-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WW6QMWe0MUcozDHA6xmkxGYLxN9i2zz0ovF5oaqh0ae2JmJoWNi9x+PWsyzNo2FL dPWrk5XM2jx5liAmZMrt4Q== 0000817632-95-000004.txt : 19950418 0000817632-95-000004.hdr.sgml : 19950418 ACCESSION NUMBER: 0000817632-95-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950417 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED TECHNOLOGIES INC CENTRAL INDEX KEY: 0000817632 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] IRS NUMBER: 870424558 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17366 FILM NUMBER: 95529055 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD STREET 2: STE 104 CITY: WETHERSFIELD STATE: CT ZIP: 06109 BUSINESS PHONE: 2032582400 MAIL ADDRESS: STREET 2: 100 GREAT MEADOW ROAD SUITE 104 CITY: WETHERSFIELD STATE: CT ZIP: 06109 10-K 1 1994 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K _ X _ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1994 _ _ _ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD _ _ _ TO _ _ _ Commission File Number 0-17366 ------- SHARED TECHNOLOGIES INC. -------------------------- (Exact name of registrant as specified in its charter) Delaware 87-0424558 --------------------------------------- -------------------- (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: (203) 258-2400 ------------- Securities registered pursuant to Section 12(b) of the Act: None ---------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.004 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. [ ] The aggregate market value of the registrant's Common Stock held by nonaffiliates as of April 13, 1995 was approximately $14,029,058, based on the average of the closing bid and asked prices as reported on such date in the over-the-counter market. Indicate the number of shares outstanding of each of the registrant's classes of Common Stock, as of April 13, 1995 7,624,412 shares of Common Stock $.004 par value -------------- The following document is hereby incorporated by reference into Part III of this Form 10-K: The registrant's Proxy Statement for its Annual Meeting of Stockholders to be held on May 23, 1995 to be filed with the Securities and Exchange Commission in definitive form on or before April 28, 1995. PART I Item 1. ------- Business -------- (a) General Development of Business - Shared Technologies Inc., which was incorporated on January 30, 1986, its subsidiaries and affiliated partnerships (collectively, the "Company") are engaged in providing shared tenant services ("STS") to tenants of modern, multi-tenant office buildings. As an STS provider, the Company generally obtains the exclusive right from a building owner (the "Owner/Developer") to install an on-site communications system, called a private branch exchange ("PBX"), or an off-site communications system, called centrex, and to market telecommunications and office automation services and equipment to tenants. In May 1991, the Company acquired the stock of Boston Telecommunications Company (BTC), a provider of STS in the Boston area. The Company paid $1,097,000 consisting of acquisition cost less cash received of $197,000, stock purchase warrants valued at $300,000 and a $600,000 promissory note payable. In May 1989, the Company acquired interests in four entities providing STS in the greater Chicago area from Shared Services, Inc. and I.S.E., Inc. for $180,000. Additionally, in February 1989, the Company purchased the stock of Multi-Tenant Services, Inc. (MTS) a former division of BellSouth Corporation for $4,048,000 of which $391,000 was paid in cash and in payment of the balance the Company assumed existing lease obligations. MTS was a provider of STS in nine metropolitan areas. The Company is a provider of telecommunications services and equipment, including basic telephone equipment, local and long- distance network services and on-site maintenance. The Company also offers its customers data services, as well as data processing and office automation equipment, service and support. Additionally, the Company sells and rents cellular telephones in several locations both to its existing customers and the general marketplace. In December and October 1993 the Company commenced management and subsequently completed the acquisition of certain assets and liabilities of Road and Show South, Ltd. and Road and Show Cellular East, Inc., respectively. The purchase price for South was $1,261,611 which represents $46,111 cash and an obligation to issue 221,000 shares of the Company's common stock. The purchase price for East was $750,245 which represents $209,245 cash and an obligation to issue 108,200 shares of the Company's common stock. The number of shares of common stock -1- related to these acquisitions was adjusted on December 1, 1994 based on the price of the Company's common stock at that date, for which an aggregate of 64,966 additional shares will be issued. As of December 31, 1994, no shares of common stock had been issued for the East acquisition. The shares in connection with the South acquisition have been issued, but have not been delivered pending the outcome of certain claims against, and by, the former owners of South (see Note 16 of Notes to Consolidated Financial Statements). In June 1994, Shared Technologies Inc., completed its acquisition of the partnership interests of Access Telecommunication Group, L. P. ("Access") for $9,000,000, subject to certain post closing adjustments. The $9,000,000 includes $4,000,000, paid at closing with the proceeds from the private placement sale of approximately 1,062,000 shares of the Company's Common Stock, and the issuance to the sellers of 400,000 shares of Series E Preferred stock, valued at $1,500,000 and 700,000 shares of Series F Preferred stock valued at $3,500,000. (b) Recent Developments - During 1992, the Company completed a restructuring due to its working capital deficit and the maturity of its principal financing arrangements which were due to the FDIC, as receiver for the Company's principal lender. The restructuring included Shared Technologies Inc. and all of its subsidiaries. The restructuring resulted in the Company recording a gain of $5,162,000 before related expenses of $1,361,000 for consulting fees related to the restructuring and income taxes of $45,000. As a result of the restructuring, approximately $900,000 of vendor payables and $1,500,000 of capital lease obligations were forgiven and $3,300,000 of vendor payables were converted to three year non-interest bearing notes payable (see Note 7 of Notes to Consolidated Financial Statements). Additionally, a settlement agreement was entered into with the Federal Deposit Insurance Corporation ("FDIC") as receiver for the Company's principal lender which resulted in the Company paying off its term loan and revolving credit arrangements and recognizing a gain of approximately $2,700,000 (see Note 3 of Notes to Consolidated Financial Statements). In April 1994 the Company entered into a settlement agreement which provides for the payment of $750,000 plus interest at 10% which resulted in an accrued extraordinary loss of $150,000 in 1993. In connection with the restructuring, the Company also raised equity capital of approximately $5,780,000 from certain institutional investors, net of expenses. Such offering was exempt from registration based upon Regulation S. A firm, one of whose principals is a director and stockholder of the Company served as underwriter for the offering. The Company paid this firm underwriting commissions and expenses totaling $446,750 for the offering. No other parties to the restructuring were affiliated with the Company. The Company also entered into -2- agreements with Series A and B Preferred Stockholders to convert their holdings, including $327,920 of the accrued dividends related thereto, into Series C Preferred Stock. As part of this conversion, $40,990 of the accrued dividends was forgiven by the stockholders (see Note 9 of Notes to Consolidated Financial Statements). In September 1992 the Company effected a one-for-four reverse stock split of Common Stock and increased the par value of Common Stock from $.001 to $.004 per share. All per share amounts contained herein have been retroactively adjusted to reflect this split. (c) Financial Information about Industry Segments - The Company is engaged in one industry segment, the telecommunications industry, providing a wide range of telecommunications and office automation services and equipment. (d) Narrative Description of Business (1) (i) Products and Services Shared Tenant Services (STS) ---------------------------- As an STS provider, the Company generally obtains the exclusive right from a building owner (the "Owner/Developer") to install an on-site communications system, called a private branch exchange ("PBX"), or an off-site communications system, called centrex, and to market telecommunications and office automation services and equipment to tenants. An STS project requires significant expenditures for capital equipment and installation costs. The initial cost of capital equipment to establish STS in a new building ranges from $50,000 to $300,000 with additional start-up working capital requirements ranging from $10,000 to $100,000. The STS provider often leases space within the building for on-site support staff. STS provides an Owner/Developer with an important building amenity and provides a tenant with the availability of one-stop shopping for a wide range of telecommunications and office automation equipment and services as well as on-site training, maintenance and support, without any capital investment. The Company's services are provided to its customers under the concept of one-stop shopping for basic telecommunications, voice and data transmission, and office automation services and equipment which include: -Access to cost-effective centralized digital switching -Broad selection of telephone equipment -Discounted, quality long-distance service -3- -Local telephone service -System maintenance, management and administration -Customized call reporting and billing -Office automation equipment including computer, facsimile and peripherals -On-site training and assistance -Cable and wiring design and maintenance -Equipment service and support -Cellular sale and rental To date, the Company has concentrated primarily on developing the telephone portion of its business. The Company's telephone services consist of selecting and installing telephone equipment on tenants' premises and providing ongoing service to train tenants, to perform moves, adds and changes, and to maintain the telephone equipment. Tenants are quoted a monthly charge for leased equipment which includes a rental fee for the equipment, a charge for access to the PBX owned by the Company and installed in the buildings or to the centrex service, and a local access charge based on the cost of the trunk lines which connect the building to the central office of the local telephone company. In addition, tenants are charged for special services and usage, including IN-WATS lines, dedicated circuits, directory listings, local message units (where applicable), directory assistance, credit card calls, third-party billing calls, and long-distance at a discount from the standard rates charged by long distance providers. As the telecommunications business is established in each building, the Company increases its emphasis on the sale or lease of personal computers and peripherals, and the marketing of computer time sharing, voice mail, message centers, local area networks for computers, voice messaging, facsimile transmission, copying equipment and data transmission. The Company also sells computer equipment and peripherals, and sells or rents cellular phones, to customers who are not tenants in buildings in which it provides STS. The Company provides a monthly statement to each customer delineating all STS charges. The Company bills for the prior month's usage, installation, moves, adds and changes on the first of the following month. The statements also include equipment, local and system access and other special service charges in advance for the succeeding month. The local access charge reflects the cost to the Company of the trunk lines connecting the building to the central office of the local telephone company and is levied on the Company by the local telephone company. In general, the Company passes this cost through to tenants. Customers are billed for all telecommunications usage, including long-distance calls. Currently, the Company offers a discount of 15% to 40% from the AT&T direct distance dial -4- published rates, which discounts can be changed by the Company on 30 days' notice. The Company currently purchases long-distance services from many providers. The Company estimates that by efficiently managing its long-distance network, it can provide long-distance services at a discount of up to 40% of the AT&T direct distance dial rates. Facilities Management Services (FMS) ------------------------------------ The Company provides facilities management services to customers who have a preference or requirement for a dedicated PBX system. Certain of these customers own their own equipment, and the Company provides management and maintenance for that equipment. The Company also has facilities management contracts with customers who have leased equipment owned by the Company, including PBX and handset equipment. The Company's objective with these customers is to become the provider of choice for all long distance, local access and system features, if those services are not part of the initial contract. Cellular ---------- Through its subsidiary Shared Technologies Cellular, Inc., ("STC") the Company is a provider of short-term portable cellular telephone services in the United States. STC rents portable cellular telephones, primarily to travelers, persons organizing and attending special events such as conventions and sporting events, as well as local businesses and government agencies. Through the acquisitions (collectively, the "Road and Show Acquisition") of certain assets from Road and Show Cellular East, Inc., and Road and Show South, Ltd. (collectively, "Road and Show"), in December 1993, STC obtained a national distribution network, including relationships with national car rental companies and hotels, which STC has significantly expanded since that date. STC markets its cellular telephone service principally through car rental agencies, airlines, hotels and telephone companies. STC has agreements with the Hertz Corporation ("Hertz") and National Car Rental System Inc. ("National") to offer its portable telephones at designated car rental locations, primarily at airport terminals throughout the United States. These agreements provide that no competing services may be offered at any location covered. STC's agreements with Hertz and National are terminable by either party upon 120 and 90 days' notice, respectively. In addition, the Company markets its cellular telephone services at conventions and sporting events. STC has also operated as a direct reseller of cellular services to corporate and high volume individual customers at selected locations in Connecticut since 1989 and has provided -5- such services in Dallas, Texas as a sales agent for one of the two local cellular carriers since July 1994. Equipment --------- The Company offers its telecommunications services through either a PBX or centrex-based system. A PBX is a telecommunications switch that has the following characteristics: -is owned by a private user, not a telephone company -automatically switches incoming and outgoing calls over trunk lines so that dedicated telephone lines are not required -functions like a telephone company central office, except that it is under the direct control of its owner -offers more features than are typically available through private business lines, key systems or centrex services -is typically capable of handling from 100 to 2,000 users The Company owns or leases PBXs and other equipment manufactured by InteCom Inc., Northern Telecom, AT&T, NEC and Mitel. This equipment can be acquired from a variety of sources. The Company employs its own technicians to maintain its PBXs, which have, on average, an estimated useful life of approximately eight to twelve years. From time to time, the Company upgrades its PBXs by adding additional software and hardware which can increase the capabilities and extend the useful life of a PBX beyond the ordinary eight to twelve year period. An alternative to the PBX is digital centrex, a service offered by the local regulated telephone company. Recently, a number of local telephone companies have enhanced their digital centrex offerings to be more competitive with PBXs in terms of both features and price. In addition, some telephone companies have petitioned their local regulatory commission to permit them to negotiate pricing with large users (defined as a company using over 100 lines), rather than charging tariffed rates. In response to these developments, the Company has entered into an arrangement with Illinois Bell to provide service in downtown Chicago via digital centrex, eliminating the need for a PBX in each building, and has entered into an exclusive agreement with the Owner/Developers of two buildings to provide STS/centrex. Additionally, in 1993 the Company began providing centrex services in Indianapolis. The Company offers a full range of customer premise equipment, including telephones, computers and peripherals, and facsimile and voice mail equipment compatible with its PBX and centrex-based systems. The Company has no long-term contracts -6- establishing the price at which it acquires equipment, but can negotiate pricing due to the availability of multiple sources of supply. STS Buildings ------------- As of December 31, 1994, the Company was providing STS to tenants in 93 buildings located in 15 metropolitan areas. In those cities where the Company provides STS to tenants in more than one building, the Company is able to realize significant operating economies by sharing management, administrative, sales and technical staff across a number of buildings. The following table sets forth as of December 31, 1994, on a city-by-city basis, the Net Leasable Square Feet and the Potential Lines of Service in each building where the Company provides STS to tenants as estimated by management.
Net Potential Number of Number Leasable Lines of Lines in of City Sq. Ft. Service Service Buildings ----------------- ------------ --------- ---------- ------------ Atlanta, GA 3,777,000 12,589 3,552 9 Birmingham, AL 1,435,000 1,450 1,157 3 Boston, MA 4,846,000 15,144 2,660 11 Chicago, IL 3,567,000 11,890 3,145 9 Hartford, CT 2,032,000 6,773 3,408 9 Los Angeles, CA 895,000 2,983 212 2 Mahwah, NJ 625,000 1,067 1,069 2 Memphis, TN 320,000 1,067 181 1 Nashville, TN 972,000 3,240 776 2 New Orleans, LA 3,226,000 9,511 3,371 5 Phoenix, AZ 2,484,000 8,280 2,426 12 Indianapolis, IN 1,044,000 3,480 945 9 Seattle, WA 4,482,000 14,940 2,840 8 Dallas, TX 10,125,000 26,591 5,662 11 Myrtle Beach, SC 140,000 155 20 1 ---------- ------ ------ -- TOTAL 39,970,000 119,160 31,424 93 ---------- ------ ------ --
-7- Of the potential 119,160 lines of service, the Company has under contract 31,424 lines (26.4%). Accordingly, management believes that the opportunity exists for the Company to increase penetration and revenues in the buildings to which it currently provides STS. Owner/Developer Agreements -------------------------- In most buildings where it provides STS, the Company or its assignor has entered into a contractual agreement ("Owner/Developer Agreement") with the building Owner/Developer. Subject to specific provisions contained in certain Owner/Developer Agreements, the Owner/Developer Agreements generally grant the Company the exclusive right to provide STS in the building and the Owner/Developer is precluded from entering into a "materially similar arrangement" with a third party. In addition, the Company is granted a right of first refusal in the building for the offering of additional STS, such as telephone answering services, word and data processing, telex, copier services and certain other STS. The term of the agreement is generally for ten years and may contain one or two five-year renewal options. The Owner/Developer Agreements generally provide for the payment of royalties to the Owner/Developer which may be based on a percentage of gross revenues or on a percentage of rental, sale and service income or net long-distance revenues. Such royalty payments may commence at the initial service date, at some later date, typically 18 to 24 months after the Company commences to provide STS to the building, or at the time the Company achieves a certain level of market penetration in the building. The Company is responsible for the costs and expenses incurred in operating and maintaining the STS equipment in the building and must obtain the Owner/Developer's approval to make any modification in the STS equipment which would affect the building structure. The agreement is assignable by the Owner/Developer upon the sale of the building. Certain Owner/Developers also have the right to purchase the Company's STS equipment in the building at a nominal or fair market price if the agreement is terminated. Each Owner/Developer Agreement either contains a lease, or references a separately executed lease, for the space necessary for the Company's on-site personnel and equipment. These leases generally provide for a deferral of rental payments until a certain occupancy percentage has been obtained in the building, or a certain period of time, typically 12 to 24 months, after the Company commences operations. -8- Tenant Contracts ---------------- The Company is a party to a Master Shared Tenant Services Agreement ("Tenant Contract") with substantially all of its customers. The Tenant Contract contains terms and conditions governing the provision of STS. Subsequent to signing a Tenant Contract, tenants submit individual customer orders for specific equipment rentals and STS. In addition to the typical Tenant Contracts for STS, the Company has agreements with several tenants who have their own PBX to maintain the system and manage the tenant's telephone call billing system, and the Company receives a monthly fee for its services. The Company generally signs contracts for a period of five years or a term coterminous with the customers lease in the building. The Company has contracts ranging from month to month to five years. The Company feels it has staggered the contracts such that there is no time when a material amount of contracts come due at the same time. Additionally, the Company does not have any individual contracts which are material. (ii) Government Regulation As a provider of telephone services, the Company's operations are materially affected by regulatory developments on both a federal and state level. The Federal Communications Commission ("FCC") regulates interstate communications and the state public utility commission ("PUCs") regulate intrastate communications. The FCC has determined that STS providers, sharing a PBX and related equipment within the same premises, should be characterized as end users, as opposed to interexchange carriers for access charge purposes, thereby entitling them to a more favorable rate structure. Although there is currently no major effort underway to modify the existing FCC regulatory scheme with regard to STS providers, any change in the liability of such providers for access charges or any substantial change with regard to other regulatory constraints could have a material adverse effect on the Company's business. PUCs may regulate STS providers through direct regulatory requirements as well as through the terms, conditions of service and rates contained in the tariffs of the underlying local exchange carrier covering service offerings to STS providers. To date, the Company has, to some degree, elected to operate in states which maintain a comparatively favorable regulatory environment for STS providers sharing a PBX and related equipment. All of the states in which the Company now operates do not currently require a certification of or otherwise directly regulate STS providers with the exception of Alabama, which has granted such certification to the Company. The Company also has obtained certification to resell certain intrastate long-distance services in California, which requires such certification. Although at present none of these states have any proceeding or other effort underway to materially -9- modify their regulatory treatment of such STS providers, no assurance can be given that such proceedings will not be initiated in the future. Further, regulatory agencies in many states have not yet generally addressed the issue of sharing centrex lines and the regulatory consequences of such operations are uncertain; however, the Company to date has only engaged in sharing centrex lines in states (Illinois and Indiana) where regulatory agencies have expressly permitted such operations. The Company intends to expand its use of centrex lines to additional states in the future. It will take appropriate measures to investigate the regulatory environment in each state and intends to comply with applicable requirements for sharing of these lines on a state-by-state basis. (iii) Marketing The Company employs a marketing concept involving the establishment of a hub STS building in close proximity with other satellite STS buildings which can be managed by one regional director and which share sales and administrative and technical personnel. After an appropriate building has been identified, the Company begins marketing its services to the Owner/Developer to obtain the exclusive right to provide STS in the building. On occasion, an Owner/Developer will issue a formal request for proposal and seek competitive bids. Once agreement with the Owner/Developer has been reached, marketing efforts with tenants are commenced. Tenant marketing occurs during the leasing process of a building, which is during the planning stage of the tenant's move. The Company also has the opportunity to increase penetration in highly leased and popular buildings by: - When there is a new tenant replacing a moving out tenant, the Company is invited by the leasing manager to present the "building's communication amenity package" provided by the