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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 ON
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number: 000-26020
APPLIED CELLULAR TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1641533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
James River Professional Center
Highway 160 & CC, Suite 5, P.O. Box 2067
Nixa, Missouri 65714
(417) 725-9888
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes [X] No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 20, 1998, the aggregate market value of the voting and non-voting
stock held by non-affiliates of the registrant was approximately $95,800,000.
At March 20, 1998, 22,187,960 shares of Common Stock were outstanding.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The principal directors and executive officers of the Company are as
follows:
Name Age Position/Committees Position Held Since
- -------------------------- ------------------------------- --------------------
Richard J. Sullivan 58 Chairman, CEO (1,2) May 1993
Garrett A. Sullivan 63 Director, President, COO (1,3) March 1995
David A. Loppert 43 Vice President, Treasurer, CFO February 1997
Daniel E. Penni 50 Director (1,2,3) March 1995
Angela M. Sullivan 38 Director (1,2) April 1996
Arthur F. Noterman 56 Director (1,3) February 1997
- -----------------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Following is a summary of the background and business experience and
descriptions of the directors and principal executive officers:
Richard J. Sullivan: Mr. Sullivan was elected to the Board of Directors,
and named Chief Executive Officer, in May 1993. He is Chairman of the Executive
and Compensation Committees of the Company's Board of Directors. He was
appointed Secretary in March 1996. Mr. Sullivan is currently Chairman of Great
Bay Technology, Inc., an affiliate of the Company. From August 1989 to December
1992, Mr. Sullivan was Chairman of the Board of Directors of Consolidated
Convenience Systems, Inc., in Springfield, Missouri. He has been the Managing
General Partner of The Bay Group, a successful merger and acquisition firm in
New Hampshire since February 1985. Mr. Sullivan was formerly Chairman and Chief
Executive Officer of Manufacturing Resources, Inc., an MRP II software company
in Boston, Massachusetts and was Chairman and CEO of Encode Technology, a
"Computer-Aided Manufacturing" Company, in Nashua, New Hampshire from February
1984 to August 1986.
Garrett A. Sullivan: Mr. Sullivan was named President, Secretary and Acting
Chief Financial Officer in March 1995. He was elected to the Board of Directors
in August 1995. He was an Executive Vice President of Envirobusiness, Inc., an
environmental consulting firm, from 1993 to 1994. From 1988 to 1993, he served
as president and chief operating officer of two medium sized companies in the
electronics and chemical industries which were owned by Philips North America.
He was previously a partner in the Bay Group, a merger and acquisition firm in
New Hampshire from 1988 to 1993. Mr. Sullivan was President of Granada Hospital
Group, Burlington, Massachusetts, the world's largest television system
supplier, from 1981 to 1988. Mr. Sullivan received a Bachelor of Arts degree
from Boston University in 1960 and obtained an MBA from Harvard University in
1962.
David A. Loppert: Mr. Loppert joined the Company as Vice President,
Treasurer and Chief Financial Officer in February 1997. From 1996 to 1997, he
was Chief Financial Officer of Bingo Brain, Inc., a manufacturer of a hand held
electronic bingo card manager. From 1994 to 1996, he was Chief Financial Officer
of C.T.A. America, Inc., and Ricochet International, L.L.C., affiliated
companies in the retail footwear business. From 1991 to 1994, he was a business
recovery consultant. From 1984 to 1991, he was Senior Vice President,
2
Acquisitions and Due Diligence, of Associated Financial Corporation, a
California real estate syndicator. Mr. Loppert started his financial career with
Price Waterhouse in 1978, in Johannesburg, South Africa, before moving to their
Los Angeles Office in 1980 where he rose to the position of Senior Manager. He
holds Bachelor degrees in both Accounting and Commerce, as well as a Higher
Diploma in Accounting, all from the University of the Witwatersrand,
Johannesburg. Mr. Loppert, a United States citizen, is designated a Chartered
Accountant (South Africa).
