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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 - KSB
(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
( ) TRANSITION REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to____________________________
Commission file number: 0-29236
MARINE MANAGEMENT SYSTEMS, INC.
(Name of small business issuer in its charter)
Delaware 06-0886588
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
470 West Avenue, Stamford, CT 06902
(Address of principal executive offices) (Zip Code)
(203) 327-6404
(Issuer's Telephone Number)
Securities registered under Section 12 (b) of the Exchange Act:
Title of Each Class Name of Each Exchange on which Registered
- ------------------- -----------------------------------------
None Not applicable
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.002 par value
(Title of class)
Warrants, each to purchase one
share of Common Stock
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB _x_
The issuer's revenues for the year ended December 31, 1997 were $3,410,256.
The aggregate market value of the issuer's Common Stock held by non-affiliates
of the issuer as of March 18, 1998 was $3,197,820, based upon the average bid
and asked prices of the issuer's Common Stock of $1.25 per share..
The number of shares outstanding of the issuer's Common Stock, par value $0.002
per share, at March 18, 1998 was 4,421,120.
Transitional Small Business Disclosure Format: Yes No X
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1997 FORM 10-KSB
TABLE OF CONTENTS
PART I
Page
----
Item 1. Description of Business 3
Item 2. Description of Property 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 10
Item 6. Management's Discussion and Analysis 11
Item 7. Financial Statements 15
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 16
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16 (a) of the
Exchange Act 16
Item 10. Executive Compensation 19
Item 11. Security Ownership of Certain Beneficial Owners and
Management 22
Item 12. Certain Relationships and Related Transactions 24
Item 13. Exhibits List and Reports on Form 8 - K 28
Index to Financial Statements F-1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
Marine Management Systems, Inc. ("MMS" or the "Company") develops, markets,
sells and supports software systems, and sells and supports associated hardware
and communications systems, for the management of commercial ships in the
international maritime industry. The Company was incorporated in Ohio in 1969
and reincorporated in Delaware in February 1996.
The international maritime market is primarily an open, free market, allowing
ships of any country to compete for business. The broad nature of this market,
coupled with the fact that there are over 80,000 vessels in the world's
commercial fleet competing for business, has generated growing pressure on
shipowners /operators to operate their ships more efficiently. In addition, a
significant expansion of international maritime regulations has occurred in
recent years requiring shipowners /operators to operate their ships in a safer
and more environmentally protective manner or face major liability exposure.
Simultaneously, the economic pressures on the industry are leading to
smaller-sized crews on ships, which is increasing the burdens associated with
efficient ship operation, safety and environmental regulation compliance. The
Company believes that these factors have created an environment where
productivity aids, such as those provided by the Company's Fleet Manager
Enterprise Series of systems, can offer significant benefits to shipowners
/operators.
The Company's products are designed to enable its customers to operate their
ocean-going ships in a safer and more efficient manner through the use of
shipboard and shore-based computer applications and networks connected by
wireless communications. The Company sells its products in the international
shipping market to operators of all types of ships, including crude oil and
product tankers, gas carriers, container ships, cruise liners, bulk carriers and
other specialty ships. The Company has 28 years of experience in the maritime
industry and has an established international market presence and a significant
installed customer base of over 1800 installations at over 650 shipboard and
shore-based sites worldwide.
The Company's revenues are primarily derived from software license fees,
hardware sales, and service revenues. License fees include revenues from
non-cancelable software license agreements entered into between the Company and
its customers with respect to both the Company's products and third-party
products distributed by the Company. Such revenues are recognized upon shipment
only if no significant Company obligations remain and collection of the
resulting receivable is deemed probable. Hardware sales consist of revenues from
the configuration and resale of computer hardware systems in connection with the
Company's system product sales and from the resale of hardware components. For
instance, the Company acts as a distributor for a variety of hardware components
and has
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derived significant revenues from sales of such products to a limited number of
non-maritime customers. Revenues from hardware sales are recognized when the
products are delivered. Service revenues include revenues from installation
(including integration and engineering) services, customer training, on-going
customer support, hardware maintenance and product updates. The Company's
installation cycle varies significantly by customer depending on the scope of
work, the number of installation sites and the geographical location of the
installations and can extend for periods of six months or more. Installation and
training fees (representing about 25% of the Company's revenues) are recognized
when such services are completed; however, in a limited number of cases, as much
as one-third of the installation/training fees may be deferred by the customer
until the completion of the one-year warranty period. Service fees for on-going
customer support, hardware maintenance and product updates are recognized
pro-rata over the term of the contract, which is typically twelve months.