Company. - When a current tenant who is up for lease renewal, the leasing manager will again recommend that the tenant consider using the "building's communication amenity package" provided by the Company. In most cases the building management company or the building owners point out to the perspective lessee or renewal tenant the cost savings by taking advantage of the "building's communication amenity package" which can save the perspective company between $1.25 and $1.75 per square foot. Typically, the Company's marketing initially concentrates on working in conjunction with the building's leasing agent to provide STS to prospective tenants. Once the tenant has -10- committed to a lease, marketing efforts are focused on tenant subscription to the STS offerings within the building. The Company's customers consist primarily of small to medium-size tenants, such as brokerage, accounting and law firms. While the majority of the Company's customers are tenants in STS buildings, the Company also provides services and sells and leases equipment to end-users who are not located in STS buildings. (iv) Patents, Trademarks, Licenses, Franchises, Concessions See Item 1(d) (i) - "Owner/Developer Agreements" herein. Additionally, Shared Technologies Inc. is a registered trademark. The Company does not operate any franchises. However, the Company's subsidiary STI Cellular Franchise Corp., is engaged in franchise operations relating to the rental of portable cellular telephones. (v) Seasonality While the Company's STS business is not generally seasonal, the Company has experienced, over the last several years, a reduction in local and long distance revenues in the month of December which is believed to be associated with the holiday season. (vi) Working Capital To date, the Company has funded its working capital shortfall through borrowings and sales of its securities. See Item 1(a) - "General Development of Business"; "Management's Discussion and Analysis of Results of Operations and Financial Condition". The Company requires working capital due to the nature of its business which requires an upfront capital investment that is recovered over a period of time. In May 1994, the Company entered into an agreement with a bank for $5,000,000 in financing. The financing provides for a $1,000,000 two-year term loan, six months interest only, with quarterly amortization and a balloon payment of $700,000 and a $4,000,000 secured revolving credit line for expansion in the core business, aggregate draws converted semi-annually to a three-year term loan with level monthly amortization. These loans bear interest at the bank's prime rate plus 2% and are secured by certain assets of the Company. The Company has issued a warrant to the bank for 184,000 shares of Common Stock. (vii) Dependence on a Single Customer -11- No single customer or building accounts for 10% or more of the Company's revenues. The Company's business is not dependent upon a single or a few customers. (viii) Backlog At any given period the Company maintains new contracts signed but not yet installed due to the term of the contract which further adds to this backlog. The number of additional lines not yet installed related to new contracts cannot be determined due to changes that occur through the installation date. Therefore, backlog information cannot be quantified. (ix) Competition While the Company competes with other STS providers to obtain exclusive STS rights from the Owner/Developer of an STS office building, this competition is not severe due to the number of office buildings available, their location and the location of an appropriate STS provider. The Company believes its competitive advantage is city based. The Company has operations in some cities where it is the only STS provider. In this case the competitive advantage is with the Company. The Company has offices across the country with many developers and is not dependent on any developer for any material amount of business. The sale of telecommunication services is a competitive business. The major discriminating factors for telecommunication buyers are price and service. The Company provides on site technical service to most of its buildings. The Company feels it can offer a superior level of service to its customers, since the Company provides all aspects of telecommunication services and takes responsibility for the complete satisfaction of its customer. This differs from multi-vendor environments where responsibility is fragmented. The Company prices its products in a competitive environment. Due to this the Company has to remain flexible with its pricing. The Company's main competitive advantages are the Company's ability to negotiate a lower per minute rate with long- distance vendors due to volume discounts and the elimination of up-front capital expenditures for customers due to equipment rentals from the Company. When the Company obtains the exclusive STS rights for a building, it then must compete with local telephone companies, long distance telephone service suppliers and equipment/system suppliers in the solicitation of tenants in the building to subscribe to its services. Local telephone companies are regulated and, in the case of the Bell operating companies and -12- the general telephone operating companies, cannot sell long- distance telephone service. Local telephone companies can sell lines or trunks from their local central office and centrex service directly to the tenant. Local telephone company services are subject to tariff regulation and such entities do not typically offer office automation products. Long-distance telephone service suppliers (such as AT&T, MCI and Sprint) typically offer volume discount plans and market to tenants directly, but do not at this time generally provide local telephone service. The Company must also compete with equipment/system suppliers and distributors who sell PBXs and other office automation equipment and who provide or arrange for installation, maintenance and service of such equipment. Major companies such as AT&T, Northern Telecom, NEC and Siemens compete in this area. (x) Employees As of March 15, 1995, the Company employed 278 persons; 17 in management, 79 in administration, 161 in sales and service and 21 in technical positions. The Company's employees are not represented by a union. The Company regards its relations with its employees to be good. Item 2. ------- Property -------- The Company does not own any real estate and has no present plans to purchase any real estate. The Company's principal executive offices are leased and are located at 100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109. The Company leases space for its on-site staff and its PBX equipment in many of the buildings in which it operates an STS project. (See Note 14 of Notes to Consolidated Financial Statements herein for information concerning the Company's leases at December 31, 1994.) These leases are for offices located in the following buildings: ATLANTA MAHWAH, NJ Atlanta Financial Center Crossroads Corporate Center Atlanta Plaza Buckhead Plaza MEMPHIS Crown Pointe Morgan Keegan Tower The Terraces Park Central NASHVILLE -13- BIRMINGHAM Third National Riverchase Galleria Financial Center Riverchase Galleria Dominion Tower Highland Ridge BOSTON NEW ORLEANS One International Place Lakeway Center World Trade Center Boston Metairie Galleria Rowes Wharf Place St. Charles Marketplace Center 75 State Street CHICAGO Chemical Plaza PHOENIX North Pier Biltmore Financial Center Oakbrook Terraces Camelback Esplanade One Financial Place 24th & Highland Sherman Place 2600 N. Central Avenue LaSalle Atrium Paradise Village Office Park Gateway Chicago HARTFORD SEATTLE CityPlace Columbia Seafirst Center 100 Pearl Street Koll Center Bellevue Putnam Park Koll Market Place Tower Two Union Square LOS ANGELES 1000 Second Avenue Citicorp Center Skyline Tower Fourth & Blanchard STAMFORD Metro Center INDIANAPOLIS The Pyramids 101 West Ohio Street DALLAS Texas Commerce Tower Texas Commerce Bank-Las Colinas 2121 San Jacinto Street Maxus Tower Abrams Center Bryan Tower Dallas Market Center Plaza of the Americas Preston Sherry Plaza 2001 Ross Avenue 4641 Production Drive Infomart Item 3. ------- Legal Proceedings ----------------- -14- In 1993, the Company settled a lawsuit with The New York State Convention Center Operating Corp. ("CCOC"), which arose in connection with the Company's operations at the Jacob K. Javits Convention Center in New York City, which operations were terminated in December, 1991. However, as part of the termination of such operations, the Company's departure from the Convention Center resulted in the termination of its agreement with Tel-A-Booth Communications, Ltd. ("Tel-A-Booth"), the payphone service provider for the building. Tel-A-Booth is currently in a Chapter 7 bankruptcy proceeding, pursuant to which the Company is listed as a creditor of Tel-A-Booth in the amount of $300,000. The Company is named as a co-defendant in a lawsuit brought by Tel-A-Booth arising out of the termination of its agreement with the Company. The lawsuit, which was commenced in New York State Supreme Court, County of New York, on January 10, 1992 is now proceeding toward trial. Tel-A-Booth has claimed damages of $10,000,000, primarily for lost profits. The Company has asserted various counterclaims against the plaintiff. The Company views that it has substantial defenses to the plaintiff's claims, and, based on information obtained from discovery, the Company believes that the plaintiff suffered no recoverable damages. In addition to the above matters, the Company is a party to various legal actions, the outcome of which, in the opinion of management, will not have a material impact on the Company's financial condition and results of operations (see Notes 14 and 16 of Notes to Consolidated Financial Statements). Item 4. ------- Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. PART II Item 5. ------- Market for Registrant's Common Stock and Related Stockholder Matters ----------------------------------------------------------------- The Company's shares of Common Stock (trading symbol: STCH) have been quoted and traded in the over-the-counter market since December 13, 1988. Over-the-counter market quotations reflect interdealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. -15-
BID ASK -------------------- ------------------ 1994 HIGH LOW HIGH LOW First Quarter $4 1/8 $2 7/8 $4 5/8 $3 Second Quarter 3 3/4 3 1/8 4 3 3/8 Third Quarter 5 1/8 2 1/2 5 3/8 2 3/4 Fourth Quarter 4 5/8 3 5/8 5 4
BID ASK -------------------- ------------------ 1993 HIGH LOW HIGH LOW First Quarter $7 $4 $7 1/4 $4 5/8 Second Quarter 4 7/8 3 1/2 5 1/4 4 Third Quarter 5 3/4 2 1/2 6 3 Fourth Quarter 5 5/8 3 1/8 6 3 1/2
Number of beneficial holders of the Company's Common Stock as of December 31, 1994 is 1,196. 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 1991 and 1990 are not presented in this filing. Such selected financial data were derived from audited consolidated 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. In September 1992 the Company effected a one-for-four reverse stock split of common stock and increased the par value of common stock from $.001 to $.004 per share. Weighted average common shares outstanding and per share information have been retroactively adjusted to reflect this split. All amounts, except per share amounts, are in thousands. -16-
Statement of Operations Data: 1994 1993 1992 1991 1990 ---------------------- ------- -------- -------- -------- ---- Revenue $45,367 $25,426 $24,077 $23,172 $21,804 Gross margin 19,195 10,912 9,254 6,358 5,786 Selling, general and administrative expenses 16,972 10,102 9,959 10,717 10,246 Operating income(loss) 2,223 810 (705) (4,359) (4,460) Interest expense, net (359) (438) (290) (1,268) (950) Minority interest in net (inc.)losses of subsidiaries (128) (82) (37) 4 29 Loss on settlement agreement - - - - (489) Extraordinary Item - Loss) gain on restructuring - (150) 3,756 - - Income tax benefits 550 - - - - Net income (loss) 2,286 140 2,724 (5,623) (5,869) Net income (loss) per common share .27 (.04) .59 (1.59) (1.63) Weighted average common shares outstanding 6,792 5,132 4,063 3,730 3,601 Cash dividends declared per preferred share .29 .32 .30 .30 - Cash dividends paid per preferred share .29 .32 .38 .18 - Cash dividends declared - - - - - or paid per common share Balance Sheet Data: Working capital deficit (3,691) ($ 3,874) ($ 4,506) ($15,615) ($5,751) Total assets 37,925 20,601 18,752 18,436 14,531 Notes payable, convertible promissory notes payable,other long-term debt (incl. current portion) and redeemable preferred stock 4,727 3,719 4,745 10,030 6,927 Stockholders' equity (deficit) 20,881 9,302 6,034 (3,148) (999)
-17- Item 7. ------- Management's Discussion and Analysis of Results of Operations and ----------------------------------------------------------------- Financial Condition ------------------- Results of Operations --------------------- Shared Technologies' revenues rose to a record $45,367,000 in 1994, an increase of $19,941,000 or 78% over 1993 revenues of $25,426,000. This was a substantial increase over the 6% and 4% increases in 1993 and 1992 respectively. Acquisitions were the major contributors to revenue growth in 1994 and 1993 respectively. $8,942,000 of the 1994 revenue increase was attributable to the June 1994 acquisition of Access Telecommunication Group, L.P. ("Access"). Another $8,017,000 was due to the expanded operations of the Cellular division. The Cellular division was dramatically expanded in the fourth quarter of 1993 through the acquisition of Road and Show East and Road and Show South nationwide rental phone business ("Road and Show"). The Company also continued to expand operations at existing locations. The remaining revenue increase of $2,982,000 was achieved mainly at existing shared tenant services ("STS") locations. The Company's revenue of $25,426,000 for the year ended December 31, 1993 represented an increase of $1,349,000 or 6%, over the year ended December 31, 1992. Of this increase, $288,000 was due to an increase in STS revenue and $256,000 was due to an increase in Facilities Management Services ("FMS") revenue. The remaining increase of $805,000 was attributable to the fourth quarter acquisitions of Road and Show. Gross margin dipped slightly in 1994 to 42.3% of revenues from 42.9% of revenues in 1993. This drop was the result of significant changes in the Company's revenue mix in 1994. The FMS and Cellular Service divisions grew dramatically in 1994 due to the acquisitions mentioned earlier. The FMS division revenues accounted for 14.3% of the total revenues in 1994 as compared to 6.0% in 1993, and the Cellular division revenues were responsible for 22.5% of total revenues in 1994 as compared to 8.7% in 1993. The STS division accounted for 63.2% of total revenues in 1994 as compared to 85.3% in 1993. Although the change in sales mix resulted in only a small change in overall gross margin, each division produced gross margin at a different rate. STS cost of revenues as a percentage -18- of revenue increased slightly in 1994 resulting in gross margin of 45.2% versus gross margin of 46.4% in 1993. The main reason for the decrease was the addition of several STS buildings through the acquisition of Access. These buildings historically have achieved lower gross margins than those at existing STS locations The FMS division produced a gross margin of 20.4% in 1994 which is up from 16.9% in 1993. The FMS division focuses on the sale of long distance services outside the STS buildings, and operates in a competitive environment which prevents high gross margin. Improved margin was achieved through increased sales volume and lower rates negotiated in 1994. The Cellular division produced a gross margin of 48.2% in 1994 which is up from a 27.1% gross margin produced in 1993. The rental component of the Cellular division was greatly expanded through the acquisition of Road and Show in the fourth quarter of 1993. Cellular rental revenues produce gross margins near 50%. Gross margin increased to 42.9% of revenues for the year ended December 31, 1993 compared to 38.4% of revenues for the year ended December 31, 1992. This improvement was due almost entirely to the improved margin on long distance and local access services as a result of increased volume which enabled the Company to negotiate better rates with its vendors. Pretax income increased by $1,446,000 or 499% to a record $1,736,000 from $290,000 in 1993. This compares to a $1,322,000 increase in 1993 from a pretax loss of $1,032,000 in 1992. These increases were achieved through increased sales volume, and reductions in selling, general and administrative expenses as a percentage of revenue. Selling, general and administrative expenses as a percentage of revenue, continued to drop in 1994, down to 37% from 40% in 1993. This improvement was made through the synergies created with the acquisition of Access and management's ongoing efforts to contain overhead costs. Selling, general and administrative expenses as a percentage of revenue dropped to 40% in 1993 compared to 41% for 1992. The decrease was achieved despite the addition of 10 new STS buildings and the acquisition of Road and Show which added approximately $200,000 of selling general and administrative expenses. The improvement was due to a decrease in consulting expenses associated with the settlement of certain obligations of the Company, settlement of the Javits litigation for less than previously provided and the capitalization of startup costs associated with certain new operations. During 1994 the Company was successful in controlling interest expense despite the addition of $2,300,000 of new, interest bearing, debt. Interest expense decreased to $522,000 in 1994 from $529,000 in 1993. Interest expense, net of interest income, increased $148,000 in the year ended December 31, 1993 -19- compared to the year ended December 31, 1992 due to approximately $292,000 accrued related to estimated interest and penalty payments to taxing authorities that may arise from late payments. Effective January 1, 1993, the Company implemented Statement of Financial Accounting Standards No. 109, " Accounting for Income Taxes", (SFAS 109). This statement requires the adoption of an asset and liability approach to accounting for income taxes. The Company's income tax provision is substantially less than the amount derived by applying the federal statutory rates to pre-tax income principally due to the availability of net operating loss carryforwards from prior years. As discussed in the Notes to the Company's financial statements, for the year ended December 31, 1994, the Company had recorded a tax benefit of $550,000, and reserved the balance of approximately $7,357,000 through a valuation allowance. SFAS No. 109, requires that the Company record a valuation allowance when it is "more likely than not the some portion or all of the deferred tax asset will not be realized". The ultimate realization of this deferred tax asset depends on the ability to generate sufficient taxable income in the future. While management believes that the total deferred tax asset may be fully realized by future operating results together with tax planning opportunities, the losses in recent years and the desire to be more conservative makes it appropriate to record a valuation allowance. The Company restated its 1993 financial statements to reflect the write-off of certain startup costs of approximately $120,000, previously capitalized, related to certain cellular telephone operations. In 1992 the Company settled certain obligations to its lenders and other creditors. This resulted in an extraordinary gain for the year ended December 31, 1992 of $5,162,000 before restructuring expenses of $1,361,000 and income taxes of $45,000 and an adjustment to the restructuring gain which resulted in an extraordinary loss for the year ended December 31, 1993 of $150,000. Liquidity and Capital Resources ------------------------------- During 1994 Shared Technologies continued to effectively manage a working capital deficit and produce record earnings from operations. Net cash provided by operations reached a record $3.0 million in 1994 compared to $2.2 million in 1993 and $571,000 in 1992. This helped reduce the working capital deficit to $3,691,000 at December 31, 1994 compared to $3,874,000 for December 31, 1993. -20- The Company continued to focus investing activities on growth through acquisition and on upgrading telecommunication equipment at existing locations. Over the past three years Shared Technologies has invested $7.3 million in equipment purchases to increase line counts and remain competitive. At the same time, the Company invested $4.2 million to complete two major acquisitions; Access in June 1994 and Road and Show in the fourth quarter of 1993. Both companies have been integrated into the Company's operations and have produced favorable results. Financing activities were focused primarily on raising capital to provide cash for investing activities. In 1994 the Company entered an agreement with a bank to obtain a $1.0 million dollar term note and a $4.0 million revolver. During 1994 the Company borrowed $1.3 million against the revolver to help finance the current year's equipment purchases. In addition the Company raised $4.6 million from sales of common stock to help finance the acquisition of Access. During 1993 and 1992 approximately $7.5 million was raised from sales of common and preferred stock to help the Company fund operations. During the past three years the Company has made $8.3 million in repayments of notes payable, long term debt and capital lease obligations. Cash requirements for 1995 will include normal ongoing operations, and capital expenditures. The Company plans to invest heavily in growth through the addition of several STS buildings and the expansion of the centrex component of the STS division. This growth will be financed through cash from operations and the bank agreement previously mentioned. Item 8. ------- Financial Statements and Supplementary Data ------------------------------------------- Attached. Item 9. ------- Changes in and Disagreements with Accountants on Accounting ----------------------------------------------------------- and Financial Disclosure ------------------------ On January 25, 1995 the Company filed a Form 8K announcing a change in independent public accountants to Rothstein, Kass & Company, P.C. from Arthur Andersen LLP for the year end December 31, 1994. -21- SHARED TECHNOLOGIES INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Page INDEPENDENT AUDITORS' REPORT ROTHSTEIN, KASS & COMPANY, P.C. F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ARTHUR ANDERSEN LLP F-3 FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEETS F-4 CONSOLIDATED STATEMENTS OF OPERATIONS F-5 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-6-7 CONSOLIDATED STATEMENTS OF CASH FLOWS F-8-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENT F-10-24 FINANCIAL STATEMENT SCHEDULE: Schedule VIII Valuation and Qualifying Accounts for the years ended December 31, 1994, 1993 and 1992 F-25 Notes: (a)All other schedules are not submitted because they are not applicable, not required or because the required information is included in the consolidated financial statements or notes thereto. (b)Individual financial statements of the Company have been omitted since (1) consolidated statements of the Company and its subsidiaries are filed, and (2) the Company is primarily an operating company and all subsidiaries included in the consolidated financial statements filed are majority-owned and do not have a material amount of debt to outside persons. F-1 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Shared Technologies Inc. We have audited the accompanying consolidated balance sheets of Shared Technologies Inc. and Subsidiaries as of December 31, 1994 and 1993 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Shared Technologies Inc. and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index on page F-1 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Roseland, New Jersey March 24, 1995, except for Notes 7 and 11 as to which the date is April 11, 1995 F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To Shared Technologies Inc.: We have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows of Shared Technologies Inc. (a Delaware corporation) and subsidiaries for the year ended December 31, 1992. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We have conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Shared Technologies Inc. for the year ended December 31, 1992 in conformity with generally accepted accounting principles. As discussed in Note 14 to the consolidated financial statements, the Company and others have been named in a lawsuit seeking damages of approximately $10 million, including $1.4 million for equipment purchased, for which no provision has been made in the accompanying consolidated financial statements. The Company has filed answers to this complaint denying the material allegations of the claim. Although the claim is being contested by the Company, the outcome of this matter is uncertain at this time. Our audit was made for the purposes of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index on page F-1 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The information in the schedule for the year ended December 31, 1992 has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Hartford, Connecticut March 23, 1993 (except with respect to the matter discussed in the second paragraph of Note 14, as to which the date is April 14, 1994) F-3 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS December 31, 1994 and 1993 1994 1993 -------------- -------------- ASSETS CURRENT ASSETS: Cash $172,262 $408,533 Accounts receivable, less allowance for doubtful accounts and discounts of $584,000 in 1994 and $310,000 in 1993 8,532,770 4,614,188 Other current assets 727,375 545,071 Deferred income taxes 550,000 -------------- -------------- Total current assets 9,982,407 5,567,792 -------------- -------------- EQUIPMENT: Telecommunications 26,222,732 21,298,405 Office and data processing 4,995,191 4,358,275 -------------- -------------- 31,217,923 25,656,680 Less accumulated depreciation and amortization 15,473,023 13,545,303 -------------- -------------- 15,744,900 12,111,377 -------------- -------------- OTHER ASSETS: Intangible assets 11,197,887 2,347,958 Other 1,000,042 573,535 -------------- -------------- 12,197,929 2,921,493 -------------- -------------- $37,925,236 $20,600,662 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $1,840,401 $1,941,876 Accounts payable 8,191,350 4,482,239 Accrued expenses 2,381,736 2,068,771 Advance billings 1,260,158 948,938 -------------- -------------- Total current liabilities 13,673,645 9,441,824 -------------- -------------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion 2,886,365 1,777,431 -------------- -------------- MINORITY INTERESTS IN NET ASSETS OF SUBSIDIARIES 101,504 78,971 -------------- -------------- REDEEMABLE PUT WARRANT 383,048 -------------- -------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value: Series C, authorized 1,500,000 shares, outstanding 906,930 shares in 1994 and 987,930 in 1993 9,069 9,879 Series D, authorized 1,000,000 shares, outstanding 456,900 shares in 1994 and 453,158 in 1993 4,569 4,532 Series E, authorized 400,000 shares in 1994 and no shares in 1993, outstanding 400,000 shares in 1994 4,000 Series F, authorized 700,000 shares in 1994 and no shares in 1993, outstanding 700,000 shares in 1994 7,000 Common stock, $.004 par value, authorized 20,000,000 shares, outstanding 6,628,246 shares in 1994 and 5,190,335 in 1993 26,513 20,761 Capital in excess of par value 41,488,128 31,759,048 Accumulated deficit (22,465,105) (24,248,284) Obligations to issue common stock 1,806,500 1,756,500 -------------- -------------- Total stockholders' equity 20,880,674 9,302,436 -------------- -------------- $37,925,236 $20,600,662 ============== ==============