Daniel E. Penni: Mr. Penni has served as a Director since March 1995. He is
currently an Insurance Branch Manager for Arthur J. Gallagher & Co. He has
worked in many sales and administrative roles in the insurance business since
1969. He was President of the Boston Insurance Center, Inc., an insurance
company until 1988. Mr. Penni was founder and President of BIC Equities, Inc., a
broker/dealer registered with the NASD. Mr. Penni graduated with a Bachelor of
Sciences degree in 1969 from the School of Management at Boston College.
Angela M. Sullivan: Ms. Sullivan was elected to the Board of Directors in
April 1996. From 1988 to the present, Ms. Sullivan has been a partner in the Bay
Group, a private merger and acquisition firm, President of Great Bay Technology,
Inc., an affiliate of the Company, and President of Spirit Saver, Inc. Ms.
Sullivan received a Bachelor of Science degree in Business Administration in
1980 from Salem State College.
Arthur F. Noterman: Mr. Noterman, a Chartered Life Underwriter, was
appointed, in February 1997 as Director of the Company to fill a vacancy and is
Chairman of the Audit Committee. Since 1965, Mr. Noterman has represented
various national insurance companies in assisting primarily high net worth
individuals and smaller companies in determining appropriate insurance and
investment strategies. An operator of his own insurance agency, Mr. Noterman is
a registered NASD broker affiliated with a Chicago, IL registered broker/dealer.
Mr. Noterman attended Northeastern University from 1965 to 1975 and obtained the
Chartered Life Underwriters Professional degree in 1979 from The American
College, Bryn Mawr, Pennsylvania. Mr. Noterman is a licensed Life and Health
Insurance Broker and holds NASD Series 6, 7 and 63 licenses.
Board Committees and Meetings
The Company has standing Executive, Audit and Compensation Committees of
the Board of Directors. The members of the committees are identified with the
list of Directors on the preceding pages.
The Audit Committee recommends for approval by the Board of Directors a
firm of certified public accountants whose duty it is to audit the consolidated
financial statements of the Company for the fiscal year in which they are
appointed, and monitors the effectiveness of the audit effort, the Company's
internal and financial accounting organization and controls and financial
reporting. The audit committee held two meetings during 1997.
The Compensation Committee administers the Company's 1996 Non-Qualified
Stock Option Plan, including the review and grant of stock options to officers
and other employees under such plan. The Compensation Committee also reviews and
approves various other Company compensation policies and matters and reviews and
approves salaries and other matters relating to the executive officers of the
Company. The Compensation Committee reviews all senior corporate employees after
the end of each fiscal year to determine compensation for the subsequent year.
3
Particular attention is paid to each employee's contributions to the current and
future success of the Company along with their salary level as compared to the
market value of personnel with similar skills and responsibilities. The
Compensation Committee also looks at accomplishments which are above and beyond
management's normal expectations for their positions. The Compensation Committee
met four times during 1997.
Prior to 1996, Richard J. Sullivan, the Company's Chairman and Chief
Executive Officer, did not receive direct compensation from the Company.
Starting in 1996, Mr. Sullivan's compensation has been determined taking into
account the factors identified in the preceding paragraph. See "Executive
Compensation-Compensation Committee Report on Executive Compensation."
The Board of Directors held 58 meetings during 1997 and acted by written
consent three times during 1997. During the year, all Directors attended 75% or
more of the meetings of the Board of Directors and the Board Committees to which
they were assigned.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the officers and directors of the Company and persons who own more than 10% of
the Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and to furnish copies of all such
reports to the Company.
