal office accompanied by payment of the full consideration for the shares as to which they are exercised. (g) Payment of Purchase Price. Options granted under the Plan may provide for the payment of the exercise price (i) by delivery of cash (or cash equivalent) in an amount equal to the exercise price of such options or, (ii) to the extent provided in the applicable option agreement, by delivery to the Company of shares of Common Stock then owned by the optionee having a fair market value equal in amount to the exercise price of the options being exercised, or (iii) by any combination of such methods of payment. The fair market value of any shares of Common Stock or other non-cash consideration which may be delivered upon exercise of an option shall be determined by the Board of Directors. (h) Exercise by Representative Following Death of Director. A director, by written notice to the Company, may designate one or more persons (and for time to time change such designation) including his legal representative, who, by reason of his death, shall acquire the right to exercise all or a portion of the option. If the person or persons so designated wish to exercise all or a portion of the option, they must do so within the term of the option as provided herein. Any exercise by a representative shall be subject to the provisions of the Plan. (i) Change of Control. 3 4 (i) In the event of a Change of Control of the Company, subject to the condition set forth in Section 5(i)(ii) below, all restrictions and conditions applicable to Options then outstanding shall be deemed satisfied, and such Options shall be deemed to be fully vested, as of the date of the Change of Control. For purposes of this Plan, a Change in Control shall be deemed to occur if the persons who were directors of the Company shall cease to constitute a majority of the Board of the Company in connection with any of the following transactions: (1) the acquisition by a third person, including a "person" as defined in Section 13(d)(3) of the Exchange Act, of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total number of votes that may be cast for the election of the directors of the Company; or (2) as the result of, or in connection with, any tender or exchange offer, merger, consolidation or other business combination, sale of assets, or any combination of the foregoing transactions. (ii) Notwithstanding the occurrence of any Change of Control, an Option shall only receive the benefit of the removal of restrictions and accelerated vesting, as provided by Section 5(i)(i) above, if such Option is held by a director of the Company and such director's service on the Company's Board of Directors terminates, for any reason, following such Change of Control. (iii) In the case of any tender or exchange offer, merger, consolidation or other business combination or sale of all or substantially all of the assets of the Company, which does not constitute a Change in Control, or in the case of a reorganization or liquidation of the Company, the Committee, or the board of directors of any corporation assuming the obligations of the Company hereunder shall, as to outstanding Options, (i) make appropriate provision for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable in respect of the shares of Company Stock, or (ii) upon written notice to the Participants, provide that the Company or the merged, consolidated or otherwise reorganized corporation shall have the right, upon the effective date of any such merger, consolidation, sale of assets or reorganization, to purchase all Options held by each Participant as to which restrictions have not lapsed as of that date at an amount equal to the aggregate fair market value on such date of the shares, such amount to be paid in cash or, if stock of the merged, consolidated or otherwise reorganized corporation is issuable in respect of the shares of the Common Stock of the Company, then, in the discretion of the Committee, in stock of such merged, consolidated or otherwise reorganized corporation equal in fair market value to the aforesaid amount. In any such case the Committee shall, in good faith, determine fair market value. The Committee may, in its discretion, advance the lapse of restrictions and conditions applicable to Options outstanding as of the date of the merger, consolidation, sale of assets or reorganization. 4 5 6. ASSIGNMENTS The rights and benefits under the Plan may not be assigned except for the designation of a beneficiary as provided in Section 5. 7. LIMITATION OF RIGHTS (a) No Right to Continue as a Director. Neither the Plan, nor the granting of an option not any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain a director for any period of time. (b) No Stockholders' Right for Options. An optionee shall have no rights as a stockholder with respect to the shares covered by his options until the date of the issuance to him of a stock certificate therefor, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such certificate is issued. 8. CHANGES IN CAPITAL STOCK (a) If (x) the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities of the Company, or (y) additional shares of Common Stock or new or different shares of Common Stock or other securities of the Company or other non-cash assets are distributed with respect to such shares or other securities, through or as a result of any merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction with respect to such shares or other securities, an appropriate and proportionate adjustment shall be made in (i) the maximum number and kind of shares reserved for issuance under the Plan, and (ii) the number and kind of shares or other securities subject to any then outstanding options under the Plan, and (iii) the price for each share subject to any then outstanding options under the Plan without changing the aggregate purchase price for each share subject to any then outstanding options under the Plan, without changing the aggregate purchase price as to which such options remain exercisable. No fractional shares will be issued under the Plan on account of any such adjustments. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 8 if such adjustment would cause the Plan to fail to comply with Rule 16b-3 or any successor rule promulgated pursuant to Section 16 of the Securities Exchange Act of 1934. (b) In the event that the Company is merged or consolidated into or with another corporation (in which consolidation or merger, the stockholders of the Company 5 6 receive distributions of cash or securities of another issuer as a result thereof), or in the event that all or substantially all of the assets of the Company are acquired by any other person or entity, or in the event of a reorganization or liquidation of the Company, the Board of Directors of the Company, or the Board of Directors of any corporation assuming the obligations of the Company, shall, as to outstanding options, take one or more of the following actions; (i) provide that such options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice to the optionees, provide that all unexercised options will terminate immediately prior to the consummation of such transaction unless exercised by the optionee within a specified period following the date of such notice, or (iii) if, under the terms of a merger transaction, holders of the Common Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the merger (the "Merger Price"), make or provide for a cash payment to the optionees equal to the difference between (A) the Merger Price times the number of shares of Common Stock subject to such outstanding options (to the extent then exercisable at prices not in excess of the Merger Price) and (B) the aggregate exercise price of all such outstanding options in exchange for the termination of such options. 9. AMENDMENT OF THE PLAN The Board of Directors may suspend or discontinue the Plan or review or amend it in any respect whatsoever; provided, however that without approval of the stockholders of the Company no revision or amendment shall change the number of shares subject to the Plan or the number of shares issuable to any director of the Company under the Plan (except as provided in Section 8), change the designation of the class of any directors eligible to receive options, or materially increase the benefits accruing to participants under the Plan. The Plan may not be amended more than once in any six-month period. 10. WITHHOLDING Prior to issuance of shares of Common Stock upon exercise of an Option, the Optionee shall pay or make adequate provision for any federal or local taxes or any kind required by law to be withheld by the Company with respect to any shares issued upon exercise of options under the Plan. 11. EFFECTIVE DATE AND DURATION OF THE PLAN (a) Effective Date. The Plan shall become effective when adopted by the Board of Directors and approved by the Company's stockholders. Amendments to the Plan not requiring stockholder approval shall become effective when adopted by the Board of Directors; amendments requiring stockholder approval shall become effective when adopted by the Board of Directors, but no option granted after the date of such amendment shall become exercisable (to the extent that such amendment to the Plan was 6 7 required to enable the Company to grant such option to a particular optionee) unless and until such amendment shall have been approved by the Company's stockholders. If such stockholder approval is not obtained within twelve months of the Board's adoption of such amendment, any options granted on or after the date of such amendment shall terminate to the extent that such amendment to the Plan was required to enable the Company to grant such option to a particular optionee. (b) Termination. Unless sooner terminated in accordance with Section 9, the Plan shall terminate upon the close of business on the day next preceding the tenth anniversary of the date of its adoption by the Board of Directors. 12. COMPLIANCE WITH RULE 16b-3 Transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor promulgated pursuant to Section 16 of the Securities Exchange Act of 1934. To the extent any provision of the Plan or action by the Board of Directors in administering the Plan fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board of Directors. 13. GOVERNING LAW The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. 14. SUCCESSORS AND ASSIGNS This Plan shall inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon a optionee, and all rights granted to the Company hereunder, shall be binding upon the optionee's heirs, legal representatives and successors. 15. ENTIRE AGREEMENT This Plan and the written agreement with respect to each option granted under this Plan constitute the entire agreement with respect to the subject matter hereof and thereof, provided that in the event of any inconsistency between the Plan and such written agreement, the terms and conditions of this Plan shall control. Dated as of July 7, 1999 - ------------------------------- Anthony D. Autorino Chairman and Chief Executive Officer 7 EX-21 7 y47139ex21.txt EXHIBIT 21 1 Shared Technologies Cellular, Inc. Exhibit 21 List of subsidiaries of the registrant. The Cellular Hotline, Inc. Retail Cellular, Inc. CellEase.com, Inc. EX-27 8 y47139ex27.txt EXHIBIT 27
5 1,000 12-MOS DEC-31-2000 JAN-01-2000 DEC-31-2000 84 0 1,024 179 641 2,744 2,340 1,449 9,887 25,789 0 0 8,649 139 (25,226) 9,887 32,744 32,744 28,138 28,138 24,002 0 582 (19,978) 6 (19,984) 0 0 0 (20,792) (1.83) (1.83)
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