Principal Products and Products Under Development
Fleet Manager Enterprise Series
The Company's core business centers around its existing Fleet Manager Enterprise
Series , a multifaceted line of software applications for the management of ship
operations. These applications include: FleetWORKS, a systems package for
shipboard inventory and maintenance management; FleetLINK, a marine data
communications and e-mail systems package for high speed data transmission over
satellite, cellular and/or terrestrial links; and FleetWATCH, a shipboard
reporting and administrative systems package. This suite of integrated
applications allows shipowners /operators to manage costs, manage resources and
comply with both internal and externally mandated safety and environmental
issues, while combining ease of use and broad-based functionality with low
implementation costs and full scalability.
The Company has also developed services to support its Fleet Manager Enterprise
Series , ranging from database development and validation to the supply of
shipboard computer hardware, related engineering, integration, consulting and
training services, and warranty support. In 1997, the Company completed the
development of Windows-based versions of the Fleet Manager Enterprise Series,
the initial modules being launched during the third quarter of 1997, with the
remaining modules introduced before year-end. While the Company expects growth
in revenues from the introduction of these products, there can be no assurance
that previous introductions of Windows-based products by the Company's
competitors, or additional such introductions, will not exert downward price
pressure on the Company's existing Fleet Manager Enterprise Series suite of
products or will not render them obsolete and unmarketable. Moreover, there can
be no assurances that the Windows-based version of the Fleet Manager Enterprise
Series will achieve market acceptance.
The Fleet Manager Enterprise Series is designed to provide information about
ship operations in order to assist the shipowners / operator in meeting safety
and environmental requirements. On July 1, 1998, almost all commercial ships
over 500 gross tons will be
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required to comply with the International Safety Management ("ISM") Code,
developed and mandated by the International Marine Organization. The ISM Code
includes new procedures which must be followed and requirements which must be
met in order to achieve certification for a ship. The Fleet Manager Enterprise
Series currently provides shipowners / operators with a substantial portion of
the information required in order to achieve ISM certification.
ISIT Platform Development Program
While many shipowners /operators are just beginning to implement information
technology systems within their enterprises, others have already made
significant investment in their information technology infrastructures. Due to
the increasing proliferation of available technology, more and more of these
infrastructures are incorporating a variety of software environments, computing
platforms and communications protocols and applications supplied by a variety of
vendors, and such variety often results in incompatible systems and applications
within and among an enterprise's many locations. As a result, demand is growing
for a platform that offers shipowners /operators a standard interface,
transparent communications and the ability to integrate enterprise and ship
specific productivity applications for local and remote enterprise users.
In response, the Company has been developing an Integrated Shipboard Information
Technology ("ISIT") platform (a computer operating environment standard) for the
maritime industry. This platform is designed to permit the integration of a
myriad of ship equipment and informational systems, including proposed
ISIT-compliant versions of the Company's Fleet Manager Enterprise Series
products currently under development, under a common protocol and to provide a
standard interface to shore-based systems. When completed, the ISIT platform is
intended to provide users with a common communication path for all of their
ISIT-compliant software applications, enabling them to use most satellite
services and a variety of telephone networks and services, including the
Internet. It is also intended to provide a means for collecting and storing a
ship's operating data (for instance, the data found in the various control
systems on the ship's bridge and engine room which operate with their own
proprietary protocols) in a common database and format. The Company believes it
is the only software company developing a systems operating environment
compliant with American Society for Testing and Materials ("ASTM") standards and
proposed International Standards Organization ("ISO") standards, which standards
are expected to dictate the software operating systems standard for the
industry. In 1996, the ASTM U.S. national standard for the system design was
approved. This has led to further international attention and work on a similar
standard (based on the ASTM standards) at the ISO.
The ISIT platform project had been chosen for shared expense funding by the
United States government. Certain other companies involved in various
technologies and services associated with international ship operations, design
and information technologies participated in various related aspects of the
project. The Company retains all rights to the ISIT platform, subject only to a
value added reseller agreement (and a sharing of a portion of
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any revenues derived from the commercialization of the ISIT platform) with the
other project members and to agreements with certain of the Company's sales
agents.