The Company believes, based on its stock transfer records and other
information available to the Company, that all reports required under Section
16(a) were timely filed.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
total remuneration paid or accrued by the Company, to or on behalf of the
Company's Chief Executive Officer and to the Company's other Executive Officers
for the last three years:
4
Summary Compensation Table
--------------------------
Long-Term
Annual Compensation Awards Compensation Payouts
------------------- ------ --------------------
Other Restricted
Name and Annual Stock Options/ LTIP All Other
Principal Position (1) Year Salary Bonus Compensation Awards SAR's(5) Payouts Compensation
- ---------------------- ---- ------ ----- ------------------- -------- --------------------
Richard J. Sullivan 1997 $116,668 140,000 $ 3,623 - 1,000,000 - $ -
Chairman, CEO and 1996 $ - $ - $ 68,816 - 1,130,000 - $ -
Secretary 1995 $ - $ - $ - - - - $ -
Garrett A. Sullivan (2) 1997 $105,499 $75,000 $811 - 350,000 - $ -
Director, President 1996 $113,966 $25,000 $ - - 150,000 - $ -
And COO 1995 $27,745 $ - $ - - - $ -
Gary A. Gray (3) 1997 N/A $ - $ - - - - $ -
1996 N/A $ - $ - - - - $ -
1995 $56,457 $ - $ - - - - $ -
David A. Loppert (4) 1997 $64,423 $25,000 $ - - 150,000 - $ -
Vice President, 1996 N/A $ - $ - - - - $ -
Treasurer and Chief 1995 N/A $ - $ - - - - $ -
Financial Officer
- ----------------
(1) No executive officer served pursuant to an employment contract through the
1996 fiscal year. See "Termination of Employment and Change of Control
Arrangement" below for agreements entered into subsequent to December 31,
1996.
(2) Mr. Sullivan was Secretary until March 1996 and Acting Chief Financial
Officer until February 1997.
(3) Mr. Gray was President, Secretary and Chief Financial Officer from May 1993
to March 1995.
(4) Mr. Loppert joined the Company in February 1997.
(5) Indicates number of securities underlying options.
5
Option Grants in Last Fiscal Year
The following table contains information concerning the Company's grant of
Stock Options under the Company's 1996 Non-Qualified Stock Option Plan to the
named Executive Officers during the 1997:
Option Grants In Last Fiscal Year
Individual Grants
-----------------
Number of % of Total
Securities Options Grant Date
Underlying Granted to Exercise Present
Options Employees Price Grant Expiration Value (2)
Name (1) Granted in 1997 ($/Sh) Date Date ($)
- -------- ------- ------- ------ ---- ---- ---
Richard J. Sullivan 500,000 20.10% $3.93 August, 97 August, 03 $765,000
500,000 20.10% $5.58 November, 97 November, 03 $765,000
Garrett A. Sullivan 200,000 8.00% $3.93 Augugst, 97 August, 03 $306,000
150,000 6.00% $5.58 November, 97 November, 03 $229,500
David A. Loppert 50,000 2.00% $4.25 February, 97 February, 03 $ 76,500
100,000 4.00% $3.93 August, 97 August, 03 $153,000
(1) Options granted under the 1996 Non-Qualified Stock Option Plan were granted
at an exercise price equal to 85% of the fair market value of the Company's
common shares on the grant date. These options are exercisable over a
five-year period beginning with the first anniversary of the grant date.
(2) Based on the grant date present value of $1.53 per option share which was
derived using the Black-Scholes option pricing model in accordance with
rules and regulations of the Securities Exchange Commission and is not
intended to forecast future appreciation of the Company's common share
price. The Black-Scholes model was used with the following assumptions:
dividend yield of 0%; expected volatility of 44.03 percent; risk-free
interest rate of 8.5%; and expected lives of 5 years.
6
Option Exercises and Fiscal Year-End Values
The following table sets forth information with respect to the Executive
Officers concerning the exercise of options during 1997 and unexercised options
held on December 31, 1997:
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
---------------------------------
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money Options at
Acquired On Value Options at Year End 1997 (#) Year End 1997 ($) (1)
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ -------------------------- -------------------------
Richard J. Sullivan 500,000 $2,125,000 630,000 1,000,000 $2,835,000 $2,250,000
Garrett A. Sullivan 150,000 $637,500 - 350,000 $ - $ 00,000
David A. Loppert - - - 150,000 $ - $ 675,000
________________
(1) Based on the closing price of the Company's Common Stock on the Nasdaq
SmallCap Market, as published in the Wall Street Journal on December 31,
1997 ($4.50).
Compensation Pursuant to Plans
Other than as disclosed above, the Company has no plans pursuant to which
cash or non-cash compensation was paid or distributed during the last fiscal
year or is proposed to be paid or distributed in the future, to the individuals
described above.