See accompanying notes to consoloidated financial statements. F-4 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1994, 1993 and 1992 1994 1993 1992 REVENUES: ------------ ------------ ------------ Shared tenant services $28,666,574 $21,683,186 $21,395,125 Facility management services 6,482,637 1,542,893 1,287,452 Cellular telephone services 10,217,300 2,199,727 1,394,387 ------------ ------------ ------------ Total revenues 45,366,511 25,425,806 24,076,964 ------------ ------------ ------------ COST OF REVENUES: Shared tenant services 15,716,890 11,627,939 12,727,935 Facility management services 5,161,130 1,282,064 1,082,643 Cellular telephone services 5,293,845 1,604,040 1,011,642 ------------ ------------ ------------ Total cost of revenues 26,171,865 14,514,043 14,822,220 ------------ ------------ ------------ GROSS MARGIN 19,194,646 10,911,763 9,254,744 OPERATING EXPENSES, selling, general, and administrative 16,971,416 10,101,985 9,959,366 ------------ ------------ ------------ OPERATING INCOME (LOSS) 2,223,230 809,778 (704,622) ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (522,112) (529,565) (410,830) Interest income 162,951 91,889 120,815 Minority interests in net income of subsidiaries (128,084) (81,928) (37,391) ------------ ------------ ------------ (487,245) (519,604) (327,406) ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAX CREDIT AND EXTRAORDINARY ITEM 1,735,985 290,174 (1,032,028) INCOME TAX CREDIT 550,000 ------------ ------------ ------------ INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 2,285,985 290,174 (1,032,028) EXTRAORDINARY ITEM, (loss) gain on restructuring (in 1992, net of restructuring expenses of $1,361,000, and income taxes of $45,000, after extraordinary benefit of utilizing net operating loss carryforwards of $3,000,000) - (150,000) 3,756,327 ------------ ------------ ------------ NET INCOME 2,285,985 140,174 2,724,299 PREFERRED STOCK DIVIDENDS (478,159) (344,650) (334,478) ------------ ------------ ------------ NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $1,807,826 ($204,476) $2,389,821 ============ ============ ============ INCOME (LOSS) PER COMMON SHARE: Income (loss) before extraordinary item 0.27 (0.01) (0.33) Extraordinary item (0.03) 0.92 ------------ ------------ ------------ Net income (loss) 0.27 (0.04) 0.59 ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,792,277 5,132,296 4,062,710 ============ ============ ============
See accompanying notes to consoloidated financial statements. F-5 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1994, 1993 and 1992 Series B Series C Series D Preferred Stock Preferred Stock Preferred Stock =============== =============== =============== Shares Amount Shares Amount Shares Amount --------- --------- --------- --------- ------- ------- BALANCE, January 914,750 $9,147 - $ - - $ - 1, 1992 Dividends on preferred stock Conversion of Series A Preferred Stock to Series C 110,000 1,100 Preferred Stock Conversion of Series B Preferred Stock to Series C (914,750) (9,147) 914,750 9,147 Preferred Stock Conversion of preferred stock dividends payable to 81,980 820 Series C Preferred Stock Proceeds from sale of common stock including subscriptions of $162,980 collected subsequent to December 31, 1992 and net of expenses of $470,000 Common stock issued in lieu of compensation and other Exercise of common stock options Exercise of common stock warrants Net income --------- --------- --------- --------- ------- ------- BALANCE, December 1,106,730 11,067 31, 1992 Dividends on preferred stock Proceeds from sale of Series D Preferred Stock, net of expenses of $411,549 453,158 4,532 Redemption of Series C Preferred Stock (118,800) (1,188) Common stock to be issued for acquisitions Common stock issued in lieu of compensation Common stock issued in lieu of deferred financing fees Exercise of common stock options Net income --------- --------- --------- --------- ------- ------- BALANCE, December 987,930 9,879 453,158 4,532 31, 1993 Preferred stock dividends Dividend accretion of redeemable put warrant Exercise of common stock options and warrants Proceeds from sale of Series D Preferred Stock 3,742 37 Issuances for acquisitions Proceeds from sale of common stock, net of expenses of $371,067 Common stock issued in lieu of compensation and conversion of Series C (81,000) (810) Preferred Stock and other Net income --------- --------- --------- --------- ------- ------- BALANCE, December 31, 1994 - $ - 906,930 $9,069 456,900 $4,569 ======== ======== ======== ======== ====== ======
See accompanying notes to consolidated financial statements. F-6 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1994, 1993 and 1992 (CONTINUED) Series E Series F Common Preferred Stock Preferred Stock Stock =============== =============== =============== Shares Amount Shares Amount Shares Amount --------- --------- ------------------ ------- ------- BALANCE, January - $ - $ - - 3,740,732 $ 14,963 1, 1992 Dividends on preferred stock Conversion of Series A Preferred Stock to Series C Preferred Stock Conversion of Series B Preferred Stock to Series C Preferred Stock Conversion of preferred stock dividends payable to Series C Preferred Stock Proceeds from sale of common stock including subscriptions of $162,980 collected subsequent to December 31, 1992 and net of 1,250,000 5,000 expenses of $470,000 Common stock issued in lieu of compensation and 31,985 128 other Exercise of 53,938 216 common stock options Exercise of 15,542 62 common stock warrants Net income --------- --------- --------- --------- ------- ------- BALANCE, December 5,092,197 20,369 31, 1992 Dividends on preferred stock Proceeds from sale of Series D Preferred Stock, net of expenses of $411,549 Redemption of Series C Preferred Stock Common stock to be issued for acquisitions Common stock issued in lieu of compensation 49,345 197 Common stock issued in lieu of deferred 13,793 55 financing fees Exercise of 35,000 140 common stock options Net income --------- --------- --------- --------- ------- ------- BALANCE, December 5,190,335 20,761 31, 1993 Preferred stock dividends Dividend accretion of redeemable put warrant Exercise of common stock options and warrants 26,061 104 Proceeds from sale of Series D Preferred Stock Issuances for 400,000 4,000 700,000 7,000 acquisitions Proceeds from sale of common stock, net of expenses of 1,328,700 5,315 $371,067 Common stock issued in lieu of compensation and conversion of Series C 83,150 333 Preferred Stock and other Net income --------- --------- --------- --------- ------- ------- BALANCE, December 400,000 $ 4,000 700,000 $ 7,000 6,628,246 $ 26,513 31, 1994 ======== ======== ======== ======== ====== ======
See accompanying notes to consolidated financial statements. F-7 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1994, 1993 and 1992 (CONTINUED) Capital in Obligations Total Excess of Accumulated to Issue Stockholders' Par Value Deficit Common Stock Equity --------- --------- --------- --------- BALANCE, January $23,261,185 $(26,433,629) $ - $(3,148,334) 1, 1992 Dividends on (334,478) (334,478) preferred stock Conversion of 438,900 440,000 Series A Preferred Stock to Series C Preferred Stock Conversion of Series B Preferred Stock to Series C Preferred Stock Conversion of preferred stock dividends payable to 327,100 327,920 Series C Preferred Stock Proceeds from sale of common stock including subscriptions of $162,980 collected subsequent to December 31, 1992 and net of 5,775,000 5,780,000 expenses of $470,000 Common stock issued in lieu of compensation and 127,558 127,686 other Exercise of 110,827 111,043 common stock options Exercise of 6,155 6,217 common stock warrants Net income 2,724,299 2,724,299 --------- --------- --------- --------- BALANCE, December 30,046,725 (24,043,808) 6,034,353 31, 1992 Dividends on (344,650) (344,650) preferred stock Proceeds from sale of Series D Preferred Stock, net of expenses of $411,549 1,736,601 1,741,133 Redemption of Series C Preferred Stock (384,912) (386,100) Common stock to be issued for acquisitions 1,756,500 1,756,500 Common stock issued in lieu of compensation 228,229 228,426 Common stock issued in lieu of deferred 49,945 50,000 financing fees Exercise of 82,460 82,600 common stock options Net income 140,174 140,174 --------- --------- --------- --------- BALANCE, December 31,759,048 (24,248,284) 1,756,500 9,302,436 31, 1993 Preferred stock (478,159) (478,159) dividends Dividend (24,647) (24,647) accretion of redeemable put warrant Exercise of common stock options and warrants 71,320 71,424 Proceeds from sale of Series D Preferred Stock (1,511) (1,474) Issuances for 4,989,000 5,000,000 acquisitions Proceeds from sale of common stock, net of expenses of 4,556,243 4,561,558 $371,067 Common stock issued in lieu of compensation and conversion of Series C 114,028 50,000 163,551 Preferred Stock and other Net income 2,285,985 2,285,985 --------- --------- --------- --------- BALANCE, December $41,488,128 $(22,465,105) $1,806,500 $20,880,674 31, 1994
======== ======== ======== ======== See accompanying notes to consolidated financial statements. F-7A SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1994, 1993 and 1992 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $2,285,985 $140,174 $2,724,299 Adjustments to reconcile net income to net cash provided by operating activities: Loss (gain) on restructuring 150,000 (5,162,576) Depreciation and amortization 3,702,004 2,562,024 2,447,925 Provision for doubtful accounts 412,617 253,000 Common stock of subsidiary issued for services 16,500 Stock options and common stock issued in lieu of compensation and other 113,551 278,426 127,686 Minority interests 128,084 81,928 37,391 Gain on sale of franchises (202,033) Deferred income taxes (550,000) Amortization of discount on note 52,267 Change in assets and liabilities: Accounts receivable (2,147,159) (990,468) (468,931) Other current assets (179,462) 131,664 123,015 Other assets (429,835) (243,689) Accounts payable 1,629,214 963,950 1,504,715 Accrued expenses (1,707,272)(1,211,878) (783,854) Advance billings (66,679) 91,531 21,826 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,057,782 2,206,662 571,496 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment, net (3,223,420)(2,034,760) (2,014,182) Acquisitions of Road and Show South and East (255,356) Acquisition of Access (3,947,649) Long-term deposits (1,557) (296,994) Proceeds from restricted investments 852,698 Other investments (95,548) Deferred registration costs (182,135) --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES (7,353,204)(2,291,673) (1,554,026) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of notes payable, long-term debt and capital lease obligations (2,409,274)(1,895,419) (3,962,571) Proceeds from borrowings 2,315,075 Proceeds from sales of common and preferred stock 4,631,509 1,823,733 5,734,280 Redemption of preferred stock (386,100) Preferred stock dividends paid (478,159) (344,650) (88,538) --------- --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,059,151 (802,436) 1,683,171 --------- --------- --------- NET INCREASE (DECREASE) IN CASH (236,271) (887,447) 700,641 --------- --------- --------- CASH, beginning of year 408,533 1,295,980 595,339 --------- --------- --------- CASH, end of year $172,262 $408,533 $1,295,980 ========= ========= =========
See accompanying notes to consoloidated financial statements. F-8 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Years Ended December 31, 1994, 1993 and 1992 1994 1993 1992 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, cash paid during the year for interest $441,272 $386,134 $401,208 --------- --------- --------- SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of accrued expenses to note payable in connection with litigation settlement $ - $460,478 $ - --------- --------- --------- Obligations to issue common stock in connection with acquisitions $50,000 $1,756,500 $ - --------- --------- --------- Conversion of accounts payable to long-term debt $ - $ - $3,288,236 --------- --------- --------- Conversion of preferred stock dividends payable to Series C Preferred Stock $ - $ - $327,920 --------- --------- --------- Issuance of preferred stock in connection with acquisition $5,000,000 $ - $ - --------- --------- --------- Redeemable put warrant issued in connection with bank financing $358,401 $ - $ - --------- --------- --------- Capital lease obligation incurred for lease of new equipment $63,589 $ - $ - --------- --------- --------- Dividend accretion on redeemable put warrant $24,647 $ - $ - --------- --------- --------- Costs of intangible assets included in accounts payable $202,985 $ - $ - --------- --------- --------- Note received for sale of franchise $202,033 $ - $ - --------- --------- ---------
See accompanying notes to consoloidated financial statements. F-9 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BUSINESS AND ORGANIZATION: The Company is in the shared tenant services (STS) and facility management services (FMS) industry, providing telecommunications and office automation services and equipment to tenants of office buildings. One of the Company's subsidiaries, Shared Technologies Cellular, Inc. (STC), is a provider of short-term portable cellular telephone services. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Revenue Recognition - Revenues are recognized as services are performed. The Company bills customers monthly in advance for equipment rentals and local telephone access service and defers recognition of these revenues until the service is provided. Enhanced office service revenues (included in both STS and FMS revenues), which consists primarily of product and equipment sales, is recognized at the time of shipment. 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. Equipment - Equipment is stated at cost. Depreciation and amortization is provided using the straight-line method over the following estimated useful lives: Telecommunications equipment 8 years Office and data processing equipment 3-8 years Effective January 1, 1992, the Company prospectively changed the estimated depreciable life of telecommunications equipment purchased prior to January 1, 1991 from five to eight years. The change resulted in approximately $933,000 ($.23 per common share) less depreciation expense for the year ended December 31, 1992 than would have been recorded using the previous estimated depreciable life of five years. Excluding the impact of this change, the loss before extraordinary item per common share for 1992 would have been $.56. Major renewals and betterments are capitalized. The cost of maintenance and repairs which do not materially prolong the useful life of the assets are charged to expense as incurred. Rent - Certain leases require escalating base rents or provide for rent abatements for a period of time. The Company is expensing the rents on a straight-line basis over the terms of the leases. F-10 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Intangible Assets: Goodwill - Goodwill represents the excess of the purchase prices over the fair values of the net assets of businesses acquired. The Company monitors the profitability of the acquired businesses to assess whether any impairment of recorded goodwill has occurred. Goodwill is amortized over periods ranging from 5 years to 40 years. Deferred Startup Costs - Costs relating to the startup of operations in certain new locations have been deferred and amortized over one to two years upon commencement of the related operations. Software Development Costs - In connection with its cellular subsidiary (SafeCall) operations, the Company has incurred certain software development costs relating to the "privacy network" and are amortized over 5 years starting with the implementation of the related software. Other Intangible Assets - Other intangible assets are being amortized over 5 years. Deferred Registration Costs - The Company has deferred legal fees, other fees and costs incurred in connection with a proposed public offering of a subsidiary. These costs will be charged to capital in excess of par value upon completion of the offering, otherwise the costs will be charged to operations. At December 31, 1994, approximately $182,000 of these costs are included in other assets. Income Taxes - Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (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 annually for differences between 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 effect taxable income. Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized. Prior to adopting SFAS No. 109, the Company accounted for income taxes using the deferral method as required by Accounting Principles Board Opinion No. 11. The adoption of SFAS 109 had no material impact on the Company's financial statements since the Company fully reserved for the tax benefits flowing from its net operating losses (Note 13). Income (Loss) Per Common Share - Primary income (loss) per common share is computed by deducting preferred stock dividends from net income in order to determine net income applicable to common stock, which is then divided by the weighted average number of common shares outstanding including the effect of options, warrants and obligations to issue common stock, if dilutive. Fully diluted income (loss) per common sh are is computed by dividing net income applicable to common stock by the weighted average number of common and common equivalent shares and the effect of preferred stock conversions, if dilutive. Fully diluted income (loss) per common share is substantially the same as primary income (loss) per common share for the years ended December 31, 1994, 1993 and 1992. Reclassifications - Certain reclassifications to prior years financial statements were made in order to conform to the 1994 presentation. F-11 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - RESTRUCTURING: During 1992, the Company completed a restructuring which resulted in recording a gain of $5,162,000 before related expenses of $1,361,000 and income taxes of $45,000. As a result of the restructuring, approximately $900,000 of vendor payables and $1,500,000 of capital lease obligations were forgiven and $3,300,000 of vendor payables were converted into three year non-interest bearing notes payable (Note 7). Additionally, an agreement was entered into with the Federal Deposit Insurance Corporation (FDIC), as receiver for the Company's principal lender, whereby the Company paid off its term and revolving credit loans for $2,450,000 and recognized a gain of approximately $2,700,000. Had interest been accrued, the gain on restructuring and interest expense would have each increased by approximately $440,000. In connection with settling his guarantee of these obligations, the Company's president issued to the FDIC a non- interest bearing promissory note for $675,000 due in 1997 and pledged 100,000 shares of his common stock and his options to purchase 25,000 shares of common stock of the Company as collateral. As of December 31, 1993, the Company was negotiating the settlement of a $600,000 promissory note (Note 7), which was settled in 1994 by issuance of a $750,000 promissory note. Accordingly, for the year ended December 31, 1993, the Company recorded, as an extraordinary item, an expense of $150,000 in connection with the completion of the restructuring. In connection with the restructuring, the Company sold common stock, resulting in net proceeds of approximately $5,780,000 (which included $163,000 of subscriptions receivable as of December 31, 1992) and entered into agreements with Series A and B Preferred stockholders to convert their holdings, including $327,920 of accrued dividends related thereto, into Series C Preferred Stock. NOTE 4 - ACQUISITIONS: In December and October 1993, t he Company commenced management of, and subsequently acquired certain assets and assumed certain liabilities of Road and Show South, Ltd. (South) and Road and Show Cellular East, Inc. (East), respectively. The purchase price for South was $1,261,611, of which $46,111 was paid in cash and the balance through the issuance of 221,000 shares of the Company's common stock valued at $1,215,500. The purchase price for East was $750,245, of which $209,245 was paid in cash and the balance through the issuance, upon demand, of 108,200 shares of the Company's common stock valued at $541,000. The number of shares of common stock related to these acquisitions was adjusted on December 1, 1994 based on the price of the Company's common stock at that date, for which an aggregate of 64,966 additional shares will be issued. As of December 31, 1994, no shares of common stock had been issued for the East acquisition. The shares in connection with the South acquisition have been issued, but have not been delivered pending the outcome of certain claims against, and by, the former owners of South (Note 16). In June 1994, the Company acquired all of the partnership interests in Access Telecommunication Group, L.P. and Access Telemanagement, Inc. (collectively Access). The purchase price was $9,252,031, of which $4,252,031 was paid in cash and the balance through the issuance of 400,000 shares of Series E Preferred Stock valued at $3.75 per share and 700,000 shares of Series F Preferred Stock valued at $5.00 per share. F-12 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - ACQUISITIONS (CONTINUED): The acquisitions were accounted for as purchases, and the purchase prices were allocated on the basis of the relative fair market values of the net assets. The excess of costs over fair value of the net assets acquired is recorded as goodwill (aggregating approximately $10,289,000) in the accompanying consolidated financial statements. Amortization of goodwill approximated $181,000 and $15,000 in 1994 and 1993, respectively. Additional payments may be required for the East acquisition based upon the attainment of certain future revenues of the Company and will be charged to goodwill when they become earned. The following unaudited pro forma statements of operations for 1994 and 1993 give effect to the acquisitions, as if they occurred on January 1 in each year:
1994 1993 ---------- ----------- Revenues $54,547,694 $47,479,720 Cost of revenues 32,612,238 30,774,241 ---------- ----------- Gross margin 21,935,456 16,705,479 Selling, general and administrative expenses 19,573,151 16,846,048 ---------- ----------- Operating income 2,362,305 (140,569) Other expense, net (459,378) (572,072) ---------- ----------- Income (loss) before income tax credit and extraordinary item 1,902,927 (712,641) Income tax credit 550,000 ---------- ----------- Income (loss) before extraordinary item 2,452,927 (712,641) Extraordinary item (150,000) ---------- ----------- Net income (loss) 2,452,927 (862,641) Preferred stock dividends (538,159) (464,650) ---------- ----------- Net income (loss) applicable to common stock $1,914,768 $(1,327,291) ---------- ----------- Net income (loss) per common share: Income (loss) before extraordinary item $ .25 $ (.21) Extraordinary item (.03) ---------- ----------- Net income (loss) $ .25 $ (.24) ---------- ----------- Weighted average number of common shares outstanding 7,753,409 5,526,492 ========== ============
F-13 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - INTANGIBLE ASSETS: Intangible assets consist of the following at December 31, 1994 and 1993:
1994 1993 ---------- ---------- Goodwill $11,185,606 $2,307,692 Deferred startup costs 491,246 172,689 Software development costs 186,334 68,000 Other 198,129 175,756 ----------- ---------- 12,061,315 2,724,137 Accumulated amortization 863,428 376,179 ----------- ---------- $11,197,887 $2,347,958 =========== =========== NOTE 6 - ACCRUED EXPENSES: Accrued expenses at December 31, 1994 and 1993 consist of the following:
1994 1993 --------- ---------- State sales and excise taxes $ 861,406 $1,194,746 Deferred lease obligations 149,986 153,805 Compensation 416,773 76,787 Property taxes 140,102 72,443 Concession fees 101,835 64,754 Other 711,634 506,236 --------- ---------- $2,381,736 $2,068,771 ========== ===========
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Long-term debt and capital lease obligations at December 31, 1994 and 1993 consist of the following: 1994 1993 ------------ -------- Revolving $4,000,000 credit line, due in monthly installments of approximately $36,500 commencing March 1995 and bearing interest at 2% above prime rate (10.5% at December 31, 1994) (Note 8) $1,008,939 $ - Initial term loan, due in quarterly installments of $50,000 commencing November 24, 1994, with final payment of $700,000 due May 1996 and bearing interest at 2% above prime rate 950,000 $ -