MMS has completed the detailed design and specifications for the ISIT Platform,
which represents an estimated 80% of the system development, including the
development of tools and internal sub-module prototype testing. MMS intends to
complete the ISIT Platform as a commercial product. The Company plans to
establish strategic alliances with other participants in the marine industry,
such as OEM vendors and shipowners, to help fund the remaining development which
includes software code development and testing. The Company believes that
certain OEM vendors and/or shipowners who may desire to use the completed ISIT
platform to satisfy their current information technology needs may be willing to
participate in funding the final stages of the development of the ISIT platform.
The Company, however, has no current understandings, commitments or agreements
with respect to the formation of any such strategic alliance and there can be no
assurance that the Company will be able to enter into any strategic alliance to
complete development of the ISIT platform.
While the Company believes the ISIT platform and ISIT-compliant versions of its
Fleet Manager Enterprise Series products will result in growth in revenues,
there can be no assurance that the development of the ISIT platform or of
ISIT-compliant versions of the Fleet Manager Enterprise Series or other products
will be completed and ready for market in a timely fashion, or that any product
resulting from such development will adequately meet the requirements of the
marketplace or achieve market acceptance. The success of the Company in
developing, introducing, selling or supporting the ISIT platform, ISIT-compliant
versions of the Fleet Manager Enterprise Series or additional ISIT
platform-related products will depend on a variety of factors in addition to the
timely and successful completion of product design and development, including
but not limited to, the ability of the Company to establish strategic alliances
to fund completion of the ISIT platform project, timely and efficient
implementation of the manufacturing process, effective sales, marketing and
customer services and the absence of performance problems or other difficulties
that may require design modifications and related expenses and hinder market
acceptance. If the market for the ISIT platform fails to develop, develops more
slowly than anticipated or if ISIT-compliant products do not achieve market
acceptance, the Company's business, results of operations and financial
condition will be materially adversely affected.
Sales and Distribution
The Company sells its Fleet Manager Enterprise Series products both directly and
through the use of independent sales agents located in many of the largest
maritime centers in the world. Many of the Company's sales agents are covered by
written, non-exclusive contracts which may be terminated by either party at the
end of each year of the agreement. Three of the Company's current sales agents,
however, have territorial exclusives (one in Greece, one in Singapore, Malaysia
and Indonesia, and one in Hong Kong, each of which is a major territory in the
maritime industry).
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The sales cycle for the Company's Fleet Manager Enterprise Series products,
which generally commences at the time of the Company's or the agent's initial
contact with a prospective customer and ends upon the execution of a software
license agreement with that customer, varies by customer. It often extends for
periods of six months or more, depending on a number of factors, including the
prospective customer's familiarity with and acceptance of shipboard information
technology systems. (The sales cycle for existing customers, which customers
have historically represented over one-third of the Company's annual sales, is
typically much shorter.)
Competition
The Company has a number of significant competitors for its existing line of
Fleet Manager Enterprise Series products, including SpecTec, a division of Visma
ASA, Marinor, Computer Expert Systems LTD and Nautical Technology Corporation.
While there are currently no dominant players in the marine systems markets, the
markets for the Company's Fleet Manager Enterprise Series suite of products are
characterized by intense competition. As markets for these products continue to
develop, additional companies, including companies in the computer hardware,
software and networking industries with significant market presence may enter
the markets in which the Company competes and further intensify competition.
Many of these competitors and potential competitors have significantly greater
financial, technical, sales and marketing and other resources than the Company.
The Company believes that the most significant competitive factors of the Fleet
Manager Enterprise Series of software products include ease of use, performance
to industry standards, system functionality, product performance and quality,
customer support and price. The Company believes it presently competes favorably
with respect to each of these factors. However, the Company's market is still
evolving and there can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
successfully will have a material adverse effect upon the Company's business.
The Company is unaware of any company in this country or internationally that is
currently producing or marketing a standard shipboard computing platform similar
to the ISIT platform. However, there are numerous other companies that could
enter this new market, many which have substantially greater financial,
technical, production, marketing and other resources than the Company. In the
case of an entity with such resources, the Company does not believe that there
are prohibitive barriers to entry into the business of developing and marketing
a standard shipboard computing platform.