Compensation of Directors
Directors of the Company who are not employees of the Company may receive a
fee of $250 per meeting for their attendance at meetings of the Company's Board
of Directors and are entitled to reimbursement for reasonable travel expenses.
Compensation Committee Interlocks and Insider Participation
Richard J. Sullivan, the Chief Executive Officer of the Company, is
Chairman of the Compensation Committee.
Termination of Employment and Change of Control Arrangement
The Company has entered into employment agreements with Richard J.
Sullivan, Chairman; Garrett A. Sullivan, President; and David A. Loppert, Chief
Financial Officer. The agreements are for five-year, three-year and two-year
terms, commence June 1, 1997, June 1, 1997 and December 1, 1997 and end May 31,
2002, May 31, 2000 and November 30, 1999, respectively. At the expiration of
their respective terms, these agreements automatically renew for successive
one-year terms on each anniversary of the employee's employment beginning with
the June/December 1, 1998 anniversary date. In the event of a "change in
control", at the employee's option, he may terminate his employment under the
agreement at any time within one year after such change of control. The Company
shall pay to the employee a severance payment equal to the maximum amount which
would not result in such payment being an excess parachute payment as defined in
the Internal Revenue Code. Additionally, upon termination of employment for any
reason other than for breach under the agreement, the employee shall be entitled
7
to receive from the Company 36 equal monthly payments of 8.333% of his
compensation from the Company over the 12-month period for which his
compensation was the greatest. Mr. Richard Sullivan's agreement provides that he
may elect to receive a percentage of his salary for each 12-month period in
shares of the Company's Common Stock. For the 12-month period commencing June 1,
1997, Mr. Sullivan has elected to receive all of his compensation in stock.
Indebtedness of Management
David A. Loppert, Chief Financial Officer, has executed a promissory note
in favor of the Company in the amount of $260,000. The promissory note is
non-interest bearing and was executed as consideration for the purchase by Mr.
Loppert of 100,000 shares of the Company. The entire amount due on such note was
outstanding on March 1, 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Committee of the Board
The Compensation Committee is composed of two non-employee, independent
members of the Board of Directors and Richard J. Sullivan, Chairman and Chief
Executive Officer of the Company. It is the Compensation Committee's
responsibility to review, recommend and approve changes to the Company's
compensation policies and programs. It is also the Committee's responsibility to
review and approve all compensation actions for the executive officers of the
Company and various other Company compensation policies and matters and
administers the Company's Stock Option Plan, including the review and approval
of stock option grants to the executive officers of the Company.
General Compensation Philosophy
The Company's executive compensation programs are designed to enable the
Company to attract, retain and motivate the executives of the Company and its
subsidiaries. The Company's general compensation philosophy is that total cash
compensation should vary with the performance of the Company in attaining
financial and non-financial objectives and that any long-term incentive
compensation should be closely aligned with the interests of stockholders. Total
cash compensation for the majority of the Company's employees, including its
executive officers, consists of a base salary and a cash bonus based on the
profitability of the Company and its individual subsidiaries. Long-term
incentive compensation is realized through the granting of stock options to most
employees, at the discretion of individual subsidiary company presidents, as
well as eligible executive officers.
Setting Executive Compensation
In setting the base salary and individual bonuses (hereafter together
referred to as "BSB") for executives, the Compensation Committee reviews
information relating to executive compensation of US based companies that are of
the same size as the Company. While there is no specific formula that is used to
set compensation in relation to this market data, executive officer BSB is
generally set below the median salaries for comparable jobs in the market place.
However, when specific financial and non-financial goals are met, additional
compensation in the form of either cash compensation or long-term incentive
compensation may be paid to the executive officers of the Company.
8
Base Salary
The Compensation Committee reviews the history and proposals for the
compensation package of each of the executive officers, including base salary.
Increases in base salary are governed by three factors: merit (an individuals
performance); market parity (to adjust salaries based on the competitive
market); and promotions (to reflect increases in responsibility). In assessing
market parity, the Company relies on market surveys of similar sized publicly
traded companies and generally pays below the median of these companies. The
guidelines are set each year and vary from year to year to reflect the
competitive environment and to control the overall cost of salary growth.
Individual merit increases are based on performance and can range from 0% to
100%.