F-14 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED): 1994 1993 Notes payable to vendors, non-interest bearing due in aggregate quarterly installments of approximately $249,000 through June 1995 497,595 1,615,490 Promissory note payable in semi-annual installments through May 31, 1996 and bearing interest at 10% per annum (see below) 268,300 750,000 Promissory note, $550,000 original face amount discounted at 7.75%, payable in quarterly installments of $25,000 through March 31, 1999, collateralized by commitment to issue 106,250 shares of Series C Preferred Stock 359,193 428,003 Promissory note, $450,000 original face amount, non-interest bearing, payable in quarterly installments of $16,071 through June 30, 1999 289,068 353,353 Capital lease obligations, collateralized by related telecommunications and data processing equipment and all of the assets acquired from Access (Note 4) 1,353,671 572,461 --------- --------- 4,726,766 3,719,307 Less current portion 1,840,401 1,941,876 --------- --------- $2,886,365 $1,777,431 ========== ==========
In connection with the Company's 1992 restructuring (Note 3), approximately $3,300,000 of vendor payables were converted to non- interest bearing notes payable. As part of the restructuring, the Company also renegotiated the terms of a $450,000 promissory note. Prior to the restructuring, the note provided for interest at the prime rate plus 1% and was due in 1990. As of December 31, 1992, the Company was negotiating the settlement of a $600,000 promissory note, which was subsequently settled for a $750,000 promissory note, with interest at 10% per annum. In connection with the restructuring, approximately $1,500,000 of capital lease obligations was forgiven. As of December 31, 1992, one settlement requiring a cash payment of $588,000 had not been completed. A payment of $588,000 plus penalties and interest of $50,000 was made in 1993. F-15 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED): In May 1994, the Company entered into a $5,000,000 financing agreement with a bank. The agreement provides for a revolving credit line for a maximum, as defined, of $4,000,000 to be used for expansion in the shared tenant services business. Aggregate drawings on the line convert semi-annually, through May 1996, to three year term loans. In addition, the agreement provides for a $1,000,000 term loan. The loans are collateralized by certain assets of the Company. The agreement provides for, among other things, the Company to maintain certain financial covenants. As of December 31, 1994, the Company was in violation of certain of these covenants and on March 31, 1995 received a waiver of those covenants for the year ended December 31, 1994. Scheduled aggregate payments on long-term debt and capital lease obligations are as follows:
Capital Lease Year ending December 31: Long-Term Debt Obligations 1995 $1,343,645 $ 596,262 1996 1,279,796 413,471 1997 499,663 332,947 1998 193,540 190,299 1999 56,451 28,278 ----------- ---------- $3,373,095 1,561,257 =========== Less amount representing interest 207,586 ----------- Present value of future payments, including current portion of $496,756 $1,353,671 ===========
Telecommunications and data processing equipment includes assets acquired under capital leases with a net book value of approximately $1,534,000 and $514,000 as of December 31, 1994 and 1993, respectively. NOTE 8 - REDEEMABLE PUT WARRANT: In connection with the bank financing agreement, the Company issued the bank a redeemable put warrant for a number of common shares equal to 2.25% of the Company's outstanding common stock, subject to anti- dilution adjustments. The warrant is redeemable at the Company's option prior to May 1996, and at the bank's option at any time after May 1997. As defined in the agreement, the Company has guaranteed the bank a minimum of $500,000 upon redemption of the warrant, and therefore, has valued the warrant at the present value of the minimum guarantee discounted at 11.25%. The discount is being amortized on a straight-line basis over four years. NOTE 9 - STOCKHOLDERS' EQUITY: The Company is authorized to issue 10,000,000 shares of preferred stock, issuable from time to time in one or more series with such rights, preferences, privileges and restrictions as determined by the directors. In 1994, the Company increased its authorized number of shares of common stock to 20,000,000. F-16 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED): On August 28, 1992, the Board of Directors approved a one-for-four reverse stock split of common stock and the par value of common stock was increased from $.001 to $.004 per share. The applicable number of common share and per common share information herein have been retroactively restated to reflect the effect of the reverse split. In September 1992, the Company completed a private placement to sell to certain investors 1,250,000 shares of its common stock at $5 per share. The Company received $5,780,000, net of underwriters' commissions of $470,000 and including subscriptions totalling $162,980 collected subsequent to December 31, 1992. A commission of $446,750 was paid to a firm, one of whose principals is a director and stockholder of the Company. In connection with the 1992 restructuring (Note 3), all Series A and B Preferred Stock, including $327,920 of accrued dividends, were converted into Series C Preferred Stock. At that time, Series A and Series B Preferred Stock were eliminated. Series C Preferred Stock is entitled to a liquidation value of $4 per share and dividends of $.32 per share per annum payable quarterly in arrears, and the shares are non-voting. These shares are convertible into common stock, at the holder's option, on a one share of common stock for two shares of Series C Preferred Stock basis, at any time, subject to certain anti- dilution protection for the Preferred Stockholders. At the Company's option, the Series C Preferred Stock is redeemable, in whole or in part, at any time after June 30, 1993, at $6 per share plus all accrued dividends. In December 1993, the Company commenced a private placement to sell to certain investors units consisting of one share of Series D Preferred Stock and one warrant to purchase one share of common stock. As of December 31, 1994, the Company had sold 456,900 units for net proceeds of $1,739,659, after deducting expenses of $430,616. Series D Preferred Stock is entitled to dividends of 5% per annum payable quarterly and may be redeemed for $7 per share, plus all accrued dividends, at the option of the Company. The shares are non- voting and are convertible into shares of the Company's common stock on a one-for-one basis at the holder's option. The shares rank senior to all shares of the Company's common stock and junior to Series C Preferred Stock. The common stock purchase warrants are exercisable at a per share price of $5.75. In connection with the offering, the investment banking firm received warrants to purchase 15,600 shares of the Company's common stock at an exercise price of $5.75 per share. The Company has the right to require the holder to exercise the warrants, and if not exercised, they will expire in the event that the Company's common stock trades at or above $8.50 per share. As of December 31, 1994, no warrants had been exercised. In May and June 1994, the Company sold, through a private placement to certain investors, 1,328,700 shares of common stock and an equal number of warrants, for net proceeds of $4,511,558, after deducting expenses of $371,067. The warrants are exercisable prior to June 26, 1999 at a per share price of $4.25, subject to certain anti-dilution protection. As of December 31, 1994, no warrants had been exercised. The proceeds from this offering were used for the Access acquisition (Note 4). In June 1994, the Company issued 400,000 shares of Series E Preferred Stock, $.01 par value, and 700,000 shares of Series F Preferred Stock, $.01 par value, in connection with the Access acquisition. F-17 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED): Series E Preferred Stock is entitled to a liquidation value of $3.75 per share and dividends of $.30 per share per annum, payable cumulatively in the form of cash or the Company's common stock, and the shares are non-voting. The shares rank senior to common stock, junior to Series C Preferred Stock and on par with Series F Preferred Stock. The Series E Preferred Stock previously issued was converted into 400,000 shares of common stock in January 1995. In addition, upon conversion, the holders received warrants, which expire on December 31, 1999, to purchase 175,000 shares of common stock, at an exercise price of $4.25 per share, subject to certain anti-dilutive provisions. Series F Preferred Stock is entitled to a liquidation value of $5.00 per share and no dividends. The shares are senior to common stock and junior to Series C Preferred Stock. These shares are convertible on July 1, 1995 into common stock at the liquidation value, as adjusted and defined, and subject to certain anti-dilution adjustments. Additionally, the Company issued warrants to the sellers of Access to purchase 225,000 shares of the Company's common stock at an exercise price of $4.25 per share, subject to certain anti-dilution adjustments. The following table summarizes the number of common shares reserved for issuance as of December 31, 1994. There were no preferred shares reserved for issuance as of December 31, 1994. Common stock purchase warrants 2,935,223 Preferred stock 2,134,504 ---------- 5,069,727 ==========
NOTE 10 - RESTATEMENT OF 1993 FINANCIAL STATEMENTS: The Company has restated its 1993 financial statements to reflect the write-off of certain startup costs of approximately $120,000, previously capitalized, relating to certain cellular telephone operations. Income before extraordinary item: As previously reported $410,221 As adjusted 290,174 Net income: As previously reported 260,221 As adjusted 140,174 Net income (loss) per common share before extraordinary item: As previously reported .01 As adjusted (.01) Net loss per common share: As previously reported (.02) As adjusted (.04) Accumulated deficit: As previously reported 24,128,237 As adjusted 24,248,284
F-18 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - STOCK OPTION PLANS: The Company has non-qualified stock option plans which provide for the grant of common stock options to officers, directors, employees and certain advisors and consultants at the discretion of the Board of Directors (Committee). All options granted are exercisable at a minimum price equal to the fair market value of the Company's common stock at the date of grant, and are exercisable in accordance with vesting schedules set individually by the Committee. As of December 31, 1994, as amended on April 11, 1995, 1,157,146 shares of common stock are reserved for options, including options exercised to date, and the term of the options granted is from five to ten years. The April 11, 1995 amendment is awaiting stockholder approval. The activity in the plans was as follows:
Exercise Price Per Share Number of Weighted Options Range Average Balance outstanding, Jan. 1, 1992 368,187 $1.72-24.50 $4.08 Granted 61,375 5.00 5.00 Expired (21,583) 2.84-24.50 17.09 Exercised (53,938) 1.72- 2.84 2.06 --------- Balance outstanding, Dec. 31, 1992 354,041 1.72-12.00 3.77 Granted 173,500 4.00- 5.50 5.32 Expired (28,780) 2.84-12.00 10.19 Exercised (35,000) 1.72- 2.84 2.36 --------- Balance outstanding, Dec. 31, 1993 463,761 1.72-11.00 4.06 Granted 317,000 3.25-4.50 3.60 Expired (59,062) 4.00-5.50 5.43 Exercised (25,000) 2.84 2.84 --------- --------- --------- Balance outstanding, Dec. 31, 1994 696,699 $1.72-11.00 $3.78 ======= ======= =======
At December 31, 1994, options to purchase 314,695 shares of common stock were exercisable. In September 1994, the Board of Directors adopted the 1994 Director Option Plan (the Director Plan) pursuant to which 250,000 shares of 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 non- statutory options to purchase 15,000 shares of common stock at an exercise price equal to the fair market value of such shares at the date of the grant. Each option shall vest over a three year period, but generally may not be exercised more than 90 days after the date an optionee ceases to serve as a director of the Company, and expires after ten years from date of grant. As of December 31, 1994, options to purchase 105,000 shares of common stock have been granted at an exercise price of $4.38. The Plan is awaiting stockholder approval. F-19 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - RETIREMENT AND SAVINGS PLAN: On March 3, 1989, the Company adopted the Shared Technologies Inc. Savings and Retirement Plan (the Plan). The Plan covers substantially all of the Company's employees and the Company is applying for compliance with section 401(k) of the Internal Revenue Code. Participants in the Plan may elect to make contributions up to a maximum of 20% of their compensation. For each participant with one year of service, the Company will make a matching contribution of one-half of the participant's before and after tax contributions up to 5% of the participant's compensation. Matching contributions may be made in the form of the Company's common stock. Participants vest in the matching contributions at the rate of 33% per year. The Company's expense relating to the matching contributions was approximately $163,000, $116,000 and $51,000 for 1994, 1993 and 1992, respectively. NOTE 13 - INCOME TAXES: For 1992, the Company recorded a provision for minimum federal and state income taxes of $45,000, after the benefit of utilizing net operating loss (NOL) carryforwards of approximately $3,000,000. At December 31, 1994, the Company's NOL carryforward for federal income tax return purposes is approximately $22,700,000 expiring between 2001 and 2007. NOL's available for state income tax purposes are less than those for federal purposes and generally expire earlier than the federal NOL's. Limitations will apply to the use of NOL's in the event certain changes in Company ownership occur in the future. For the years ended December 31, 1994 and 1993, taxes computed at the statutory federal rate differ from the Company's effective rate due primarily to the availability of NOL's. The components of deferred income tax assets (liabilities) as of December 31, 1994 and 1993 are as follows (in thousands):
1994 1993 Tax effect of net operating loss carryforwards $ 9,011 $ 9,789 Financial reserves not yet tax deductible 233 130 Equipment (1,200) (1,114) Goodwill (107) --------- --------- Deferred income tax asset 7,937 8,805 Valuation allowance (7,387) (8,805) --------- --------- Net deferred tax asset $ 550 $ - ========= =======
F-20 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - INCOME TAXES (CONTINUED): At December 31, 1994, the Company's net operating losses of $22,700,000 are included in the gross deferred income tax asset of $7,937,000, of which $550,000 was recorded as a deferred tax asset, and the balance reserved through a valuation allowance of $7,387,000. 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 this deferred tax asset depends on the ability to generate sufficient taxable income in the future. The Company has undergone substantial restructuring resulting in a lower and more competitive cost structure. While management believes that the total deferred tax asset will be fully realized by future operating results together with tax planning opportunities, the losses in recent years and a desire to be conservative make it appropriate to record a valuation allowance. NOTE 14 - COMMITMENTS AND CONTINGENCIES: Contingencies - The Company had been the provider of telecommunications services at the Jacob K. Javits Convention Center (the Center) in New York City. Effective January 1, 1992, as a result of a contractual dispute with the New York Convention Center Operating Corporation (CCOC), the Company no longer provided services at the Center. A claim for approximately $5,400,000 was filed against the Company by CCOC for damages. In November 1993, the litigation with CCOC was settled and provided for the Company to pay $25,000 and issue a $550,000 note payable over five years, with no interest. The present value of the note was accrued by the Company (Note 7). While providing services at the Center, the Company licensed the right to provide certain public pay telephone services at the Center to Tel-A-Booth Communications, Ltd. (Tel-A-Booth). Tel-A- Booth has filed a claim against the Company which seeks $10,000,000 in damages including $1,400,000 for equipment purchased, for which no amounts have been provided in the accompanying consolidated financial statements. Discovery was completed in early 1995 and revealed certain inconsistencies in plaintiff's claims, which cast in doubt the bona fides of plaintiff's demand for $10 million on each of its claims against the Company. Of the $10 million in claimed damages, all but $1.4 million represents plaintiff's estimation of lost profits as a result of the Company's alleged breach of contract. The remaining $1.4 million represents the cost of the 400 telephones which plaintiff purportedly purchased for installation at The Center, pursuant to the contract, but which were ultimately not installed. Furthermore, the Company has asserted that the pertinent contract between plaintiff and the Company bars plaintiff's recovery of lost profits. More specifically, the contract provides that "[n] either party hereto shall be liable, directly or through any indemnification provision herein, for consequential (including lost profits) or indirect damages arising in any way out of this Agreement." Although plaintiff has argued that the language surrounding this clause limits its application to claims brought by third parties and thus the clause was not intended to limit damage claims between plaintiff and the Company, management believes this is a further defense to the claim. F-21 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED): With respect to the $1.4 million damage claim, discovery has revealed that plaintiff borrowed this entire amount from a private lender, using the telephones to be purchased as collateral. Subsequent to plaintiff's termination at The Center, the lender took possession of the collateral (which was then sold) and forgave the entire indebtedness in exchange. Arguably, plaintiff suffered no direct damage from the alleged breach of contract since plaintiff was restored to its initial position following this transaction. While any litigation contains an element of uncertainty, management is of the opinion -based on the current status of the claim - that the ultimate resolution of this matter should not have a material adverse effect upon either results of operations, cash flows or financial position of the Company. The Company's sales and use tax returns in certain jurisdictions are currently under examination. Management believes these examinations will not result in a material change from liabilities provided. STC is a party to an employment claim which arose prior to STC's acquisition of South. STC is seeking indemnification from South (Note 16). In addition to the above matters, the Company 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 Company's financial condition and results of operations. In November 1994, a subsidiary signed a letter of intent with an investment banking firm for the purpose of underwriting an initial public offering. If the public offering is successful and depending on the number of shares sold, the Company's investment in the subsidiary would be reduced from approximately 85% to approximately 60%. Commitments - The Company has entered into operating leases for the use of office facilities and equipment, which expire through October 2004. Certain of the leases are subject to escalations for increases in real estate taxes and other operating expenses. Rent expense amounted to approximately $1,856,000, $1,700,000 and $1,676,000 for the years ended December 31, 1994, 1993 and 1992, respectively. Aggregate approximate future minimum rental payments under these operating leases are as follows:
Year ending December 31: 1995 $1,863,000 1996 1,483,000 1997 1,150,000 1998 988,000 1999 815,000 Thereafter 1,178,000 ----------- $7,477,000 ===========
F-22 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED): In January 1994, the Company entered into a consulting agreement for financial and marketing services, which expires in November 1996. The agreement provides for the following compensation; $30,000 upon signing, $3,000 per month retainer, and $150,000 upon the attainment of a specific financial ratio, which as of December 31, 1994 had not been attained. In addition, the consultant was issued a three year warrant to purchase 300,000 shares of the Company's common stock at a purchase price of $5.75 and a five year warrant to purchase 250,000 shares of the Company's common stock at a purchase price of $7.00 per share. The consultant may not compete with the Company during the term of this agreement and for two years thereafter. The consultant, through its affiliate, acquired from the Company approximately 1.5% (31,381 shares) of STC's common stock at a price of $.08 per share. In connection with the acquisit ion of East, STC entered into a three year consulting agreement, providing that during the first two years of the agreement the former owner is to be paid an annual consulting fee equal to 3% of STC's total cellular telephone rental revenues in excess of $4,000,000. In addition, an annual bonus of $100,000 is payable if total cellular telephone rental revenues exceed $5,000,000 per annum. The former owner may not engage in any business competing with STC, within a certain geographical area. For the year ended December 31, 1994, approximately $203,000 of fees relating to this agreement were incurred. In February 1994, the Company entered into a consulting agreement with a company controlled by the founder of Road and Show. The agreement, which was amended effective September 1, 1994 and expires December 31, 1996, provides for compensation of $205,000 and $200,000 for 1995 and 1996, respectively. In addition, the original agreement provided for the issuance of 31,381 shares of STC common stock, with a value ascribed thereto of $2,500 ($.08 per share). During the term of the agreement and for two years thereafter, the consultant may not compete with STC in the business of renting cellular telephones anywhere in the United States, Mexico and Canada. The consultant also received options to purchase 31,381 shares of STC's common stock at an exercise price, as amended, of $4.20 per share, pursuant to STC's stock option plan. In connection with the Access acquisition, the Company has entered into two employment agreements with former owners of Access. Each agreement is for three years expiring in June 1997. If terminated without cause, the Company shall pay all compensation due under the agreements for the lesser of eighteen months or the time remaining in the initial term. Aggregate minimum payments under the agreements during the years ending December 31, 1995, 1996 and 1997 are $330,000, $342,500 and $175,000, respectively. F-23 SHARED TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - RELATED PARTY TRANSACTIONS: In 1992, the Company issued 12,500 shares of common stock to a Board of Directors member and former shareholder of a Company acquired (BTC). The shares were issued since the Company was unable to obtain the release of his guarantee of certain BTC obligations in connection with the 1992 restructuring (Note 3). The Company has also agreed to indemnify the individual for any future amounts incurred by him related to his guarantee. The fair value of the shares issued was recorded as an expense in 1992. As of December 31, 1993, approximately $288,000 had been paid for life insurance premiums made on behalf of the Company's president, which was to be repaid from the proceeds of a $2,500,000 face value life insurance policy which was owned by the president. In January 1994, the beneficiary on the policy was changed to the Company in order to reduce the premium payments required by the Company. As of December 31, 1994, the amount due to the Company for premiums paid exceeded the cash surrender value of the policy by approximately $135,000. Accordingly, the President has agreed to reimburse the Company for this amount. The receivable and cash surrender value are reflected in other assets in the accompanying consolidated balance sheets. NOTE 16 - SUBSEQUENT EVENTS: During January 1995, the Company commenced a private placement to sell to a certain investor 300,000 shares of common stock at $4.25 per share, pursuant to Regulation S of the Securities Act of 1933. In connection with this transaction, the underwriter received a commission of $120,000 and a five year common stock purchase warrant to acquire 30,000 shares of the Company's common stock for $5.00 per share. On January 17, 1995, STC filed a complaint against South (which includes its affiliates). The complaint alleges that the failure by South to disclose a certain claim constituted a breach of the asset purchase agreement. STC seeks damages and a declaratory judgement that the payment in the Company's common stock to South, pursuant to the agreement, should be reduced by the amount of any damages caused to the Company by such breach. In addition, the Company seeks indemnification from South, including requiring South to defend the Company from and against such claim. On January 27, 1995, South commenced an action against STC alleging, among other things, that STC's failure to deliver to South the Company's common stock under the asset purchase agreement constituted a breach of contract and fraud. South is seeking unspecified actual and punitive damages of not less than $10,000,000. STC sought a stay of this action and is considering depositing the Company's common stock with the Court. Although it has not received an opinion of counsel with regard to this matter, STC believes it has meritorious defenses to this action. In the event of an adverse outcome in this action, the Company does not believe that damages payable would be material unless the market value of the Company's common stock materially decreases prior to delivery thereof. F-24 SCHEDULE VIII SHARED TECHNOLOGIES INC.
VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1994, 1993 AND 1992 Balance at Charged to Charged Balance Beginning Cost and to Other at End Description of Year Expenses Accounts Deductions(1) of Year December 31, 1992: Allowance for doubtful accounts and discounts $291,000 $96,000 $- $ 90,000 $297,000 December 31, 1993: Allowance for doubtful accounts and discounts 297,000 253,000 240,000 310,000 December 31, 1994: Allowance for doubtful accounts and discounts 310,000 412,617 138,617 584,000
(1) Represents write off of uncollectible accounts, net of recoveries. F-25 PART III Items 10, 11, 12 and 13. ------------------------ The Company incorporates by reference in response to these items its Proxy Statement for its Annual Meeting of Stockholders to be held on May 23, 1995 (to be filed with the Securities and Exchange Commission in definitive form on or before April 28, 1995). PART IV Item 14. -------- Exhibits, Financial Statement Schedules and Reports on Form 10-K ---------------------------------------------------------------- Financial Statements (a) -------------------- Independent Auditors' Report: Rothstein, Kass & Company, P.C. Report of Independent Public Accountants: Arthur Andersen LLP Consolidated Balance Sheets as of December 31, 1994 and 1993. Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and 1992. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1993 and 1992. Consolidated Statements of Cash Flow for the years ended December 31, 1994, 1993 and 1992. Notes to Consolidated Financial Statements Financial Statements Schedule: Schedule VIII (b) Reports on Form 8-K ------------------- On January 25, 1995 the Company filed a Form 8K announcing a change in independent public accountants to Rothstein, Kass & Company, P.C. from Arthur Andersen LLP for the year end December 31, 1994. (c) Exhibits -------- Exhibit No. Description of Exhibit =========== ====================== -22- 3.1 Restated Certificate of Incorporation of the Registrant. 3.2 By-laws of the Registrant, as amended. 4.1 Specimen Certificate for Common Stock, as amended to reflect the reverse one-for-four stock split and corresponding change in par value. Incorporated by reference from Exhibit 4.1 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1992. 4.2 Certificates of Designation for Series D Preferred Stock. Incorporated by reference from Exhibit 4.2 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1993. 4.3 Form of Warrant Certificate associated with Series D Preferred Stock offering. Incorporated by reference from Exhibit 4.3 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1993. 4.4 Form of Registration Rights Agreement associated with Series D Preferred Stock Offering. Incorporated by reference from Exhibit 4.4 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1993. 10.1 Promissory Note dated June 4, 1990 in the principal amount of $5,000,000 from Registrant to Central Bank with Loan and Security Agreement, Pledge Agreement, Guaranty Agreement and Collateral Assignment of Tenant Services Agreement. Incorporated by reference from Exhibit 10.7 of the Company's Form 10-K for December 31, 1990. 10.2 Revolving Note dated February 20, 1991 in the principal amount of $750,000 from Registrant to Central Bank with Letter Agreement and Commercial Revolving Loan and Security Agreement. Incorporated by reference from Exhibit 10.4 of the Company's Form 10-K for December 31, 1991. 10.3 Workout Agreement dated July 27, 1992 between the Registrant and the Federal Deposit Insurance Corporation in its capacity as receiver for Central Bank and Trust Company. -23- Incorporated by reference from Exhibit 10.5 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1992. 10.4 Form of Non-Bank Creditor Agreement. Incorporated by reference from Exhibit 10.6 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1992. 10.5 Form of Assent to Plan for a Common Law Composition of all Non-Bank Creditors of Registrant. Incorporated by reference from Exhibit 10.7 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1992. 10.6 Asset purchase agreement by and between Road and Show East, Inc. and Shared Technologies Cellular, Inc. Incorporated by reference from Exhibit 10.8 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1993. 10.7 Asset purchase agreement by and between Road and Show South, Ltd. acting by Road and Show South, Inc. and Shared Technologies Cellular, Inc. Incorporated by reference from Exhibit 10.9 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1993. 10.8 Revolving Credit and Term Loan Agreement between State Street Bank and Trust Company and Shared Technologies Inc., Multi-Tenant Services, Inc., and Boston Telecommunications Group, Inc. Incorporated by reference from Exhibit 10.10 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1993. 10.9 Purchase Agreement between Shared Technologies Inc. and International Capital Partners, Inc. and others. Incorporated by reference from Exhibit 10.11 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1993. 10.10 Form of Common Stock Purchase Warrant. Incorporated by reference from Exhibit 10.12 of the Company's Form 10-K/A Amendment No. 1 for December 31, 1993. 10.11 Partnership Interests and Share Purchase Agreement by and among Access Telemanagement, Inc., Access Trust, Ronald E. Scott, Kevin -24- Schottlaender and Shared Technologies Inc. dated June 27, 1994. Incorporated by reference to the Company's Form 8-K dated June 27, 1994 and filed on July 8, 1994. 10.12 Accounts Security Agreement by and between Access Telecommunication Group, L.P. and MARTINET, Inc. for Access Trust, Ronald E. Scott, Kevin Schottlaender and Trammel S. Crow. Incorporated by reference to the Company's Form 8-K dated June 27, 1994 and filed on July 8, 1994. 10.13 Pledge Agreement between Shared Technologies Inc. and MARTINET, Inc. for Access Trust, Ronald E. Scott, Kevin Schottlaender and Trammel S. Crow. Incorporated by reference to the Company's Form 8-K dated June 27, 1994 and filed on July 8, 1994. 10.14 Registration Rights Agreement by and among Shared Technologies Inc., Access Trust, Ronald E. Scott and Kevin Schottlaender. Incorporated by reference to the Company's Form 8-K dated June 27, 1994 and filed on July 8, 1994. 10.15 Form of Common Stock Purchase Warrant. Incorporated by reference to the Company's Form 8-K dated June 27, 1994 and filed on July 8, 1994. 10.16 Consulting Agreement between Shared Technologies Inc. and Vertical Financial Holding. 11 Computation of Earnings Per Share and Weighted Average Number of Shares Outstanding. 21 List of subsidiaries of the Registrant. -25- 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 INC. ------------------------ (Registrant) By /s/ Anthony D. Autorino ---------------------------------- Anthony D. Autorino President, Principal Executive Officer and Director Date: April 11, 1995 By /s/ Vincent DiVincenzo ------------------------------ Vincent DiVincenzo Senior Vice President - Finance and Administration, Treasurer, Chief Financial Officer and Director Date: April 11, 1995 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 ---------------------------- --------------------------- Anthony D. Autorino William A. DiBella, President, Principal Executive Director Officer and Director Date: April 11, 1995 Date: April 11, 1995 By /s/ James D. Rivette By /s/ Jo McKenzie --------------------------- ------------------------ James D. Rivette, Director Jo McKenzie, Director Date: April 11, 1995 Date: April 11, 1995 By_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ By /s/ Thomas H. Decker -------------------------- Lewis M. Rambo, Ph.D., Director Thomas H. Decker, Director Date: April 11, 1995 Date: April 11, 1995 -26- By /s/ Ajit Hutheesing By_ _ _ _ _ _ _ _ _ _ _ _ _ --------------------- Ajit Hutheesing, Herbert L. Oakes, Jr. Director Director Date: April 11, 1995 Date: April 11, 1995 By /s/ Edward J. McCormack, Jr. By /s/ Vincent DiVincenzo ------------------------------- ------------------------- Edward J. McCormack, Jr. Vincent DiVincenzo, Director Director Date: April 11, 1995 Date: April 11, 1995 /s/ Ronald E. Scott By -------------------------- Ronald E. Scott Director Date: April 11, 1995 -27- EX-3.1 2 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF SHARED TECHNOLOGIES INC. INTRODUCTION. SHARED TECHNOLOGIES INC. was originally incorporated under the name of Balcon, Inc. by Certificate of Incorporation filed on September 23, 1987. By a Plan and Agreement of Merger dated March 8, 1988, Balcon, Inc. merged with Shared Technologies Inc., survived the merger, and changed its name to Shared Technologies Inc. This restatement only restates and integrates, and does not further amend, the provisions of the Corporation's Restated Certificate of Incorporation as heretofore amended or supplemented, and there is no discrepancy between the provisions thereof and of this Restated Certificate of Incorporation. This Restated Certificate of Incorporation was duly adopted pursuant to Section 245 of the Delaware General Corporation Law by the Board of Directors. FIRST. The name of this corporation shall be: SHARED TECHNOLOGIES INC. SECOND. Its registered office in the State of Delaware is to be located at 1013 Centre Road, in the City of Wilmington, County of New Castle 19805, and its registered agent at such address is CORPORATION SERVICE COMPANY. THIRD. The purpose of the corporation shall be: To engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 20,000,000 shares of Common Stock, $.004 par value per share ("Common Stock"), and (ii) 10,000,000 shares of Preferred Stock, $.01 par value per share. A. Common Stock. Shares of Common Stock shall have the following voting powers, rights and preferences: 1. Voting Rights. Except as otherwise required by Statute or as otherwise provided in this Restated Certificate of Incorporation, the holders of shares of Common Stock shall be entitled to vote on all matters at all meetings of the 29 stockholders of the Corporation, and shall be entitled to one vote for each share of Common Stock entitled to vote at such meeting, voting together, as one class, with the holders of any shares of Preferred Stock who are entitled to vote, except to the extent that a class vote for any class or series of stock is required by statute. 2. Dividends. Subject to any preferential dividend rights applicable to shares of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive such dividends as may be declared by the Board of Directors. 3. Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after distribution in full of the preferential amounts to be distributed to the holders of shares of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to the holders of Common Stock, ratably in proportion to the number of shares of Common Stock held by them. B. Preferred Stock. Shares of Preferred Stock shall have the following voting powers, rights and preferences. Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Any shares of any series of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued as shares of the same series or as shares of one or more other series of Preferred Stock except as otherwise provided by law. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purpose of voting by classes unless expressly provided. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the Delaware General Corporation Law. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred 30 Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law. Designation of Series C Preferred Stock --------------------------------------- 1. Designation; Rank. The series of Preferred Stock designated and known as "Series C Preferred Stock" shall consist of 5,000,000 shares, par value $.01 per share. Shares of the Series C Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank senior and prior to the Common Stock, par value $.004 per share (the "Common Stock") of the Corporation and to any other class or series of capital stock of the Corporation hereafter issued (all of such equity securities of the Corporation to which the Series C Preferred Stock ranks prior, including all classes of Common Stock, are at times collectively referred to herein as the "Junior Securities"). 2. Dividends. ---------- (a) The holders of the Series C Preferred Stock shall be entitled to receive, out of any funds legally available therefor, dividends in cash at the annual rate of $.32 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares), and no more, in equal quarterly payments in arrears on March 31, June 30, September 30 and December 31 in each year (each such date is referred to as a "Dividend Payment Date") commencing on September 30, 1992, payable in preference and priority to any payment of any cash dividend on Common Stock or any other shares of capital stock of this Corporation. Such dividends shall be paid to the holders of record at the close of business on the date specified by the Board of Directors of the Corporation at the time such dividend is declared. If the Dividend Payment Date is not a business day, the Dividend Payment Date shall be the next succeeding business day. (b) Each of such quarterly dividends shall be fully cumulative and shall accrue, whether or not earned or declared, without interest, from the first day of the quarter in which such dividend may be payable as herein provided, except that with respect to the first quarterly dividend, such dividend shall accrue from September 15, 1992. (c) No dividends shall be declared or paid or set apart for payment on the Junior Securities, or on the Preferred Stock of any series ranking, as to dividends, junior to the Series C Preferred Stock, for any period unless full cumulative dividends have been or contemporaneously are declared and paid (or declared 31 and a sum sufficient for the payment thereof set apart for such payment) on the Series C Preferred Stock for all dividend payment periods ending on or prior to the date of payment of such full cumulative dividends. Unless full cumulative dividends on the Series C Preferred Stock have been paid, no other distribution shall be made upon the Junior Securities or upon any other such series of Preferred Stock. (d) In the event that the Corporation shall have cumulative, accrued and unpaid dividends outstanding immediately prior to, and in the event of a conversion of any shares of Series C Preferred Stock as provided in Section 5 hereof, the Corporation shall, at the option of the holder of such shares, pay in cash to such holder the full amount of any such dividends or allow such dividends to be converted into Common Stock in accordance with, and pursuant to the terms specified in, Section 5 hereof, except that the Conversion Price (as that term is defined in Section 5(a)) for such purpose shall be the then fair market value of the Common Stock as determined by the Board of Directors of the Corporation. 3. Liquidation, Dissolution or Winding Up. --------------------------------------- (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series C Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any other class or series of stock of the Corporation ranking on liquidation prior and in preference to the Series C Preferred Stock (collectively referred to as "Senior Preferred Stock"), but before any payment shall be made to the holders of any Junior Securities by reason of their ownership thereof, an amount equal to $4 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares). If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series C Preferred Stock the full amount to which they shall be entitled, the holders of Series C Preferred Stock shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (b) After the payment of all preferential amounts required to be paid to the holders of Senior Preferred Stock and Series C 32 Preferred Stock upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of Junior Securities then outstanding shall be entitled to receive the remaining assets and funds of the Corporation available for distribution to its stockholders. (c) Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said payments shall be made, shall be given by mail, postage prepaid, or by telex to non-U.S. residents, not less than 20 days prior to the payment date stated therein, to the holders of record of the Series C Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. (d) Whenever the distribution provided for in this Section 3 shall be payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation. (e) For the purposes of this Section 3, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with one or more other corporations shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation, dissolution or winding up of the business of the Corporation. 4. Voting ------- (a) Except as may be otherwise provided in these terms of the Series C Preferred Stock or by law, the Series C Preferred Stock shall not be entitled to vote. (b) The Corporation shall not amend, alter or repeal the preferences, special rights or other powers of the Series C Preferred Stock so as to affect adversely the Series C Preferred Stock, without the written consent or affirmative vote of the holders of a majority of the then outstanding shares of Series C Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. For this purpose, without limiting the generality of the foregoing, the authorization or issuance of any series of Series Preferred Stock with preference or priority over the Series C Preferred Stock as to the right to receive either dividends or amounts distributable upon liquidation, dissolution or winding up of the Corporation shall be deemed to affect adversely the Series 33 C Preferred Stock, and the authorization or issuance of any series of Series Preferred Stock on a parity with Series C Preferred Stock as to the right to receive either dividends or amounts distributable upon liquidation, dissolution or winding up of the Corporation shall not be deemed to affect adversely the Series C Preferred Stock. The number of authorized shares of Series C Preferred Stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority of the then outstanding shares of the Common Stock, Series C Preferred Stock and all other classes or series of stock of the Corporation entitled to vote thereon, voting as a single class. 5. Optional Conversion. The holders of the Series C Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $4.00 by the Conversion Price (as defined below) in effect at the time of conversion. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Series C Preferred Stock without the payment of additional consideration by the holder thereof (the "Conversion Price") shall initially be $8.00. Such initial Conversion Price, and the rate at which shares of Series C Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. In the event of a notice of redemption of any shares of Series C Preferred Stock pursuant to Section 6 hereof, the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the fifth full day preceding the date fixed for redemption, unless the redemption price is not paid when due, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation of the Corporation, the Conversion Rights shall terminate at the close of business on the first full day preceding the date fixed for the payment of any amounts distributable on liquidation to the holders of Series C Preferred Stock. (b) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series C Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. 34 (c) Mechanics of Conversion. (i) In order for a holder of Series C Preferred Stock to convert shares of Series C Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series C Preferred Stock at the office of the transfer agent for the Series C Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series C Preferred Stock represented by such certificate or certificates. Such notice shall state such holder's name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in a form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date ("Conversion Date"). The Corporation shall, as soon as practicable after the Conversion Date, issue and deliver at such office to such holder of Series C Preferred Stock, or to his or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share. (ii) The Corporation shall at all times when the Series C Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series C Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series C Preferred Stock. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Series C Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. (iii) Upon any such conversion, no adjustment to the Conversion Price shall be made for any accrued and unpaid dividends on the Series C Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion. 35 (iv) All shares of Series C Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and payment of any accrued and unpaid dividends thereon. Any shares of Series C Preferred Stock so converted shall be retired and canceled and shall not be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized Series C Preferred Stock accordingly. (d) Adjustments to Conversion Price for Diluting Issues: (i) Special Definitions. For purposes of this Subsection 5(d), the following definitions shall apply: (A) "Option" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities, excluding options granted to employees or consultants of the Corporation pursuant to an option plan adopted by the Board of Directors (subject to appropriate adjustment for any stock dividend, stock split, combination or other similar recapitalization affecting such shares). (B) "Original Issue Date" shall mean the date on which a share of Series C Preferred Stock was first issued. (C) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock. (D) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Subsection 5(d)(iii) below, deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable: (I) upon conversion of shares of Series C Preferred Stock outstanding on the Original Issue Date; (II) as a dividend or distribution on Series C Preferred Stock; (III) by reason of a dividend, stock split, split-up or other distribution on shares of Common 36 Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (I) and (II) or this clause (III); or (IV) upon the exercise of options excluded from the definition of "Option" in Subsection 5(d)(i)(A). (ii) No Adjustment of Conversion Price. No adjustment in the number of shares of Common Stock into which the Series C Preferred Stock is convertible shall be made by adjustment in the applicable Conversion Price thereof: (a) unless the consideration per share (determined pursuant to Subsection 5(d)(v)) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares, or (b) if prior to such issuance, the Corporation receives written notice from the holders of at least a majority of the then outstanding shares of Series C Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance of Additional Shares of Common Stock. (iii) Issue of Securities Deemed Issue of Additional Shares of Common Stock. If the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Subsection 5(d)(v) hereof) of such Additional Shares of Common Stock would be less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: 37 (A) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (C) no radjustment pursuant to clause (B) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; (D) upon the expiration or termination of any unexercised Option, the Conversion Price shall not be readjusted, but the Additional Shares of Common Stock deemed issued as the result of the original issue of such Option shall not be deemed issued for the purposes of any subsequent adjustment of the Conversion Price; and (E) in the event of any change in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any Option or Convertible Security, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had the adjustment which was made upon the issuance of such Option or Convertible Security not exercised or converted prior to such change been made upon the basis of such change, but no further adjustment shall be made for the actual issuance of Common Stock upon the exercise or conversion of any such Option or Convertible Security. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Original Issue Date 38 issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 5(d)(iii), but excluding shares issued as a dividend or distribution as provided in Subsection 5(f) or upon a stock split or combination as provided in Subsection 5(e)), without consideration or for a consideration per share less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, then, and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, (A) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price; and (B) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; provided that, for the purpose of this Subsection 5(d)(iv), all shares of Common Stock issuable upon conversion of shares of Series C Preferred Stock outstanding immediately prior to such issue shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Subsection 5(d)(iii) (other than shares excluded from the definition of "Additional Shares of Common Stock" by virtue of clause (IV) of Subsection 5(d)(i)(D)), such Additional Shares of Common Stock shall be deemed to be outstanding. Notwithstanding the foregoing, the applicable Conversion Price shall not be so reduced at such time if the amount of such reduction would be an amount less than $.05, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $.05 or more. (v) Determination of Consideration. For purposes of this Subsection 5(d), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property: Such consideration shall: (I) insofar as it consists of cash, be computed at the aggregate of cash received by the 39 Corporation, excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 5(d)(iii) relating to Options and Convertible Securities shall be determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (e) Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Original Issue Date for a series of Preferred Stock effect a subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased. If the Corporation shall at any time or from time to time after the Original Issue Date for a series of the Preferred Stock combine the outstanding shares of Common Stock, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of 40 business on the date the subdivision or combination becomes effective. (f) Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time, or from time to time after the Original Issue Date for a series of Preferred Stock shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Conversion Price for such series of Preferred Stock then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price for such series of Preferred Stock then in effect by a fraction: (i) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price for such series of Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price for such series of Preferred Stock shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions. (g) Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date for a series of Preferred Stock shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of such series of Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such 41 period giving application to all adjustments called for during such period, under this paragraph with respect to the rights of the holders of the Preferred Stock. (h) Adjustment for Reclassification, Exchange or Substitution. If the Common Stock issuable upon the conversion of the Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provided for below), then and in each such event the holder of each such share of Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein. (i) Adjustment for Merger or Reorganization, etc. In case of any consolidation or merger of the Corporation with or into another corporation or the sale of all or substantially all of the assets of the Corporation to another corporation (other than a consolidation, merger or sale which is treated as a liquidation pursuant to Subsection 3(a)), each share of Series C Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Series C Preferred Stock would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Section 5 set forth with respect to the rights and interest thereafter of the holders of the Series C Preferred Stock, to the end that the provisions set forth in this Section 5 (including provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series C Preferred Stock. (j) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the 42 carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series C Preferred Stock against impairment. (k) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 5, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series C Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C Preferred Stock, furnish or cause to be furnished to such holder a similar certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price then in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which then would be received upon the conversion of Series C Preferred Stock. (1) Notice of Record Date. In the event: (i) that the Corporation declares a dividend (or any other distribution) on its Common Stock payable in Common Stock or other securities of the Corporation; (ii) that the Corporation subdivides or combines its outstanding shares of Common Stock; (iii) of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereon), or of any consolidation or merger of the Corporation into or with another corporation, or of the sale of all or substantially all of the assets of the Corporation; or (iv) of the involuntary or voluntary dissolution, liquidation or winding up of the Corporation; then the Corporation shall cause to be filed at its principal office or at the office of the transfer agent of the Series C Preferred Stock, and shall cause to be mailed to the holders of the Series C Preferred Stock at their last addresses as shown on the records of the Corporation or such transfer agent, at least ten days prior to the record date specified in (A) below or twenty days before the date specified in (B) below, a notice stating 43 (A) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up. 6. Optional Redemption. (a) At any time and from time to time after June 30, 1993, the Corporation may, at the option of its Board of Directors, redeem the Series C Preferred Stock, in whole or in part, by paying $6 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalization affecting such shares) in cash for each share of Series C Preferred Stock then redeemed (hereinafter referred to as the "Redemption Price"). (b) In the event of any redemption of only a part of the then outstanding Series C Preferred Stock, the Corporation shall effect such redemption pro rata among the holders thereof based on the number of shares of Series C Preferred Stock held by such holders on the date of the Redemption Notice (as defined below). (c) `At least 30 days prior to the date fixed for any redemption of Series C Preferred Stock (hereinafter referred to as the "Redemption Date"), written notice shall be mailed, by first class or registered mail, postage prepaid, to each holder of record of Series C Preferred Stock to be redeemed, at his or its address last shown on the records of the transfer agent of the Series C Preferred Stock (or the records of the Corporation, if it serves as its own transfer agent), notifying such holder of the election of the Corporation to redeem such shares, specifying the Redemption Date and the date on which such holder's Conversion Rights (pursuant to Section 5 hereof) as to such shares terminate and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares to be redeemed (such notice is hereinafter referred to as the "Redemption Notice"). On or prior to the Redemption Date, each holder of Series C Preferred Stock to be redeemed shall surrender his, her or its certificate or certificates representing such 44 shares to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the Redemption Date, unless there shall has been a default in payment of the Redemption Price, all rights of the holders of the Series C Preferred Stock designated for redemption in the Redemption Notice as holders of Series C Preferred Stock of the Corporation (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. (d) Subject to the provisions hereof, the Board of Directors of the Corporation shall have authority to prescribe the manner in which Series C Preferred Stock shall be redeemed from time to time. Any shares of Series C Preferred Stock so redeemed shall permanently be retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized Series C Preferred Stock accordingly. Nothing herein contained shall prevent or restrict the purchase by the Corporation, from time to time either at public or private sale, of the whole or any part of the Series C Preferred Stock at such price or prices as the Corporation may determine, subject to the provisions of applicable law. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 45 Designation of Series D Preferred Stock --------------------------------------- 1. Designation; Rank. The series of Preferred Stock designated and known as "Series D Preferred Stock" shall consist of 1,000,000 shares, par value $.01 per share. Shares of the Series D Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank senior and prior to the Common Stock, par value $.004 per share (the "Common Stock") of the Corporation and junior to the Series C Preferred Stock. 2. Dividends. --------- (a) The holders of the Series D Preferred Stock shall be entitled to receive, when declared by the Directors out of any funds legally available therefor, dividends in cash at the annual rate of $0.2375 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares), and no more, in equal quarterly payments in arrears on March 31, June 30, September 30 and December 31 in each year (each such date is referred to as a "Dividend Payment Date") commencing on March 31, 1994, payable in preference and priority to any payment of any cash dividend on Common Stock and junior in preference and priority to any payment of any cash dividend to the holders of Series C Preferred Stock. Such dividends shall be paid to the holders of record at the close of business on the date specified by the Board of Directors of the Corporation at the time such dividend is declared; provided, however, that the amount payable to shareholders for the first such dividend due on March 31, 1994, shall be pro-rated on a daily basis from the date of issue. If the Dividend Payment Date is not a business day, the Dividend Payment Date shall be the next succeeding business day. (b) Each of such quarterly dividends shall be fully cumulative and shall accrue, whether or not earned or declared, without interest, from the date of issue of the Series D Preferred Stock. (c) No dividends shall be declared or paid or set apart for payment on the Common Stock, or on the Preferred Stock of any series ranking, as to dividends, junior to the Series D Preferred Stock, for any period unless full cumulative dividends have been or contemporaneously are declared and paid (or declared and a sum sufficient for the payment thereof set apart for such payment) on the Series D Preferred Stock for all dividend payment periods ending on or prior to the date of payment of such full cumulative dividends. (The Common Stock and any such series of Preferred Stock are referred to hereinafter as "Junior Securities".) Unless full cumulative dividends on the Series D Preferred Stock 46 have been paid, no other distribution shall be made upon or in respect of the Junior Securities. (d) In the event that the Corporation shall have cumulative, accrued and unpaid dividends outstanding immediately prior to, and in the event of a conversion of any shares of Series D Preferred Stock as provided in Section 5 hereof, the Corporation shall, at its option, pay in cash to such holder the full amount of any such dividends or allow such dividends to be converted into Common Stock and the conversion price for such purpose shall be the then fair market value of the Common Stock as determined by the Board of Directors of the Corporation. 3. Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series D Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any other class or series of stock of the Corporation ranking on liquidation prior and in preference to the Series D Preferred Stock, (collectively referred to as "Senior Preferred Stock") but before any payment shall be made to the holders of any Junior Securities by reason of their ownership thereof, an amount equal to $4.75 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares). If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series D Preferred Stock the full amount to which they shall be entitled, the holders of Series D Preferred Stock shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (b) After the payment of all preferential amounts required to be paid to the holders of Senior Preferred Stock and Series D Preferred Stock upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of Junior Securities then outstanding shall be entitled to receive the remaining assets and funds of the Corporation available for distribution to its stockholders. (c) Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said 47 payments shall be made, shall be given by mail, postage prepaid, or by telecopier to non-U.S. residents, not less than 20 days prior to the payment date stated therein, to the holders of record of the Series D Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. (d) Whenever the distribution provided for in this Section 3 shall be payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation. (e) For the purposes of this Section 3, neither the voluntary sale, conveyance, exchange or transfer (for case, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with one or more other corporations shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation, dissolution or winding up of the business of the Corporation. 4. Voting. (a) Except as may be otherwise provided in these terms of the Series D Preferred Stock or by law, the Series D Preferred Stock shall not be entitled to vote. (b) The Corporation shall not amend, alter or repeal the preferences, special rights or other powers of the Series D Preferred Stock so as to affect adversely the Series D Preferred Stock, without the written consent or affirmative vote of the holders of a majority of the then outstanding shares of Series D Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. For this purpose, without limiting the generality of the foregoing, the authorization or issuance of any series of Preferred Stock with preference or priority over the Series D Preferred Stock as to the right to receive either dividends or amounts distributable upon liquidation, dissolution or winding up of the Corporation shall be deemed to affect adversely the Series D Preferred Stock, and the authorization or issuance of any series of Preferred Stock on a parity with Series D Preferred Stock as to the right to receive either dividends or amounts distributable upon liquidation, dissolution or winding up of the Corporation shall be deemed not to affect adversely the Series D Preferred Stock. The number of authorized shares of Series D Preferred Stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the 48 holders of a majority of the then outstanding shares of the Common Stock, Series D Preferred Stock and all other classes or series of stock of the Corporation entitled to vote thereon, voting as a single class. 5. Optional Conversion. The holders of the Series D Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time, into one share of fully paid and nonassessable Common Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares). In the event of a notice of redemption of any shares of Series D Preferred Stock pursuant to Section 6 hereof, the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the fifth full day preceding the date fixed for redemption, unless the redemption price is not paid when due, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation of the Corporation, the Conversion Rights shall terminate at the close of business on the first full day preceding the date fixed for the payment of any amounts distributable on liquidation to the holders of Series D Preferred Stock. (b) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series D Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. (c) Mechanics of Conversion. ---------------------- (i) In order for a holder of Series D Preferred Stock to convert shares of Series D Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series D Preferred Stock at the office of the transfer agent for the Series D Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series D Preferred Stock represented by such certificate or certificates for shares of Common stock to be issued, provided however, that the holder shall pay any transfer taxes arising from the issuance of the Common Stock to any person or entity other than the holder. If required by the Corporation, 49 certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in a form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date ("Conversion Date"). The Corporation shall, as soon as practicable after the Conversion Date, issue and deliver at such office to such holder of Series D Preferred Stock, or to his or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share. (ii) The Corporation shall at all times when the Series D Preferred Stock shall be outstanding, reserve and keep available out of is authorized but unissued stock, for the purpose of effecting the conversion of the Series D Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series D Preferred Stock. (iii) All shares of Series D Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and payment of any accrued and unpaid dividends thereon. Any shares of Series D Preferred Stock so converted shall be retired and canceled and shall not be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized Series D Preferred Stock accordingly. (d) Adjustment for Reclassification, Exchange, or Substitution. If the Common Stock issuable upon the conversion of the Series D Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend provided for above in section 5(a) hereof, or a reorganization, merger, consolidation, or sale of assets provided for below in Section 5(e) hereof), then and in each event the holder of each such share of Series D Preferred Stock shall have the right thereafter to convert such share of Series D Preferred Stock into the kind and amount of shares of stock and other 50 securities receivable upon such reorganization, reclassification, or other change by a holder of the number of shares of Common Stock into which such shares of Series D Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein. (e) Adjustment for Merger or Reorganization, etc. In case of any consolidation or merger of the Corporation with or into another corporation or the sale of all or substantially all of the assets of the Corporation to another corporation (other than a consolidation, merger or sale which is treated as a liquidation pursuant to Subsection 3(a)), each share of Series D Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Series D Preferred Stock would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Section 5 with respect to the rights and interest thereafter of the holders of the Series D Preferred Stock, to the end that the provisions set forth in this Section 5 shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series D Preferred Stock. (f) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series D Preferred Stock against impairment. (g) Notice of Record Date. In the event: (i) that the Corporation declares a dividend (or any other distribution) on its Common Stock payable in Common Stock or other securities of the Corporation; (ii) that the Corporation subdivides or combines its outstanding shares of Common Stock; (iii) of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend 51 or stock distribution thereon), or of any consolidation or merger of the Corporation into or with another corporation, or of the sale of all or substantially all of the assets of the Corporation; or (iv) of the involuntary or voluntary dissolution, liquidation or winding up of the Corporation; then the Corporation shall cause to be filed at its principal office or at the office of the transfer agent of the Series D Preferred Stock, and shall cause to be mailed to the holders of the Series D Preferred Stock at their last addresses as shown on the records of the Corporation or such transfer agent, at least ten days prior to the record date specified in (A) below or twenty days before the date specified in (B) below, a notice stating (A) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up. 6. Optional Redemption. (a) At any time and from time to time, the Corporation may, at the option of its Board of Directors, redeem the Series D Preferred Stock, in whole or in part, by paying $7 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares) in cash for each share of Series D Preferred Stock then redeemed (hereinafter referred to as the "Redemption Price"). (b) In the event of any redemption of only a part of the then outstanding Series D Preferred Stock, the Corporation shall effect such redemption pro rata among the holders thereof based on the number of shares of Series D Preferred Stock held of record by such holders on the date of the Redemption Notice (as defined below). 52 (c) At least 30 days prior to the date fixed for any redemption of Series D Preferred Stock (hereinafter referred to as the "Redemption Date"), written notice shall be mailed, by first class mail, postage prepaid, to each holder of record of Series D Preferred Stock to be redeemed, at his or its address last shown on the records of the transfer agent of the Series D Preferred Stock (or the records of the Corporation, if it serves as its own transfer agent), notifying such holder of the election of the Corporation to redeem such shares specifying the Redemption Date and the date on which such holder's Conversion Rights (pursuant to Section 5 hereof) as to such shares terminate and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares to be redeemed (such notice is hereinafter referred to as the "Redemption Notice"). On or prior to the Redemption Date, each holder of Series D Preferred Stock to be redeemed shall surrender his, her or its certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of the Series D Preferred Stock designated for redemption in the Redemption Notice as holders of Series D Preferred Stock of the Corporation (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. (d) Subject to the provisions hereof, the Board of Directors of the Corporation shall have authority to prescribe the manner in which Series D Preferred Stock shall be redeemed from time to time. Any shares of Series D Preferred Stock so redeemed shall permanently be retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized Series D Preferred Stock accordingly. Nothing herein contained shall prevent or restrict the purchase by the Corporation, from time to time either at public or private sale, of the whole or any part of the Series D Preferred Stock at such price or prices as the Corporation may determine, subject to the provisions of applicable law. 53 Designation of Series E Preferred Stock 1. Designation; Rank. The series of Preferred Stock designated and known as "Series E Preferred Stock" shall consist of 400,000 shares, par value $.01 per share. Shares of the Series E Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank senior and prior to the Common Stock, par value $.004 per share (the "Common Stock") of the Corporation, junior to the Series C Preferred Stock and on a parity with the Series D Preferred Stock and Series F Preferred Stock. 2. Dividends. ---------- (a) The holders of the Series E Preferred Stock shall be entitled to receive, when declared by the Directors out of any funds legally available therefor, dividends in cash or, at the Corporation's option, in Common Stock, at the annual rate of $0.30 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares), and no more, on the earlier to occur of (i) the Conversion Date (as hereinafter defined) and (ii) the Redemption Date (as hereinafter defined) (the "Dividend Payment Date"), payable in preference and priority to any payment of any cash dividend on Common Stock, junior in preference and priority to any dividend payment to the holders of Series C Preferred Stock and on a parity with any dividend payment to the holders of Series D Preferred Stock and Series F Preferred Stock. Such dividends shall be paid to the holders of record at the close of business on the Dividend Payment Date. If the Dividend Payment Date is not a business day, the Dividend Payment Date shall be the next succeeding business day. If the Corporation elects to pay such dividends in Common Stock, the conversion price per share (the "Conversion Price") shall be the lesser of (i) $3.75 and (ii) the closing price per share of the Common Stock on the principal national securities exchange on which the Common Stock is then listed or admitted to trading or, if not then listed or admitted to trading on any such exchange, on the NASDAQ National Market System, or if not then listed or traded on any such exchange or system, the bid price per share on the NASDAQ Small-Cap Market, averaged over the 30 trading days immediately preceding the Conversion Date (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares). (b) Dividends shall be fully cumulative and shall accrue, whether or not earned or declared, without interest, from the date of issue of the Series E Preferred Stock. 54 (c) No dividends shall be declared or paid or set apart for payment on the Common Stock, or on the Preferred Stock of any series ranking, as to dividends, junior to or on a parity with the Series E Preferred Stock, for any period unless full cumulative dividends have been or contemporaneously are declared and paid (or declared and a sum sufficient for the payment thereof set apart for such payment) on the Series E Preferred Stock for all dividend payment periods ending on or prior to the date of payment of such full cumulative dividends. (The Common Stock and any such series of Preferred Stock are referred to hereinafter as "Junior Securities".) Unless full cumulative dividends on the Series E Preferred Stock have been paid, no other distribution shall be made upon or in respect of the Junior Securities. 3. Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series E Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any other class or series of stock of the Corporation ranking on liquidation prior and in preference to the Series E Preferred Stock, (collectively referred to as "Senior Preferred Stock") but before any payment shall be made to the holders of any Junior Securities by reason of their ownership thereof, and on a parity with any dividend payment to the holders of Series D Preferred Stock and Series F Preferred Stock, an amount equal to $3.75 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares). If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series E Preferred Stock the full amount to which they shall be entitled, the holders of Series E Preferred Stock shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (b) After the payment of all preferential amounts required to be paid to the holders of Senior Preferred Stock and Series E Preferred Stock upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of Junior Securities then outstanding shall be entitled to receive the remaining 55 assets and funds of the Corporation available for distribution to its stockholders. (c) Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said payments shall be made, shall be given by mail, postage prepaid, or by telecopier to non-U.S. residents, not less than 20 days prior to the payment date stated therein, to the holders of record of the Series E Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. (d) Whenever the distribution provided for in this Section 3 shall be payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation. (e) For the purposes of this Section 3, neither the voluntary sale, conveyance, exchange or transfer (for case, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with one or more other corporations shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation, dissolution or winding up of the business of the Corporation. 4. Voting. ------- (a) Except as may be otherwise provided in these terms of the Series E Preferred Stock or by law, the Series E Preferred Stock shall not be entitled to vote. (b) The Corporation shall not amend, alter or repeal the preferences, special rights or other powers of the Series E Preferred Stock so as to affect adversely the Series E Preferred Stock, without the written consent or affirmative vote of the holders of a majority of the then outstanding shares of Series E Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. For this purpose, without limiting the generality of the foregoing, the authorization or issuance of any series of Preferred Stock with preference or priority over the Series E Preferred Stock as to the right to receive either dividends or amounts distributable upon liquidation, dissolution or winding up of the Corporation shall be deemed to affect adversely the Series E Preferred Stock, and the authorization or issuance of any series of Preferred Stock on a parity with Series E Preferred Stock as to the right to receive either dividends or amounts 56 distributable upon liquidation, dissolution or winding up of the Corporation shall be deemed not to affect adversely the Series E Preferred Stock. The number of authorized shares of Series E Preferred Stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority of the then outstanding shares of the Common Stock, Series E Preferred Stock and all other classes or series of stock of the Corporation entitled to vote thereon, voting as a single class. 5. Conversion. ----------- (a) Mandatory Conversion. On January 1, 1995 (the "Conversion Date"), each share of Series E Preferred Stock shall automatically and without further action on the part of any holder of Series E Preferred Stock be converted into the number of shares of fully paid and nonassessable Common Stock derived by dividing $3.75 by the Conversion Price. Upon such conversion, each share of Series E Preferred Stock shall be canceled and not subject to reissuance. On or before September 30, 1994, the Corporation shall provide written notice (the "Conversion Notice") to the holders hereof of the Corporation's intention not to exercise the redemption option provided for in Section 6 hereof and to allow the Series E Preferred Stock to automatically convert pursuant to this Section 5(a). The immediately preceding sentence notwithstanding, the Corporation shall not be deemed to have waived its right to redeem the Series E Preferred Stock pursuant to Section 6 hereof by virtue of the issuance of the Conversion Notice." (b) Delivery of Stock Certificates. The holder of any shares of Series E Preferred Stock converted pursuant to Section 5(a) hereof, shall deliver to the Corporation during regular business hours at the office of the transfer agent of the Corporation for the Series E Preferred Stock, or at such other place as may be designated by the Corporation, the certificate or certificates for the shares so converted, duly endorsed or assigned in blank to the Corporation. As promptly as practicable thereafter, the Corporation shall issue and deliver to such holder, at the place designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder is entitled. The person in whose name the certificate for such Common Stock is to be issued shall be deemed to have become a stockholder of record on the Conversion Date unless the transfer books of the Corporation are closed on that date, in which event he shall be deemed to have become a stockholder of record on the next succeeding date on which the transfer books are open. (c) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series E Preferred Stock. 57 In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the Conversion Price. (d) Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the date on which a share of Series E Preferred Stock was first issued ("Original Issue Date") effect a subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased. If the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. (e) Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time, or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Conversion Price for the Series E Preferred Stock then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price for the Series E Preferred Stock then in effect by a fraction: (i) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price for the Series E Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price for the Series E Preferred Stock shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions. 58 (f) Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of the Series E Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period, under this paragraph with respect to the rights of the holders of the Preferred Stock. (g) Adjustment for Reclassification, Exchange, or Substitution. If the Common Stock issuable upon the conversion of the Series E Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend provided for in Sections 5(d), (e) and (f) hereof, or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(h) hereof), then and in each event the holder of each such share of Series E Preferred Stock shall have the right thereafter to convert such share of Series E Preferred Stock into the kind and amount of shares of stock and other securities receivable upon such reorganization, reclassification, or other change by a holder of the number of shares of Common Stock into which such shares of Series E Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein. (h) Adjustment for Merger or Reorganization, etc. In case of any consolidation or merger of the Corporation with or into another corporation or the sale of all or substantially all of the assets of the Corporation to another corporation (other than a consolidation, merger or sale which is treated as a liquidation pursuant to Subsection 3(a)), each share of Series E Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Series E Preferred Stock would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application 59 of the provisions in this Section 5 with respect to the rights and interest thereafter of the holders of the Series E Preferred Stock, to the end that the provisions set forth in this Section 5 shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series E Preferred Stock. (i) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the holders of the Series E Preferred Stock against impairment of their conversion rights. (j) Notice of Record Date. In the event: (i) that the Corporation declares a dividend (or any other distribution) on its Common Stock payable in Common Stock or other securities of the Corporation; (ii) that the Corporation subdivides or combines its outstanding shares of Common Stock; (iii) of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereon), or of any consolidation or merger of the Corporation into or with another corporation, or of the sale of all or substantially all of the assets of the Corporation; or (iv) of the involuntary or voluntary dissolution, liquidation or winding up of the Corporation; then the Corporation shall cause to be filed at its principal office or at the office of the transfer agent of the Series E Preferred Stock, and shall cause to be mailed to the holders of the Series E Preferred Stock at their last addresses as shown on the records of the Corporation or such transfer agent, at least ten (10) days prior to the record date specified in (A) below or twenty (20) days before the date specified in (B) below, a notice stating (A) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common 60 Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up. (k) Optional Conversion. Except as set forth in Section 5(a) hereof, the holders of the Series E Preferred Stock shall not have the right to convert their shares of Series E Preferred Stock into Common Stock. 