Customers
The Company has installed over 1,800 software modules for over 85 active
companies with over 650 ship and shore-based operational sites. The Company's
target customers have been primarily companies with ocean-going or "deep sea"
vessels over 5,000 dead weight tons.
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The Company's largest groups of customers are commercial vessels including oil
and chemical tankers, bulk carriers, container ships and passenger ships.
Domestic sales were approximately 54% of the Company's total revenues in 1997
and approximately 46% of the Company's revenues were from overseas sources.
Sales to Southern Shipmanagement, Chile, generated 10.3% of the Company's
revenues in 1997. No other individual customer contributed more than 10% of the
Company's revenue in 1997.
Intellectual Property and Third Party Software
The Company has applied for and obtained federal registration for the service
mark "MMS," the MMS design logo and the trademark "ISIT". The Company has no
patents relating to proprietary technology, but instead relies primarily on
trade secret laws, confidentiality procedures and contractual provisions,
including confidentiality and / or non-disclosure agreements with its employees
and consultants, to protect its proprietary rights. There can be no assurance
that such measures will be adequate to protect the Company from the infringement
by others of its technologies. Despite the Company's efforts to protect its
proprietary rights, it may be possible for, and attempts may be made by,
unauthorized third parties to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. In addition,
the laws of some foreign countries do not protect the Company's intellectual
property to the same extent, as do the laws of the United States. The loss of
any material service mark, trademark, trade name, trade secret or copyright
could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, while the Company does not
believe that its products infringe on the rights of third parties, there can be
no assurance that third parties will not assert infringement claims against the
Company in the future. While the Company's competitive position may be affected
by its ability to protect its proprietary information, the Company believes that
factors such as technical expertise, knowledge and innovative skill of the
Company's management and technical personnel, strategic relationships, name
recognition, quality support services and the Company's ability to rapidly
develop, enhance and market software products may be more significant in
maintaining the Company's competitive position.
The Company is dependent on third-party suppliers for certain software included
with certain of its products, such as the CargoMax System for ship loading from
Herbert Engineering Corp, and the SNAPS purchasing software product from
ShipNet, AS. While the Company believes that the functionality provided by
software which is licensed from third parties is obtainable from multiple
sources or could be developed by the Company, if any such third-party licenses
were terminated or not renewed or if these third parties fail to develop new
products in a timely manner, the Company could be required to develop an
alternative approach to developing its products which could require payment of
substantial fees to third parties or create internal development costs and
delays which might not be successful in providing the same level of
functionality. Such delays, increased costs or reduced functionality could
materially adversely affect the Company's business, operating results and
financial condition.
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Research and Development
The Company has devoted substantial resources in connection with the research
and development of new and enhanced software products. Costs incurred for
research and development is charged to operations in the period incurred. Upon
the establishment of technological feasibility, the Company begins to capitalize
certain costs associated with the product, which will be available for sale.
Once the product is available for sale, the Company ceases to capitalize these
costs. Upon completion of such products, these costs are amortized and charged
to operations over the estimated economic life of the product. Major portions of
the Company's current capitalized costs relate to products which are not as yet
available for sale. The establishment of technological feasibility and the
estimated economic life of the product require considerable judgment by
management. Any changes to the estimates made by management may result in more
rapid amortization of the capitalized costs.
The Company's product development expenditures, including capitalized
development costs, for fiscal 1996 and 1997 were $1,233,224 and $1,589,049,
respectively, offset by contract revenue from the government in 1996 and 1997 of
$505,895 and $150,258, respectively.
Employees
As of December 31, 1997, the Company had 38 full time employees and one part
time employee, all of whom were based in the United States. The Company is not a
party to any labor agreements and none of its employees are represented by a
labor union. The Company believes its employee relations are good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices are located in a 17,170 square foot facility
located in Stamford, CT. This property is leased under two operating leases, one
(13,355 feet) expiring in April 30, 2003, the second (3,815 feet) expires April
30, 1998. The smaller (3,815) area lease is a one year lease with six options to
continue the lease on a year-to-year basis. The Company does not expect to
exercise its option to retain this area for a second year, and expects to move
its entire operations into the larger (13,355 feet) area in May 1998.