The salary guidelines for all presidents of the Company's subsidiaries are
generally based upon individual negotiated employment agreements. Merit
increases are submitted by the President of the Company to the Compensation
Committee for approval based upon individual performance and the performance of
the subsidiary. Merit increases for non-executive employees are at the
discretion of the presidents of the individual subsidiary companies.
Cash and Stock Incentive Compensation Programs
To reward performance, the Company provides its executive officers, and the
executive officers of subsidiary companies with additional compensation in the
form of a cash bonus and/or stock awards. No fixed formula or weighting is
applied by the Compensation Committee to corporate performance versus individual
performance in determining these awards. The amounts of such awards are
determined by the Committee acting in its discretion. Such determination, except
in the case of the award for the Chairman, is made after considering the
recommendations of the Chairman and President and such other matters as the
Committee deems relevant. The Committee, acting in its discretion, may determine
to pay a lesser award than the maximum specified. The amount of the total
incentive is divided between cash and stock at the discretion of the Committee.
Stock Options
The Stock Option Plan is a long-term plan designed to link rewards with
stockholder value over time. Stock options are granted to aid in the retention
of employees and to align the interests of employees with stockholders. Stock
options have value for an employee only if the price of the Company's stock
increases above the fair market value on the grant date and the employee remains
in the Company's employ for the period required for the stock option to be
exercisable, thus providing an incentive to remain in the Company's employ.
The Company has a 1996 Non-Qualified Stock Option Plan for use for all
employees of the Company, including executive officers. Grants to executive
officers of the Company and to officers of the Company's subsidiaries are made
at the discretion of the Compensation Committee. The Committee may also make
available a pool of options to each subsidiary to be granted at the discretion
of such subsidiaries' president.
In 1997, stock options for the executive officers were granted upon the
recommendation of management and approval of the Compensation Committee based on
their subjective evaluation of the appropriate amount for the level and amount
of responsibility for each executive officer.
9
Decisions on 1997 Compensation
The Company's compensation program is leveraged towards the achievement of
corporate and business objectives. This pay-for-performance program is most
clearly exemplified in the compensation of the Company's Chief Executive
Officer, Richard J. Sullivan. Mr. Sullivan's compensation awards were made based
upon the Compensation Committee's assessment of the Company's financial and
non-financial performance. The results were evaluated based on the overall
judgment of the Compensation Committee. Prior to June, 1997, Mr. Sullivan did
not receive a salary from the Company. Effective as of June 1, 1997, Mr.
Sullivan's base salary was set at $200,000 per annum, which Mr. Sullivan elected
to receive in shares of the Company's common stock. Mr. Sullivan's base salary
is considerably below market for similarly sized publicly traded companies. Mr.
Sullivan was awarded two stock option grants in 1997; one in August 1997 and one
in November 1997 to provide Mr. Sullivan with total cumulative stock option
grants which were more consistent with the competitive marketplace.
The Compensation Committee is pleased to submit this report to the
stockholders with regard to the above matters.
Compensation Committee:
Richard J. Sullivan, Chairman
Daniel E. Penni
Angela M. Sullivan
Stock Price Performance
The following performance graph compares the changes, for the period
indicated, in the cumulative total value of $100 hypothetically invested in each
of (a) the Company's Common Stock, (b) the Nasdaq Stock Market, (c) the Russell
2000 Stock Index and (d) a group of publicly-traded companies which the Company
considers to be in its peer group. Such peer group companies are Cerplex Group,
Inc., Comdisco, Inc., Innovative Tech Systems, Inc., Glenayre Technologies,
Inc., Thermo Voltek Corp. and Telecomm Industries Corp.