6. Optional Redemption. (a) At any time and from time to time on or before December 31, 1994, the Corporation may, at the option of its Board of Directors, redeem the Series E Preferred Stock, in whole or in part, by paying $3.75 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares) in cash for each share of Series E Preferred Stock then redeemed (hereinafter referred to as the "Redemption Price"). (b) In the event of any redemption of only a part of the then outstanding Series E Preferred Stock, the Corporation shall effect such redemption pro rata among the holders thereof based on the number of shares of Series E Preferred Stock held of record by such holders on the date of the Redemption Notice (as defined below). (c) At least ten (10) days prior to the date fixed for any redemption of Series E Preferred Stock (hereinafter referred to as the "Redemption Date"), written notice shall be mailed, by first class mail, postage prepaid, to each holder of record of Series E Preferred Stock to be redeemed, at his or its address last shown on the records of the transfer agent of the Series E Preferred Stock (or the records of the Corporation, if it serves as its own transfer agent), notifying such holder of the election of the Corporation to redeem such shares specifying the Redemption Date and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares to be redeemed (such notice is hereinafter referred to as the "Redemption Notice"). On or prior to the Redemption Date, each holder of Series E Preferred Stock to be redeemed shall surrender 61 his, her or its certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of the Series E Preferred Stock designated for redemption in the Redemption Notice as holders of Series E Preferred Stock of the Corporation (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. (d) Subject to the provisions hereof, the Board of Directors of the Corporation shall have authority to prescribe the manner in which Series E Preferred Stock shall be redeemed from time to time. Any shares of Series E Preferred Stock so redeemed shall permanently be retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized Series E Preferred Stock accordingly. Nothing herein contained shall prevent or restrict the purchase by the Corporation, from time to time either at public or private sale, of the whole or any part of the Series E Preferred Stock at such price or prices as the Corporation may determine, subject to the provisions of applicable law. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 62 Designation of Series F Preferred Stock 1. Designation; Rank. The series of Preferred Stock designated and known as "Series F Preferred Stock" shall consist of 700,000 shares, par value $.01 per share. Shares of the Series F Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank senior and prior to the Common Stock, par value $.004 per share (the "Common Stock") of the Corporation, junior to the Series C Preferred Stock and on a parity with the Series D Preferred Stock and Series E Preferred Stock. 2. Dividends. The holders of the Series F Preferred Stock shall not be entitled to receive dividends. 3. Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series F Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any other class or series of stock of the Corporation ranking on liquidation prior and in preference to the Series F Preferred Stock, (collectively referred to as "Senior Preferred Stock") but before any payment shall be made to the holders of Common Stock and any series of Preferred Stock ranking on liquidation junior to the Series F Preferred Stock ("Junior Securities") by reason of their ownership thereof, and on a parity with any dividend payment to the holders of Series D Preferred Stock and Series E Preferred Stock, an amount equal to $5.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares). If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series F Preferred Stock the full amount to which they shall be entitled, the holders of Series F Preferred Stock shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (b) After the payment of all preferential amounts required to be paid to the holders of Senior Preferred Stock and Series F Preferred Stock upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of Junior Securities 63 then outstanding shall be entitled to receive the remaining assets and funds of the Corporation available for distribution to its stockholders. (c) Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said payments shall be made, shall be given by mail, postage prepaid, or by telecopier to non-U.S. residents, not less than 20 days prior to the payment date stated therein, to the holders of record of the Series F Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. (d) Whenever the distribution provided for in this Section 3 shall be payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation. (e) For the purposes of this Section 3, neither the voluntary sale, conveyance, exchange or transfer (for case, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with one or more other corporations shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation, dissolution or winding up of the business of the Corporation. 4. Voting. (a) Except as may be otherwise provided in these terms of the Series F Preferred Stock or by law, the Series F Preferred Stock shall not be entitled to vote. (b) The Corporation shall not amend, alter or repeal the preferences, special rights or other powers of the Series F Preferred Stock so as to affect adversely the Series F Preferred Stock, without the written consent or affirmative vote of the holders of a majority of the then outstanding shares of Series F Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. For this purpose, without limiting the generality of the foregoing, the authorization or issuance of any series of Preferred Stock with preference or priority over the Series F Preferred Stock as to the right to receive either dividends or amounts distributable upon liquidation, dissolution or winding up of the Corporation shall be deemed to affect adversely the Series F Preferred Stock, and the authorization or issuance of any series of Preferred Stock on a parity with Series F Preferred 64 Stock as to the right to receive either dividends or amounts distributable upon liquidation, dissolution or winding up of the Corporation shall be deemed not to affect adversely the Series F Preferred Stock. The number of authorized shares of Series F Preferred Stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of a majority of the then outstanding shares of the Common Stock, Series F Preferred Stock and all other classes or series of stock of the Corporation entitled to vote thereon, voting as a single class. 5. Conversion. (a) Mandatory Conversion. On July 1, 1995 (the "Conversion Date"), each share of Series F Preferred Stock shall automatically and without further action on the part of any holder of Series F Preferred Stock be converted into the number of shares of fully paid and nonassessable Common Stock derived by dividing the number 1 by a fraction, the denominator of which is $5.00 and the numerator of which is ninety percent (90%) of the closing price per share of the Common Stock on the principal national securities exchange on which the Common Stock is then listed or admitted to trading or, if not then listed or admitted to trading on any such exchange, on the NASDAQ National Market System, or if not then listed or traded on any such exchange or system, the bid price per share on the NASDAQ Small-Cap Market, averaged over the 30 trading days immediately preceding the Conversion Date. Upon such conversion, each share of Series F Preferred Stock shall be canceled and not subject to reissuance." (b) Delivery of Stock Certificates. The holder of any shares of Series F Preferred Stock converted pursuant to Section 5(a) hereof, shall deliver to the Corporation during regular business hours at the office of the transfer agent of the Corporation for the Series F Preferred Stock, or at such other place as may be designated by the Corporation, the certificate or certificates for the shares so converted, duly endorsed or assigned in blank to the Corporation. As promptly as practicable thereafter, the Corporation shall issue and deliver to such holder, at the place designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder is entitled. The person in whose name the certificate for such Common Stock is to be issued shall be deemed to have become a stockholder of record on the Conversion Date unless the transfer books of the Corporation are closed on that date, in which event he shall be deemed to have become a stockholder of record on the next succeeding date on which the transfer books are open. (c) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series F Preferred Stock. 65 In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by $5.00. (d) Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the date on which a share of Series F Preferred Stock was first issued ("Original Issue Date") effect a subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased. If the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. (e) Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time, or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Conversion Price for the Series F Preferred Stock then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price for the Series F Preferred Stock then in effect by a fraction: (i) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price for the Series F Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price for the Series F Preferred Stock shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions. 66 (f) Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of the Series F Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period, under this paragraph with respect to the rights of the holders of the Preferred Stock. (g) Adjustment for Reclassification, Exchange, or Substitution. If the Common Stock issuable upon the conversion of the Series F Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend provided for in Sections 5(d), (e) and (f) hereof, or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(h) hereof), then and in each event the holder of each such share of Series F Preferred Stock shall have the right thereafter to convert such share of Series F Preferred Stock into the kind and amount of shares of stock and other securities receivable upon such reorganization, reclassification, or other change by a holder of the number of shares of Common Stock into which such shares of Series F Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein. (h) Adjustment for Merger or Reorganization, etc. In case of any consolidation or merger of the Corporation with or into another corporation or the sale of all or substantially all of the assets of the Corporation to another corporation (other than a consolidation, merger or sale which is treated as a liquidation pursuant to Subsection 3(a)), each share of Series F Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Series F Preferred Stock would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application 67 of the provisions in this Section 5 with respect to the rights and interest thereafter of the holders of the Series F Preferred Stock, to the end that the provisions set forth in this Section 5 shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series F Preferred Stock. (i) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the holders of the Series F Preferred Stock against impairment of their conversion rights. (j) Notice of Record Date. In the event: (i) that the Corporation declares a dividend (or any other distribution) on its Common Stock payable in Common Stock or other securities of the Corporation; (ii) that the Corporation subdivides or combines its outstanding shares of Common Stock; (iii) of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereon), or of any consolidation or merger of the Corporation into or with another corporation, or of the sale of all or substantially all of the assets of the Corporation; or (iv) of the involuntary or voluntary dissolution, liquidation or winding up of the Corporation; then the Corporation shall cause to be filed at its principal office or at the office of the transfer agent of the Series F Preferred Stock, and shall cause to be mailed to the holders of the Series F Preferred Stock at their last addresses as shown on the records of the Corporation or such transfer agent, at least ten (10) days prior to the record date specified in (A) below or twenty (20) days before the date specified in (B) below, a notice stating (A) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common 68 Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up. (k) Optional Conversion. Except as set forth in Section 5(a) hereof, the holders of the Series F Preferred Stock shall not have the right to convert their shares of Series F Preferred Stock into Common Stock. 6. Redemption. The Corporation shall not have any right to redeem the Series F Preferred Stock. FIFTH. The Board of Directors shall have the power to adopt, amend or repeal the by-laws. SIXTH. No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Sixth shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. SEVENTH. The number of directors constituting the entire Board of Directors shall be as set forth in or pursuant to the by-laws of the Corporation. The Board of Directors shall be divided into three classes, designated Classes I, II and III, which shall be as nearly equal in number as possible. Initially, directors of Class I shall be elected to hold office for a term expiring at the annual meeting of stockholders in 1995, directors of Class II shall be elected to hold office for a term expiring at the annual meeting of stockholders in 1996 and directors of Class III shall be elected to hold office for a term expiring at the annual meeting of stockholders in 1997. At each annual 69 meeting of stockholders following such initial classification and election, the respective successors of each class shall be elected for three-year terms. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Restated Certificate of Incorporation to be signed by its President and attested by its Secretary this day of June, 1994. SHARED TECHNOLOGIES INC. ATTEST By: _ _ _ _ _ _ _ _ _ _ _ _ By:_ _ _ _ _ _ _ _ _ _ _ _ Kenneth M. Dorros, Secretary Anthony D. Autorino President [Corporate Seal] 70 Exhibit 3.2 AMENDED AND RESTATED BYLAWS OF SHARED TECHNOLOGIES INC. (Effective as of June 15, 1994) ARTICLE I Identification --------------- Section 1. Name. The name of the corporation is SHARED TECHNOLOGIES INC. (the "Corporation"). Section 2. Principal Office and Place of Business. The principal office of the Corporation shall be located at such location, within or without the State of Delaware, as the board of directors shall designate from time to time. The board of directors shall have the power and authority to establish and maintain branch or subordinate offices at any other locations within or without the State of Delaware. The registered office of the Corporation shall be 1013 Centre Road in Wilmington, Delaware. The registered agent in Delaware shall be the Corporation Service Company. ARTICLE II Shareholders ------------- Section 1. Place of Meetings. Annual and special meetings shall be held at the principal office of the Corporation or at such other place within or without the State of Delaware, as may be determined by the board of directors and designated in the notice of the meeting. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any other place as the place for holding such meeting. Section 2. Annual Meeting. The annual meeting for the election of directors, and for the transaction of such other business of the shareholders as may properly be brought before the meeting, shall be held on the third Tuesday in May at such place and at such time as may be designated by the board of directors. If the annual meeting of the shareholders is not held as herein prescribed, the existing slate of directors shall remain in office and the election of directors may be held at any meeting thereafter called pursuant to these bylaws or otherwise lawfully held. 71 Section 3. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by law, may be called at any time by the Chairman of the board of directors. The Chairman shall call a special meeting of the shareholders upon written request of the shareholders entitled to cast not less than ten percent (10%) of all the issued and outstanding shares of the Corporation entitled to vote for the purposes specified in such request. If the Chairman does not within fifteen (15) days after the receipt of such shareholders request call such meeting, the shareholders may call the same. The general purpose or purposes for which a special meeting is called shall be stated in the notice thereof and no other business shall be transacted at the meeting, unless all shareholders entitled to vote are present and consent thereto. Section 4. Notice of Meeting. Written or printed notice stating the place, day, and hour of any shareholders' meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, unless a greater period of notice is required by law in a particular case, either personally or by mail, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid; provided, however, that in the case of shareholders who are employees of the Corporation delivery at the office address of such employee shall be sufficient. Any matter relating to the affairs of the Corporation may be brought up for action at the annual meeting of shareholders, whether or not stated in the notice of the meeting; provided, however, that unless stated in the notice of the meeting, no bylaw may be brought up for adoption, amendment or repeal and no matter, other than the election of directors, may be brought up which expressly requires the vote of shareholders. Section 5. Waiver of Notice. Notice of any shareholders' meeting may be waived in writing by any shareholder either before or after the time stated therein and, if any person present at a shareholders' meeting does not protest, prior to or at the commencement of the meeting, the lack of proper notice, such person shall be deemed to have waived notice of such meeting. Section 6. Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or shareholders 72 entitled to receive payment of any dividend, or in order to make a determination of such shareholders for any other proper purpose, the directors of the Corporation shall fix in advance a date as the record date for any such determination of shareholders, which date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting of shareholders, nor more than sixty (60) days prior to any other action. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a distribution, the date on which notice of the meeting is mailed or the date on which the resolution of the directors declaring such distribution is adopted, shall be the record date for such determination of shareholders. The record date is effective as of the close of business on such date. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof which is thirty (30) days or less. Section 7. Voting Lists and Inspection. The officer of the Corporation having responsibility for the share transfer books shall make, or cause to be made, at least ten (10) days before each meeting of shareholders, a complete list or other equivalent record of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of, and the number and class of shares held by, each. Such list or other equivalent record shall, for a period of ten (10) days prior to such meeting, be kept on file at the principal office of the Corporation and shall be subject to inspection by any shareholders during usual business hours for any proper purpose in the interest of the shareholder or of the Corporation. Such list or equivalent record shall also be produced and kept open to such inspection during the whole time of the meeting. The original share transfer book shall be prima facie evidence as to the shareholders entitled to inspect such list or other equivalent record. Section 8. Quorum and Adjournment of Shareholders' Meetings. At any meeting of shareholders at least one-third of the outstanding shares of the Corporation entitled to vote at such meeting, and represented in person or by proxy, shall constitute a quorum of the shareholders, unless the representation of a larger number shall be required by law, and, in that case, the representation of the number so required shall constitute a quorum. If a larger number shall be required by law and less than said number of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice until a quorum is present or represented, at which time any business may be transacted which might have been 73 transacted at the meeting as originally notified; provided, however, that the adjournment does not exceed thirty (30) days. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of any shareholders, unless the absence of a quorum is specifically noted, by the chairman of the meeting. Section 9. Voting. At each meeting of the shareholders, every shareholder entitled to vote shall have one vote for each share of stock registered in his or her name as of the record date for said meeting. Upon the demand of any shareholder, the vote upon any question before the meeting shall be by written ballot; provided, however, that the election of the board of directors shall not be by written ballot. All questions shall be decided by majority vote except as otherwise provided by these bylaws, the certificate of incorporation, or laws of the State of Delaware. Section 10. Proxies. Each shareholder entitled to vote at a meeting of shareholders may authorize another person or persons to act for him by proxy. All proxies shall be in writing and shall be filed with the Secretary of the Corporation before being voted. A proxy shall not be voted or acted upon after three (3) years from its date of execution unless it specifies a longer length of time for which it is to continue in force or limits its use to a particular meeting not yet held. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. Section 11. Shareholders' Action Without Meeting. Any action which is required or permitted to be taken at any meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing to such action. The Secretary of the Corporation shall file such consent or consents, or certify the tabulations of such consents and file such certificate with the minutes of the shareholders. 74 Section 12. Irregular Shareholders' Meetings. Actions taken at any meeting of shareholders, however called and with whatever notice, if any, are as valid as though taken at a meeting duly called and held with notice if: (a) all shareholders entitled to vote were present in person or by proxy and no objection to holding the meeting was made by any shareholder; or (b) a quorum was present, either in person or by proxy, and no objection to holding the meeting was made by any shareholder entitled to vote and not present, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting, or an approval of the action taken as shown by the minutes thereof. All such waivers, consents or approval shall be filed with the corporate records or be made a part of the minutes. The absence from the minutes of any indication that a shareholder objected to holding the meeting shall prima facie establish that no such objection was made. Section 13. Order of Business. The order of business at the annual meeting of the shareholders and, insofar as practical, at all other meetings of shareholders, shall be established by the Chairman. ARTICLE III Board of Directors ------------------ Section 1. General Powers. The business and affairs of the Corporation shall be managed by the board of directors. The board of directors shall be divided into three classes, designated Classes I, II and III, which shall be as nearly equal in number as possible. The initial directors of Class I shall be elected to hold office for a term expiring at the annual meeting of stockholders in 1995, the initial directors of Class II shall be elected to hold office for a term expiring at the annual meeting of stockholders in 1996, and the initial directors of Class III shall be elected to hold office for a term expiring at the annual meeting of stockholders in 1997. At each annual meeting of stockholders following such initial classification and election, the respective successors of each class shall be elected for three-year terms. Section 2. Number, Election and Term of Office. The number of directors shall be fixed from time to time by resolution of the board of directors, but shall not be less than three (3) nor more than eleven (11). In case of any increase in the number of 75 directors in advance of an annual meeting of stockholders, each additional director shall be elected by the directors then in office, although less than a quorum, to hold office until the next election of the class for which such director shall have been chosen, and until his successor shall have been duly elected and qualified (subject to Section 3 of this Article III). No decrease in the number of directors shall shorten the term of any incumbent director. Any newly-created or eliminated directorships resulting from an increase or decrease shall be apportioned by the board of directors among the three classes of directors so as to maintain such classes as nearly equal as possible. It shall not be a qualification of office that the directors be residents of the State of Delaware or stockholders of the Corporation. Section 3. Vacancies. In case of any vacancy in the board of directors through death, resignation, retirement, removal, disqualification or other cause, the remaining directors, by vote of a majority thereof, shall elect a successor to hold office for the unexpired portion of the term of office of the class for which such vacancy occurs, and until the election of his successor. Any director elected by the remaining board of directors to fill a vacancy created by any of the foregoing reasons or by an increase in the number of directors constituting the entire board of directors must subsequently be approved or confirmed by the holders of a majority of the shares of common stock of the Corporation present in person, or represented by proxy, and entitled to vote at the next annual meeting of stockholders. If the director elected to fill such vacancy by the board of directors is not subsequently approved by the stockholders, and if another candidate is not elected at the annual meeting of stockholders in accordance with federal securities laws and these bylaws, then the number of directors constituting the entire board of directors will automatically be reduced and, if necessary, the number of directors serving in each class will be reapportioned so that the number of directors serving in each class will be as nearly equal as possible. Section 4. Meetings. The board of directors shall meet each year following the annual meeting of the shareholders and shall hold regular meetings on the third Tuesday of January, March, May, July, September and November. Meetings of the board of directors, regular or special, may be held either within or without the State of Delaware. Regular meetings may be held with or without notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting need be specified in the notice or waiver of notice, unless otherwise provided by law, the certificate of incorporation or these bylaws. 76 One or more directors, or a member of a committee of the board of directors, may participate in a meeting of the board of directors or such committee by means of a conference telephone or similar communications equipment enabling all directors participating in the meeting to hear one another, and such participation in a meeting shall constitute presence in person at such meeting. Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the Chairman or any three (3) directors. At least two (2) days' written or oral notice of special meetings of the directors shall be given to each director. Section 6. Notice and Waiver. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except when a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 7. Quorum and Voting. A majority of the authorized number of directors shall constitute a quorum for the transaction of business. If, at any meeting of the board of directors, less than a quorum is present, a majority of those directors present may adjourn the meeting from time to time without further notice. The act of a majority of the directors present at a duly called meeting at which a quorum is present at the time of the act shall be the act of the board of directors. The affirmative vote of the directors holding a majority of the directorships shall be required for action by the board of directors on any matter whatsoever. Section 8. Action Without Meeting. Any action which is required or permitted to be taken at any meeting of the board of directors, or a committee thereof, may be taken without such a meeting; provided, however, that all of the directors or all of the members of a committee thereof, as the case may be, severally or collectively consent in writing to such action before or after the time such action is taken. The Secretary of the Corporation shall file such consents with the minutes of the meeting of the board of directors. Section 9. Presumption of Assent. A director of the Corporation who is present at a meeting of the directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless a dissent shall be entered in the minutes of the meeting or unless he shall file a written dissent to such action with the person acting as the clerk of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation within five days after the adjournment of the 77 meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 10. Executive Committee. The board of directors shall designate three (3) directors to constitute an executive committee. The executive committee shall have and may exercise all of the authority of the board of directors subject, however, to any limitations the board of directors may place on such authority from time to time by resolution. Section 11. Audit Committee. The board of directors shall designate three (3) directors to constitute an audit committee. The audit committee shall have and may exercise such authority and perform such acts as the board of directors may from time to time direct by resolution and/or as required by applicable law. Section 12. Compensation Committee. The board of directors shall designate four (4) directors to constitute a compensation committee. The compensation committee shall set the compensation of the President and review, from time to time, the compensation policies and procedures of the Corporation. The compensation committee shall have and may exercise such other authority and perform such other acts as the board of directors may, from time to time, direct by resolution. Section 13. Ad Hoc Committees. The board of directors may designate one (1) or more directors to constitute such ad hoc committees as the board of directors shall deem necessary or appropriate. Each such committee shall have and may exercise all such authority of the board of directors as shall be provided in the resolution establishing such committee, subject to the provisions of the certificate of incorporation. Section 14. Committee Minutes. Each committee shall keep minutes of its proceedings, copies of which shall be provided to each and every member of the board of directors. Section 15. Alternate Committee Members. The board of directors may designate one (1) or more directors to serve as alternate members of any committee. An alternate may replace any disqualified or absent member of the committee with respect to which he was designated to serve as an alternate member; provided, however, that in the event of the death or resignation of any permanent committee member the board of directors must designate a replacement and the alternate may not act in such member's place. Section 16. Compensation of Directors. The board of directors shall determine the compensation, if any, to be paid to the directors for their services as directors, including reasonable allowance for expenses actually incurred in 78 connection with their duties. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation thereof when properly authorized. Section 17. [Intentionally Omitted.] Section 18. Resignation. A director may resign at any time by giving written notice to the board of directors, the Chairman, or the Secretary of the Corporation. Unless otherwise specified in the notice, the resignation shall be effective immediately upon receipt thereof by the Corporation, and the acceptance of the resignation shall not be necessary to make it effective. Section 19. Interested Directors. A contract or other transaction between the Corporation and a director or a member of his immediate family or between the Corporation and any other corporation, firm, association or entity in which a director of the Corporation and members of his immediate family have an interest shall not be either void or voidable and such director shall not incur any liability, merely because such director is a party thereto or because of such family relationship or interest if: (i) such family relationship or such interest, if it is a substantial interest, is fully disclosed and the contract or transaction is not unfair as to the Corporation and is authorized by (a) directors or other persons who have no substantial interest in such contract or transaction in such manner as to be effective without the vote, assent or presence of the director concerned or (b) the written consent of all the directors who have no substantial interest in such contract or transaction, whether or not such directors constitute a quorum of the Board of directors; or (ii) such family relationship or such interest, if it is a substantial interest, is fully disclosed and the contract or transaction is approved by the affirmative vote of the holders of a majority of the voting power of the shares entitled to vote; or (iii) the contract or transaction is not with the director or a member of his immediate family and any such interest is not substantial or (iv) the contract or transaction is fair as to the Corporation. A contract or other transaction between a director or a member of his immediate family with a third party which might otherwise have been entered into by the Corporation and such third party shall be deemed authorized if effected in compliance with this section. In the absence of fraud (without giving effect to the meaning of that term under the applicable Federal or state securities law), no director engaging in a transaction authorized under the provisions hereof shall be liable to the Corporation or to any shareholder or creditor thereof, or to any 79 other person for any loss incurred by it under or by reason of such contract or transaction, nor shall any such director be accountable for any gains or profits realized therefrom. Section 20. Determination of Terms and Conditions of Additional Classes of Stock. The board of directors is authorized to fix and determine terms, limitations and relative rights and preferences of any preferred or special class of shares. ARTICLE IV Officers --------- Section 1. Officers. The Board of Directors shall appoint as officers of the Corporation a President, a Secretary, a Treasurer and any number of Vice Presidents. The board of directors may elect a Chairman of the board of directors and may, in its discretion, appoint such other officers and assistant officers as the business of the Corporation may require. Any individual may hold more than one office; provided, however, that no one individual may hold the offices of President and Secretary. Section 2. Election and Term of Office. The officers of the Corporation shall be appointed or elected by the board of directors in such manner as they may prescribe. Each officer shall hold office for a term of one (1) year and until a successor is elected and qualified, or until the death, resignation or removal of such officer. Section 3. Removal. Any officer or agent may be removed by the board of directors at any time, with or without cause and with or without notice or hearing. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office because of death, resignation, removal or otherwise, may be filled by the board of directors for the unexpired portion of the term. Section 5. Chairman. The Chairman shall preside at all meetings of shareholders and directors and shall have such powers as may be conferred from time to time by the board of directors. He shall be a member of all committees of the board of directors. Section 6. President. The President shall be the chief executive officer of the Corporation; he shall have general and active management of the business of the Corporation, shall see 80 that all orders and resolutions of the board of directors are carried into effect, subject, however, to the right of the board of directors to delegate any specific powers, except as may be exclusively conferred on the President by law, to the Chairman or any other officer of the Corporation. He shall execute bonds, mortgages and other contracts requiring a seal under the seal of the Corporation. He shall be an EX-OFFICIO member of all committees of the Board of Directors except when the office of Chairman and President are held by the same individual, and shall have the general power and duties of supervision and management usually vested in the office of President of a corporation. Section 7. Vice Presidents. In the absence of the President or in the event of the inability or refusal to act of the President, the Vice-President, if one is appointed, or if there shall be more than one Vice-President, the Vice Presidents in the order designated by the directors (or if there be no such designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. Section 8. Secretary. The Secretary shall attend all meetings of the board of directors and all meetings of the shareholders and act as clerk thereof, and record all votes of the directors and shareholders and the minutes of all proceedings of the directors and shareholders in a book to be kept for that purpose and shall perform like duties for the committees of the board of directors when required. The Secretary shall give, or cause to be given, all notices required by law or these bylaws, and shall perform such other duties as may be prescribed by the board of directors or President, under whose supervision he shall be. The Secretary shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of an Assistant Secretary. The board of directors may give general authority to any other officer to affix the corporate seal of the Corporation and to attest to the affixing by his signature. Section 9. Assistant Secretary. The Assistant Secretary, if one shall be appointed, or if there be more than one, the Assistant Secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall 81 perform such other duties and have such other powers as the board of directors may from time to time prescribe. Section 10. Treasurer. The Treasurer shall have charge and custody of and be responsible for all funds and securities of the Corporation, keep full and accurate accounts of receipts and disbursements and other customary financial records of the Corporation, deposit all monies and valuable effects in the name and to the credit of the Corporation in depositories designated by the board of directors, disburse the funds of the Corporation as may be ordered by the board of directors or the President, taking proper vouchers for such disbursements, render to the board of directors or the President whenever they request an accounting of all of his transactions as Treasurer or of the financial condition of the Corporation and, in general, perform such other duties as may from time to time be assigned to him by the board of directors or by the President or as are incident to the office of Treasurer. Section 11. Assistant Treasurer. The Assistant Treasurer, if one shall be appointed, or if there shall be more than one, the Assistant Treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. Section 12. Absence or Disability of Officers. In the case of the absence or disability of any officer of the Corporation and of any person hereby authorized to act in his place during his absence or disability, the board of directors may by resolution delegate the powers and duties of such officer to any other officer, or to any director, or to any other person whom it may select. ARTICLE V Issue and Transfer of Stock --------------------------- Section 1. Certificate for Shares. Certificates representing shares of the Corporation shall be in such form as shall be determined by the board of directors. Such certificates shall be signed by the President and by the Secretary or by such other officers authorized by law and by the board of directors. All certificates for shares of each class shall be consecutively numbered or otherwise identified and sealed with the seal of the Corporation. The names and addresses of the shareholders, the number of shares, and dates 82 of issue shall be entered on the stock transfer books of the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each shareholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law of Delaware or a statement that the corporation will furnish without charge to each shareholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Any or all of the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall cease to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 2. Subscriptions for Stock. Unless otherwise provided for in the subscription agreement, subscriptions for shares shall be paid in full at such time, or in such installments and at such times as shall be determined by the board of directors. Any call made by the board of directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series. In case of default in the payment of any installment or call when such 83 payment is due, the Corporation may proceed to collect the amount due in the same manner as any debt due the Corporation; provided, however, that such subscription is in writing and signed by the subscriber. Section 3. Issuance of Stock. The board of directors is hereby authorized and empowered to issue from time to time all or any part of the shares of its unissued authorized capital stock, as then constituted, for such consideration, in money or other property, as the board of directors may deem advisable; and all shares of the capital stock of this Corporation when issued shall be deemed fully paid and nonassessable and the holders of such shares shall not be liable thereunder to this Corporation or its creditors. Section 4. Transfer of Shares. -------------------- a. Upon surrender to the Corporation or the transfer agent(s) of the Corporation, if any, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent(s) of the Corporation, if any, to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer book of the Corporation which shall be kept at its principal office or the office of its transfer agent. b. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled. c. The Corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by law. Section 5. Lost, Destroyed and Stolen Certificates. Unless otherwise restricted by law, the Corporation may refuse to issue a certificate in place of any certificate alleged to have been lost, destroyed, stolen, or mutilated except on production of such terms and indemnification to the Corporation as the directors may prescribe. ARTICLE VI Fiscal Year ------------ 84 The fiscal year of the Corporation shall be designated by the board of directors. ARTICLE VII Seal ---- The corporate seal of this Corporation shall be a circular seal and shall have inscribed thereon the Corporation's name and state of incorporation. ARTICLE VIII Amendments ----------- Section 1. By Directors or Shareholders. The bylaws of the Corporation may be altered, amended or repealed at any validly called and convened meeting of the shareholders by the affirmative vote of the holders of a majority of the voting power of shares entitled to vote thereon represented at such meeting in person or by proxy and at any validly called and convened meeting of the board of directors by the affirmative vote of a majority of the directors; provided, however, that the notice of such meeting shall state that such alteration, amendment or repeal will be proposed. Section 2. Record of Changes. Whenever a bylaw is amended or repealed or a new bylaw is adopted, such action and the date on which it was taken shall be noted on the original bylaws in the appropriate place or a new set of bylaws shall be prepared incorporating such changes. Section 3. Inconsistencies with Certificate of Incorporation. If any provisions of these bylaws shall be found to be inconsistent with any provisions of the certificate of incorporation, as presently existing, or as from time to time amended, the latter shall constitute the controlling authority. ARTICLE IX Miscellaneous ------------- Section 1. Inspection of Corporate Records. The Corporation shall keep correct and complete books and records of account and shall also keep minutes of all meetings of shareholders and directors. Additionally, a record shall be kept at the principal executive office of the Corporation, giving the names and addresses of all shareholders, and the 85 number and class or classes of shares held by each. The original or a copy of the certificate of incorporation and bylaws of the Corporation, as amended, or otherwise altered to date, and certified by the Secretary of the Corporation, shall at all times be kept at the principal office of the Corporation and shall be open to inspection by all shareholders of record or holders of voting trust certificates at all reasonable times during the business hours of the Corporation. At intervals of not more than twelve (12) months, the Corporation shall prepare a balance sheet showing the financial condition of the Corporation as of a date not more than four (4) months prior thereto and a profit and loss statements respecting its operation for the twelve months preceding such date. The balance sheet and a profit and loss statement shall be deposited at the principal office of the Corporation and kept for at least ten years from such date. Any shareholder of record shall, upon written request under oath to the Corporation stating the purpose thereof, have the right to conduct an examination in person, or by agent or attorney, at any reasonable time, for a specified, reasonable and proper purpose, of the Corporation's stock transfer books, a list of its shareholders and the board of directors, these bylaws, its minutes of the meetings of shareholders and the board of directors, and its other books and records, and to make copies and extracts thereof. A specified, reasonable and proper purpose shall mean a purpose reasonably related to such person's interest as a shareholder. In every instance, where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the shareholder. Section 2. Notices. Whenever, under the provisions of applicable law, the certificate of incorporation or these bylaws, notice is required to be given to any director or shareholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or shareholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail; provided, however, that in the case of shareholders which are employees of the Corporation delivery at the office address of such employee shall be sufficient. Notice to directors may also be given by telegram, and, where specifically provided for herein, orally. Section 3. Waiver of Notice. Unless otherwise provided by law, whenever any notice is required to be given to any shareholder or director of the Corporation under the provisions 86 of these bylaws or under the provisions of the certificate of incorporation, a waiver thereof in writing, signed by the person or persons entitled to such notice shall be deemed equivalent to the giving of such notice. Attendance in person at any meeting shall constitute waiver of notice unless such attendance is for the purpose of contesting proper notice of the meeting. ARTICLE X Certification --------------- These amended and restated bylaws have been prepared pursuant to a resolution duly adopted by the board of directors and the stockholders dated June 8, 1994, and are the true and correct bylaws of the Corporation as of the effective date. In Witness Whereof, the undersigned, Kenneth M. Dorros, Secretary of the Corporation has set his hand and seal of the Corporation as of the 15th day of June, 1994. ------------------------------- Kenneth M. Dorros Secretary 87 Exhibit 10.16 AGREEMENT AGREEMENT dated as of January 10, 1994 between Shared Technologies Inc., (the "Company") and Vertical Financial Holding ("Vertical"). W I T N E S S E T H: WHEREAS, the Company desires to receive advisory services in connection with (a) structuring equipment leases for potential customers, (b) marketing the Company's products outside the United States, (c) arranging additional financing, including debt facility arrangements with prospective banks to enhance the Company's working capital, and (d) structuring and negotiating the prospective acquisition of Access Telecommunication Group, LP. ("Access") as well as arranging and/or assisting the Company in obtaining financing for such acquisition, in each case for the further growth of the Company's business, collectively, the "Objectives"); and WHEREAS, Vertical has established its expertise in, among other things, assisting companies in marketing their products internationally, structuring leasing transactions and assisting companies in their mergers & acquisitions activities, including but not limited to, structuring such transactions, as well as providing the financing for such transactions. NOW, THEREFORE, in consideration of the mutual covenants and agreements, and upon the terms and subject to the conditions hereinafter set forth, the parties do hereby covenant and agree as follows: VERTICAL ENGAGEMENT. THE COMPANY ENGAGES VERTICAL, AND VERTICAL ACCEPTS SUCH ENGAGEMENT, SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. SERVICES. (A) AT SUCH TIMES AS ARE MUTUALLY CONVENIENT TO VERTICAL AND THE COMPANY DURING THE TERM (AS DEFINED BELOW), VERTICAL SHALL USE ITS BEST EFFORTS TO ASSIST THE COMPANY IN CONNECTION WITH EACH OF THE OBJECTIVES, INCLUDING THE PRESENTATION OF A PROPOSAL FOR THE FORMATION OF A POSSIBLE JOINT VENTURE BETWEEN THE PARTIES FOR THE PURPOSES OF MARKETING ITS PRODUCTS INTERNATIONALLY. 88 IN CONNECTION WITH ANY PROPOSAL MADE BY VERTICAL PURSUANT TO THIS AGREEMENT, THE COMPANY SHALL EXERCISE ITS GOOD FAITH IN CONSIDERING SUCH PROPOSAL BUT SHALL NOT BE OBLIGATED TO ACCEPT SUCH PROPOSAL. (c) Vertical shall exercise its obligations under the Agreement in a highly prompt manner, particularly with respect to the financing of the prospective acquisition of Access. COMPENSATION. FOR SERVICES RENDERED BY VERTICAL PURSUANT TO THIS AGREEMENT, THE COMPANY SHALL: PAY VERTICAL $150,000, WHICH SHALL BE PAID IN FULL WITHIN FOUR MONTHS OF THE CONSUMMATION OF THE PROSPECTIVE ACQUISITION OF ACCESS, PROVIDED HOWEVER, THAT IN THE EVENT THAT THE RATIO (THE "RATIO") OF THE COMPANY'S CURRENT ASSETS AND CURRENT LIABILITIES EXCEEDS 1:1, SUCH PAYMENT SHALL BE DEFERRED UNTIL SUCH TIME AS THE COMPANY ACHIEVES THIS RATIO AS OF THE END OF ANY CALENDAR MONTH. ISSUE TO VERTICAL (I) A THREE-YEAR WARRANT TO PURCHASE 300,000 SHARES OF COMMON STOCK OF THE COMPANY AT A PURCHASE PRICE OF $5.75 PER SHARE, AND A FIVE-YEAR WARRANT (II) TO PURCHASE 250,000 SHARES OF COMMON STOCK OF THE COMPANY AT A PURCHASE PRICE OF $7.00 PER SHARE (COLLECTIVELY, THE "WARRANTS"). THE WARRANTS SHALL CONTAIN STANDARD ANTI-DILUTION PROVISIONS AND ONE DEMAND AND UNLIMITED PIGGYBACK REGISTRATION RIGHTS, SUBJECT TO CUSTOMARY PROVISIONS (AT THE COMPANY'S EXPENSE, EXCEPT FOR UNDERWRITING COMMISSIONS). DURING THE TERM, PAY VERTICAL A RETAINER OF $3,000 PER MONTH FOR SERVICES RENDERED HEREUNDER. UPON EXECUTION OF THIS AGREEMENT, PAY VERTICAL $30,000, WHICH FEE SHALL BE IN ADDITION TO ALL FEES RECEIVED PURSUANT TO SECTIONS 3(A) AND 3(C) HEREOF. Section 4. Subscription of Stock. The parties agree that Vertical, through its affiliate, General Capital Holdings, Ltd., shall have the right to acquire from the Company shares of Common 89 Stock of Shared Technologies Cellular, Inc. ("STC") held by the Company, equal to approximately 1.5% of STC total outstanding stock at a price equal to $54.06 per share. Section 5. Expenses. The Company shall pay Vertical, on a monthly basis, all reasonable costs and out-of-pocket expenses incurred by Vertical in connection with its obligations and duties under this Agreement; provided, however, that Vertical shall obtain the prior written consent of the Company for any single item of expense in excess of $1,000. The Company's consent hereunder shall not be unreasonably withheld or delayed. Vertical shall furnish receipts for all such expenses. Section 6. Non-Competition. Vertical acknowledges that in the course of its engagement it will become familiar with trade secrets and other confidential information ("Confidential Information") concerning the Company and that its services will be special, unique and extraordinary to the Company. Subject to the limitations set forth herein, Vertical agrees that during the Term (as defined below) and for a period of two years thereafter, it shall not directly or indirectly, through its affiliates, including Jacob Agam and companies which are controlled by Mr. Agam (the "Vertical Group"), or otherwise, own, manage, control, participate in, consult with, render services to, or in any manner engage in any business competitive with the business of the Company as such business exists within any geographical area in which the Company then conducts business. In addition, the Vertical Group shall not solicit, interfere with or conduct business with any vendors, customers or employees of the Company during the Term of this Agreement and for a period of two years thereafter. In the event the Company breaches its duties or obligations under this Agreement (including Sections 3 and 4 hereof), the Company agrees that the Vertical Group shall not be bound by the provisions of this Section 5, except for the provisions of the immediately following sentence. The Vertical Group agrees that it shall not disclose to any third party any Confidential Information and shall not use any Confidential Information for any purpose other than the performance of Vertical's duties under this Agreement. Vertical acknowledges that the violation of this agreement may cause irreparable harm to the Company, its subsidiaries or affiliates, and monetary damages will not be an adequate remedy in the event of a breach and accordingly, the Company will be entitled to seek appropriate injunctive and other equitable relief. Section 7. Term. This Agreement shall be for a term commencing on the date hereof and ending on November 10, 1996 (the "Term"). Section 8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the 90 State of New York. Any dispute between the parties hereto arising from or relating to the terms of this Agreement shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. Section 9. Entire Agreement; Amendments. This Agreement contains the entire agreement and understanding between the parties and supersedes and preempts any prior understandings or agreements, whether written or oral. The provisions of this Agreement may be amended or waived only with the prior written consent of the Company and Vertical. Section 10. Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of, and shall be enforceable by Vertical and the Company and their respective successors and assigns; provided, however, that the rights and obligations of Vertical under this Agreement (with the exception of those rights in Section 3 hereof) shall not be assignable. Section 11. Indemnification. The Company hereby expressly agrees to indemnify and hold harmless Vertical, its officers and employees against and from any and all loss, liability, suits, claims, costs, damages and expenses (including attorneys' fees) arising from their performance hereunder, except as a result of their negligence or misconduct. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. SHARED TECHNOLOGIES INC. By:----------------------------- Name: Title: VERTICAL FINANCIAL HOLDING By:------------------------------ Name: 91 Title: 92 EXHIBIT 11 Page 1 of 3
SHARED TECHNOLOGIES INC. Computation of Earnings Per Share and Weighted Average Number of Shares Outstanding For the Period Ended December 31, 1992 Percentage Shares of Year Weighted Date Issued Issued Outstanding Average --------------- -------------------------------------- January 1, 1992.....3,740,732 100.00% 3,740,732 ------------ 3,740,732 April 8, 1992....... 19,014 73.22 13,922 ------------ 3,759,745 May 22, 1992....... 471 61.20 288 ------------ 3,760,217 September, 22, 1992. 80,000 27.60 22,077 ------------ 3,840,217 September 23, 1992.. 466,250 27.32 127,391 ------------ 4,306,467 September 24, 1992.. 306,750 27.05 82,973 ------------ 4,613,217 September 25, 1992.. 100,000 26.78 26,776 ------------- 4,713,217 September 30, 1992.. 151,850 25.41 38,585 ------------- 4,865,067 October 1, 1992.... 1,313 25.14 330 ------------- 4,866,379 October 15, 1992.... 2,625 21.31 559 ------------- 4,869,004 November 25, 1992.. 28,042 10.11 2,835 ------------- 4,897,046 November 30, 1992... 12,554 8.74 1,098 ------------- 4,909,600 December 14, 1992.. 100,000 4.92 4,918 ------------- 4,009,600 December 31, 1992... 82,596 0.27 226 ------------- 5,092,197
93 Weighted Average Common Shares Outstanding 4,062,710 Net Income Per Common Share: Net Income Applicable to Common Stock For the Year Ended December 31, 1992 $2,389,821 ---------- = $.59 Weighted Average Number of Shares Outstanding 4,062,710 The above shares reflect the September 1992 one-for-four reverse stock split. 94 EXHIBIT 11 Page 2 of 3
SHARED TECHNOLOGIES INC. Computation of Earnings Per Share and Weighted Average Number of Shares Outstanding For the Period Ended December 31, 1993 Percentage Shares of Year Weighted Date Issued Issued Outstanding Average ---------------- -------------------------------------- January 1, 1993.... 5,092,197 100.00% 5,092,197 ---------- 5,092,197 January 15, 1993 .. 5,000 96.16 4,808 ---------- 5,097,197 April 22, 1993...... 10,000 69.59 6,959 ---------- 5,107,197 June 18, 1993...... 34,152 53.97 18,432 ---------- 5,141,349 September 15, 1993.. 9,467 29.59 2,801 ---------- 5,150,816 October 5, 1993..... 13,793 24.11 3,325 ---------- 5,164,609 October 29, 1993.... 20,000 17.53 3,507 ---------- 5,184,609 December 15, 1993... 5,728 4.66 267 ---------- -------- 5,190,337 5,132,296
Net Income Per Common Share: Net Loss For the Period Ended December 31, 1993 $ (204,476) ----------- = $(.04) Weighted Average Number of Shares Outstanding 5,132,296 95 EXHIBIT 11 Page 3 of 3
SHARED TECHNOLOGIES INC. Computation of Earnings Per Share and Weighted Average Number of Shares Outstanding For the Period Ended December 31, 1994 Percentage Shares of Year Weighted Date Issued Issued Outstanding Average --------------- -------------------------------------- January 1, 1994.... 5,666,699 100.00% 5,666,699 --------- 5,666,699 February 7, 1994... 1,061 89.86 953 ---------- 5,667,760 May 27, 1994... 307,139 60.00 184,283 ---------- 5,974,899 June 13, 1994...... 11,354 55.34 6,284 --------- 5,986,253 June 27, 1994..... 1,762,033 51.51 907,568 --------- 7,748,286 August 1, 1994..... 8,215 41.92 3,444 ---------- 7,756,501 August 15, 1994.... 25,000 38.08 9,521 ----------- 7,781,501 September 28, 1994. 51,589 26.03 3,427 ----------- 7,833,090 December 29, 1994.. 11,992 .82 99 ----------- 7,845,082 6,792,277 ========== =========
Net Income (Loss) Per Common Share: Net Loss Applicable to Common Stock For the Year Ended December 31, 1994 1,807,826 --------- = $.27 Weighted Average Number of Shares Outstanding 6,792,277 96 The above shares have been restated to reflect the September 1992 one-for-four reverse stock split. 97 Exhibit 21 The following table indicates the subsidiaries and partnerships owned by the Company. Shared Technologies Cellular, Inc.+......................a Delaware corporation Multi-Tenant Services, Inc. ++...........................a Delaware corporation SafeCall, Inc.+..........................................a Delaware corporation Financial Place Communications Company*.........an Illinois general partnership Boston Telecommunications Group, Inc. ++ d/b/a Boston Telecommunications Company........a Massachusetts corporation STI Cellular Franchise Corp.**...........................a Delaware corporation Access Communication Group, L.P. +++................a Texas limited partnership Access Telemanagement, Inc. ++..............................a Texas corporation Access Network Services, Inc. ***...........................a Texas corporation _ _ _ _ _ _ _ _ _ _ _ + a majority-owned subsidiary of Shared Technologies Inc. ++ a wholly-owned subsidiary of Shared Technologies Inc. * 99% owned by the Company ** a wholly-owned subsidiary of Shared Technologies Cellular, Inc. +++ 99% owned by the Company and 1% owned Access Telemanagement, Inc. *** a wholly-owned subsidiary of Access Communication Group, L.P. 98 -----END PRIVACY-ENHANCED MESSAGE-----