All of the Company's facilities are in good operating condition and are adequate
for the Company's present and anticipated future needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of any
pending or threatened litigation that could have a material adverse effect upon
its business, operating results, or financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year ended
December 31, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There was no established public trading market for the Company's securities
prior to May 1, 1997. Since that date, the Company's Common Stock has traded on
the Nasdaq SmallCap Market under the symbol MMSY and a class of warrants to
purchase shares of the Company's Common Stock at a price of $5.50 per share (the
"Warrants") has traded on the Nasdaq SmallCap Market under the symbol MMSYW. The
following table sets forth for the periods indicated the high and low bid
information for the Common Stock as reported on the Nasdaq SmallCap Market:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1997
2nd Quarter (beginning May 1, 1997)........................ 5-3/8 3
3rd Quarter................................................ 3-13/32 1-15/16
4th Quarter................................................ 2-15/32 7/8
</TABLE>
The following table sets forth for the periods indicated the high and low bid
information for the Warrants as reported on the Nasdaq SmallCap Market:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1997
2nd Quarter (beginning May 1, 1997) ....................... 1-3/4 3/8
3rd Quarter ............................................... 3/4 5/16
4th Quarter ............................................... 1/2 1/32
</TABLE>
The foregoing represents inter-dealer prices without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
As of March 17, 1998 the Company had approximately 68 holders of record of its
Common Stock and 8 holders of record of the Warrants.
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain all available earnings (if any) for the development
and growth of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. The Company's financing agreement with a
bank governing the terms of the Company's term loan and demand line of credit
with the bank prohibits the Company from declaring or paying dividends to its
stockholders without the bank's prior review and written consent.
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The Company's Transfer Agent and Registrar is the American Stock Transfer &
Trust Company.
The Company sold 1,440,000 shares of Common Stock, and 1,656,000 Warrants,
pursuant to a registration statement on Form SB-2 (File No. 333-21043), which
was declared effective by the Securities and Exchange Commission on May 1, 1997.
The underwriter of the offering was Whale Securities Co., L. P. The aggregate
gross proceeds of the offering were $7,365,600. The Company's total expenses in
connection with the offering were $1,889,306, of which $917,528 was for
underwriting discounts and commissions and $971,778 was for other expenses paid
to persons other than directors or officers of the Company, persons owning more
than 10 percent of any class of equity security of the Company or affiliates of
the Company. The Company's net proceeds from the offering were $5,476,294. As of
December 31, 1997, the Company expended the following amounts toward the purpose
indicated:
<TABLE>
<S> <C>
Repayment of indebtedness and retirement of warrants $1,407,924
Purchase of machinery and equipment 51,484
Sales and Marketing 700,000
Software development 1,600,000
Communications 0
Working Capital 1,716,886
----------
$5,476,294
</TABLE>
Payments of $160,000, included in the $1,407,924 repayments of indebtedness,
were made to directors or officers (or members of their families) of the Company
as retirement of loans. No other payments were made to directors, officers or
persons owning more than 10 percent of any class of equity security of the
Company or to affiliates of the Company.
Anticipated expenditures on communications were used instead to fund software
development. There are no other material changes in the actual use of proceeds
from those described in the Company's final prospectus dated May 1, 1997
relating to the initial public offering. As of December 31, 1997, the net
proceeds from the initial public offering were fully utilized.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements in this report,
which are not historical facts, are forward-looking statements. Such
forward-looking statements, including those concerning the Company's
expectations for liquidity, demand and sales of new and existing products,
industry and market segment growth and market and technology opportunities, all
involve risks and uncertainties. Actual results may differ materially from such
forward-looking statements for reasons including, but not limited to, changes in
the marine transportation industry, delays or problems in the development and
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commercialization of the Company's products, customer interest in and acceptance
of the Company's current and new products and services, the impact of
competitive products and services and technological changes affecting the
Company's products and products under development.
General
The Company's total revenues for the year ending December 31, 1997 were below
management's expectations, as a number of factors influenced the Company's
performance. While sales of the Company's Core products increased in 1997
("Core" product sales include software, services and hardware sales to the
marine industry and do not include contract revenues and hardware sales to
non-marine customers, or "Non-Core" sales), they did not increase enough to
offset Non-Core revenue reductions. The Company made a number of internal
operational changes in 1997, including changes in senior management and sales
staff, the pricing and packaging of the Fleet Manager Enterprise product set and
the methodology by which the product set is sold. There can be no assurance as
to the effect, if any, that these changes will have on the Company's future
sales. In addition, the marketplace in the marine industry has a traditionally
long sales cycle, which the Company has been unable to significantly shorten.