10
Cumulative Total Return
Based on Investment of $100
December 31, 1995-December 31, 1997
[GRAPH OMITTED]
Dollar Value of $100 Investment at
----------------------------------
12/31/95 12/31/96 12/31/97
-------- -------- --------
The Company................. $100.00 $ 97.58 $105.82
The Nasdaq Stock Marke
Total Return Index........ $100.00 $123.00 $150.93
The Russell 2000 Index ..... $100.00 $116.49 $142.54
Peer Group ................. $100.00 $ 96.63 $ 32.11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Equity Securities in the Company
The following table sets forth information regarding beneficial ownership
of the Company's Common Stock by each Director and the Directors and Executive
Officers as a group as of December 31, 1997:
Aggregate Number Percent of
Of Shares Outstanding
Name Beneficially Owned Shares
- ----------------------------------------------------------------------------
Richard J. Sullivan 2,299,501 (1) 11.1%
Garrett A. Sullivan 500,000 (2) 2.4%
Daniel E. Penni 151,865 (3) *
Angela M. Sullivan 65,000 (3) *
Arthur F. Noterman 64,000 (3) *
All Directors and Executive
Officers as a group (Six)
3,331,366 (4) 16.1%
- ---------------
* Represents less than 1% of the issued and outstanding shares of Common
Stock of the Company.
1. Includes 193,265 shares owned by The Bay Group, 373,127 shares owned by
Great Bay Technology, Inc., and 1,630,000 shares which may be acquired upon
the exercise of options, 630,000 of which are now exercisable and 1,000,000
11
of which are not now exercisable. The Bay Group is controlled by Richard J.
Sullivan and Angela M. Sullivan. Great Bay Technology, Inc. is controlled
by Richard J. Sullivan, Angela M. Sullivan and Stephanie Sullivan.
2. Includes 350,000 shares which may be acquired upon the exercise of options
which are not now exercisable.
3. Includes 60,000 shares which may be acquired upon the exercise of options
of which 25,000 are now exercisable and 35,000 are not now exercisable.
4. Includes 2,310,000 shares which may be acquired upon the exercise of
options, 705,000 of which are now exercisable and 1,605,000 of which are
not now exercisable.
The following table sets forth information concerning warrants to
purchase shares of the Company's Common Stock which are owned beneficially by
Directors and Executive Officers of the Company individually and as a group as
of December 31, 1997:
Class of Number of Percent of Exercise Price
Name Warrants Warrants (1) Class Per Share
- --------------------------------------------------------------------------------
Richard J. Sullivan (2) Class K 250,000 100.00% $ 5.31
Class N 600,000 75.00% $ 3.00
Garrett A. Sullivan Class H 100,000 22.22% $ 2.00
Class N 100,000 12.50% $ 3.00
Daniel E. Penni -- -- -- --
Angela M. Sullivan -- -- -- --
Arthur F. Noterman -- -- -- --
All Directors and Executive
Officers as a group (Six)
Class H 100,000 22.22% $ 2.00
Class K 250,000 100.00% $ 5.31
Class N 700,000 87.50% $ 3.00
- --------------------
(1) Pursuant to Rule 13(d)(3) under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the voting) and/or sole
or shared investment power (including the power to dispose or direct a
disposition) with respect to a security whether through a contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, each person indicated above has sole power to vote, or dispose
or direct the disposition of all shares beneficially owned, subject to
applicable community property laws.
(2) Represents warrants owned by Great Bay Technology, Inc. Great Bay
Technology, Inc. is controlled by Richard J. Sullivan, Angela M. Sullivan
and Stephanie Sullivan.
12
Principal Shareholders
Set forth in the table below is information as of December 31, 1997
with respect to persons known to the Company (other than Executive Officers and
Directors shown in the preceding table) to be the beneficial owners of more than
five percent of the Company's issued and outstanding Common Stock:
Number of Shares Percent
Name and Address Beneficially Owned Of Class
- --------------------------------------------------------------------------------
James M. Shaver (1) 1,433,600 6.9%
1811 Center Point Circle #111
Naperville, Illinois 60563
- -----------
(1) Mr. Shaver is the President of Advanced Telecommunications, Inc., an 80%
owned subsidiary of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Conversion of Preferred Stock
Effective January 1, 1997, the Company entered into agreements with
Bruce Reale and Vincent A. Lo Castro, under which the Company agreed to pay
consulting fees to each of them in the amount of $96,000 per calendar quarter,
in lieu of dividends otherwise payable in respect of shares of preferred stock
of the Company owned Mr. Lo Castro and by a trust affiliated with Mr. Reale.