During the first eight months of the year, the Company made expenditures in
accordance with increased revenue expectations, including increased headcount in
the marketing, sales and service departments. When sales did not materialize at
expected levels, Management implemented a cost reduction program which cut the
Company's expenditures to a level where it believes it can reach break-even at
significantly more modest revenues. These reductions took place in the fourth
quarter of 1997. The Company will continue to monitor expenses to keep them in
line with actual sales.
The Company's future level of sales and potential profitability will depend on
many factors, including an increased demand for the Company's existing products,
the ability of the Company to develop and sell new products and product versions
to meet customers' needs, the ability of management to control costs and
successfully implement the Company's strategy, and the ability of the Company to
develop and deliver products in a timely manner.
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues decreased 21.6 % from $4,350,282 in 1996 to $3,410,256
in 1997. Lower revenues from contract sales and non-marine hardware sales were
partially offset by core product revenues, which increased 27.5% from core
product sales of $2,127,058 in 1996 to $2,712,538 in 1997. Non-marine hardware
sales, however, decreased 60.7% from $1,267,777 in 1996 to $498,260 in 1997. The
decrease was a result of the completion of a major hardware sale to one customer
in 1996, not repeated in
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1997. Contract revenues also decreased, falling 79.1% from $955,447 in 1996 to
$199,458 in 1997. Contract revenues decreased, as expected, as a result of the
winding down of the U. S. Government's partial funding of the ISIT project.
Marine software sales increased 24.2% from $1,163,363 in 1996 to $1,444,626 in
1997, primarily due to increased Fleet Manager Enterprise Windows version sales,
released in 1997. Marine hardware sales increased 109.1% from $199,294 in 1996
to $416,808 in 1997 as more new customers purchased the Company's hardware
solutions along with their software purchase. Services revenues increased 11.3%
from $764,401 in 1996 to $851,104 in 1997, due primarily to increased consulting
revenues on Windows-based products.
Direct Costs of Sales. Costs of sales decreased 20.1% from $3,017,950 in 1996 to
$2,410,082 in 1997, due primarily from lower revenues in 1997 compared to 1996.
Combined software and services and software amortization costs increased by
19.3% from $1,406,817 in 1996 to $1,678,672 in 1997 due primarily to increased
services costs as personnel were hired and trained to support the Company's new
Windows-based products. Hardware costs decreased by 47.4% from $1,105,238 in
1996 to $580,991 in 1997 as lower revenues combined with lower product costs for
items sold decreased the Company's overall cost of hardware goods. Contract
costs decreased by 70.3% from $505,895 in 1996 to $150,419 in 1997, as
associated sales for contract services diminished between these two years.
Gross Profit. Gross profit decreased 24.9% from $1,332,332 in 1996 to $1,000,174
in 1997, reflecting the lower overall sales volumes during 1997 compared to
1996. Gross margin also decreased 1.3% to 29.3% in 1997 from 30.6% in 1996 as
services expenses increased to meet the requirements of the Company's
Windows-based software introduction.
Operating Expense. Operating expenses increased 43.1% from $2,719,114 in 1996 to
$3,890,216 in 1997, reflecting primarily the 61.2% increase in selling and
administration expenses of $2,249,372 in 1996 to $3,625,489 in 1997. This
increase was due to an increase in sales and marketing personnel and related
expenses between the comparable periods as the Company anticipated the launch of
new software products.
Interest Expense. Net interest expenses decreased 9.5% from $455,532 in 1996 to
$412,108 in 1997. Interest expenses in 1997 were impacted by the recognition of
two one-time charges totaling $272,185 charged to operations related to the
satisfaction of debt out of the proceeds from the Company's initial public
offering offset by lower borrowing costs in 1997, as debt was replaced by equity
in 1997.
Net Loss. The Company's net loss increased for the year ended December 31, 1997
by 79.2% to $3,302,150 from a loss of $1,842,314 in 1996. Higher expenses and
reduced revenue resulted in larger losses for the year, as described above.
13
<PAGE> 14
Liquidity and Capital Resources
Since its inception, the Company has financed its operations with private
placements of equity, government funding, cash from operations, subordinated
debt, bank term loans, bank credit lines and inventory "floor plan" financing.
In addition, in May 1997, the Company completed an initial public offering of
Common Stock and Warrants.