Effective June 30, 1997, the Company exchanged an aggregate of 650,000 shares of
its common stock for 48,000 shares of such preferred stock held by Mr. Lo
Castro, and in exchange for certain related warrants. The Company's obligation
to pay the consulting fees to Mr. Lo Castro described above was terminated as
part of such exchange. Effective September 30, 1997, the Company exchanged an
aggregate of 704,167 shares of its common stock for 52,000 shares of such
preferred stock held by Mr. Reale and Capital Alliance Corporation. The
Company's obligation to pay the consulting fees to Mr. Reale and Capital
Alliance Corporation described above were terminated as part of such exchange.
Changes in Control
There are no arrangements, known to the Company, including any pledge
by any person of securities of the Company, the operation of which may at a
subsequent date result in a change of control of the Company.
Potential Conflicts of Interests
Mr. Richard J. Sullivan, the Chief Executive Officer of the Company, is
also Chairman of Great Bay Technology, Inc. and Managing General Partner of the
Bay Group. Both of these companies conduct business with the Company and receive
compensation from the Company for various services, including assistance in
identifying potential acquisition candidates and in negotiating acquisition
transactions. The relationships among such companies, Mr. Sullivan and the
Company may involve conflicts of interest. For services rendered in connection
13
with acquisitions which took place in 1997, 1996 and 1995, the Company paid The
Bay Group, $473,750, $457,152 and $126,500, respectively, for investment banking
services.
Consulting Agreements
On October 16, 1996 the Company entered into a Consulting Agreement
("Agreement") with Joseph, Brian & Christopher Associates, a Pennsylvania
partnership ("Consultant"). The Company engaged the Consultant to render
acquisition advice to the Company and to ACT Communications, Inc., a wholly
owned subsidiary of the Company. The term of the Agreement is for a period of
three years ending September 30, 1999 and the consulting fee is $10,000 per
month. Thereafter, the Agreement may be extended by mutual agreement. The
general partners of the Consultant are the selling shareholders of ATI
Communications, a company that was acquired effective as of September 1, 1996.
Earnout Agreements
The Company has entered into various earnout arrangements with the
selling shareholders of certain acquired subsidiaries. These arrangements
provide for additional consideration to be paid in future years if certain
earnings levels are met.
Put Options
The Company has entered into put options with the selling shareholders
of various companies in which the Company acquired 80% interests. These options
provide for the Company to acquire the 20% it does not own after periods ranging
from 4 to 5 years from the dates of acquisition at amounts generally equal to
20% of the average annual earnings of the company before income taxes for the
two year period prior to the put multiplied by a multiple ranging from 4 to 5.
Employment Agreements
At the time the Company acquires a particular company, the company
generally enters into employment agreements with the key selling
shareholder/officers of the acquired company. The agreements are for periods of
two to five years, and some provide for bonus arrangements based on the earnings
of the subsidiary.
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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 in St. Louis County,
State of Missouri, on April 30, 1998.
APPLIED CELLULAR TECHNOLOGY, INC.
By: /S/ DAVID A. LOPPERT
David A. Loppert, Vice President, Treasurer and
Chief Financial Officer
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.
Signature Title Date
Chairman of the Board of Directors,
Chief Executive Officer and
Secretary(Principal Executive
/S/ RICHARD J. SULLIVAN Officer) April 30, 1998
- -----------------------------------
(Richard J. Sullivan)
President and Director (Principal
/S/ GARRETT A. SULLIVAN Operating Officer) April 30, 1998
- -----------------------------------
(Garrett A. Sullivan)
Vice President, Treasurer and Chief
/S/ DAVID A. LOPPERT Financial Officer (Principal
- ----------------------------------- Accounting Officer) April 30, 1998
(David A. Loppert)
/S/ ANGELA M. SULLIVAN Director April 30, 1998
- -----------------------------------
(Angela M. Sullivan)
/S/ DANIEL E. PENNI Director April 30, 1998
- -----------------------------------
(Daniel E. Penni.)
/S/ ARTHUR F. NOTERMAN Director April 30, 1998
- -----------------------------------
(Arthur F. Noterman)
15