For the years ended December 31, 1997 and 1996, the Company had net cash used in
operations of $3,704,328 and $607,513, respectively. Cash in the form of a
certificate of deposit was used as collateral for the Company's long-term debt
owed to a bank of $619,000, as well as a letter of credit for $25,000 to the
benefit of the Company's lessor. The net cash used in operations during 1997 was
primarily attributed to increased operating expenses, particularly for sales,
marketing, software development and services expenses as the Company anticipated
the launch of Windows-based products, coupled with an increase in accounts
receivable but reduced by increased deferred revenues from improved sales of
software license renewals compared to 1996. The net cash used in operations
during 1996 was primarily attributed to the increase in the Company's payroll,
marketing and sales expenses, technical consulting costs and an increase in
trade accounts receivable associated with an increase in revenues.
Net cash used in investing activities for the years ended December 31, 1997 and
1996 of $1,330,035 and $1,317,729, respectively, were primarily attributed to
capitalized software development costs for both the Windows-based Fleet Manager
Enterprise Series products and for ISIT development. The Company's cash
requirements to fund development of new products in 1997 substantially decreased
in the fourth quarter, as the Windows-based products were launched and as ISIT
development costs slowed.
Net cash provided by financing activities for the year ended December 31, 1997
of $4,995,396 was primarily attributed to the completion of the Company's
initial public offering in May 1997. Net cash provided by financing activities
for the year ended December 31, 1996 of $1,968,009 was primarily attributed to
increases in outstanding indebtedness and to the sale of Common Stock and
Preferred Stock.
At December 31, 1997, the Company had a note payable to a bank in the principal
amount of $619,167, maturing June 30, 1999. The note bears interest at the
bank's dividend rate of 7.5 % and is secured by a certificate of deposit for
$625,000. On December 22, 1997, the Company issued a short term note to a bank
for $85,504 secured by the assets of the Company. The note has an interest rate
of 2% above prime, 10.5% at December 31, 1997, and is due April 22, 1998.
On December 31, 1997 the Company also had subordinated debt to related parties
totaling $666,000, as follows: In July 1994, the Company borrowed an aggregate
of $500,000 from Eugene D. Story and Robert D. Ohmes, each an executive officer
and director of the Company. These loans bear interest at 2% over prime per
annum and do not have a due date. Such loans are subordinated to all other
indebtedness of the
14
<PAGE> 15
Company. From September through December 1996 the Company borrowed an aggregate
of $166,000 from Eugene D. Story, Robert D. Ohmes, Mark E. Story, then a Vice
President and director of the Company, Donald F. Logan, Jr., an executive
officer of the Company, and Scott R. Ohmes, the son of Robert D. Ohmes. These
loans bear an interest rate of 9% and are due December 2, 1998 and are
subordinate to all other indebtedness of the Company, except for the above
mentioned aggregate of $500,000 payable to Eugene D. Story and Robert D. Ohmes.
As of December 31, 1997, the Company had available cash of $19,150 and negative
working capital of $144,898. Management has taken actions to reduce the
Company's cash requirements, including staff reductions and cost deferments.
On April 9, 1998, the Company borrowed $700,000 as a bridge loan from an
investor, in the form of a bridge note, which is convertible into shares of
Common Stock at $1.00 per share, subject to adjustments under certain
circumstances. This bridge note bears interest at 10% and is due September 30,
1998. The Company and the investor have entered into an agreement to replace the
bridge note by a purchase by the investor of a $2,000,000 Senior Convertible
Note, convertible into Common Stock of the company at $1.00 per share, subject
to adjustment under certain circumstances, on or before September 30, 1998. The
senior convertible note will bear interest at 10% and have a maturity of five
years from the date of issuance. The issuance of the senior convertible note is
subject to the approval of stockholders and the satisfaction of other
conditions. Although Management believes that a majority of stockholders will
approve the issuance of the senior convertible note, there can be no assurance
that this transaction will be completed.
The Company believes that the $700,000 bridge loan will be sufficient to meet
the Company's cash requirements during the period of the bridge loan.
Furthermore, if the issuance of the $2,000,000 senior convertible note is
consummated , the Company believes that the additional proceeds will be
sufficient to meet the Company's cash requirements and commitments through April
1999. In the event the additional financing is not consummated, or if the
Company's plans change or prove to be inaccurate, the Company will be required
to seek additional financing. There can be no assurance that any additional
financing will be available to the company, on commercially reasonable terms, or
at all. The failure to obtain any needed financing would have a material adverse
effect on the Company.
Inflation
Inflation has not historically had an impact on the operations of the Company.
Year 2000 Compliance
The Company is analyzing its computer systems to identify any potential "Year
2000" issues and will take appropriate corrective action based on the results
of such analysis. This process includes obtaining confirmations from the
Company's primary vendors that plans are being developed or are already in
place to address processing of transactions in the year 2000. However, there
can be no assurance that the systems of other companies on which the Company's
systems rely will be converted in a timely fashion or that any such failure to
convert by another company would not have an adverse effect on the Company's
systems. Management is in the process of completing its assessment of the Year
2000 compliance costs. However, based on currently available information
(excluding the possible impact of vendor systems which management currently is
not in a position to evaluate), management does not believe that these costs
will have a material effect on the Company's earnings.
In addition, the "Year 2000" problem could affect the products that the
Company sells. The Company believes, however, that the current versions of its
products are "Year 2000" compliant. The Company's products are subject to
ongoing analysis and review.
ITEM 7. FINANCIAL STATEMENTS
The Report of Independent Auditors and the financial statements that are listed
in the Index to Financial Statements are included herein on pages F-1 through F-
26, found before Item 13, the exhibits.
15
<PAGE> 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants required to be
reported herein.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The executive officers and directors of the Company are as follows:
Name Age Position
- ---------------- ------ --------------
Eugene D. Story 70 Chairman of the Board of Directors
Michael P. Barney 45 President, Chief Executive Officer
and Director
Robert D. Ohmes 62 Executive Vice President, Chief
Financial Officer, Secretary and
Director
Donald F. Logan, Jr. 44 Vice President, Operations
Arie Slot 54 Vice President, Sales
Robert N. Anderson 47 Controller
Lyman C. Hamilton,Jr. 71 Director
Donald R. Yearwood 59 Director
Alan K. Greene 58 Director
Eugene D. Story, a founder of the Company, has served as Chairman of the Board
of Directors of the Company since December 1997 and as a director since 1969.
From 1970 to December 1997, Mr. Story served as President and Chief Executive
Officer. Mr. Story has over 40 years of experience in the shipping business. His
past positions include Manager of Project Development and Design in the Marine
Transportation Department for Mobil Oil Corporation, President of Stal-Laval
Turbine Company, Supervisor of Marine Construction for California-Texas Oil
Corporation and Naval Architect at Gibbs and Cox, Inc. He has written over a
dozen papers on topics ranging from a 1974 paper entitled Advanced Applications
of Management Computers in the Marine Industry to a 1993 paper for INMARSAT
entitled Integrating the Shipboard and Shore Office Management Systems. Mr.
Story received a B. S. in Marine Engineering from the U.S. Merchant Marine
Academy and BS in Naval Architecture and Marine Engineering from the University
of Michigan.
Michael P. Barney has served as President and Chief Executive Officer of the
Company since December 1997 and as a director since May 1996. From May to
December 1997
16
<PAGE> 17
Mr. Barney served as Chief Operating Officer of the Company. From December 1996
to May 1997 Mr. Barney was Vice President - Corporate Development and Marketing
of the Company, and from July 1995 through November 1996, he served as Vice
President Corporate Development. From March 1990 to May 1995, Mr. Barney was
General Manager of Administration at Seer Technologies, Inc., a high technology
software / consulting firm. From June 1986 to February 1990, Mr. Barney was Vice
President of Information Services as First Boston Corporation. Mr. Barney
graduated summa cum laude from the University of Connecticut with a BS in
Finance and an MBA.
Robert D. Ohmes, a founder of the Company, has served as Executive Vice
President and Chief Financial Officer of the Company since 1974 and as a
director since 1969. His past positions have included Vice President of W.R.
Grace, Director of Business Development of Olin Corporation, Director of
Investment Analysis at ITT Corporation and attorney for the marine law division
of Mobil Oil Corporation. He has also authored papers including the four volumes
of Shipboard Management Information Systems Feasibility Study for the U.S.
Maritime Administration. Mr. Ohmes received a BA from Williams College, an LLB
and J.D from Fordham Law School and an MBA from New York University. Mr. Ohmes
is the father of Scott R. Ohmes, a beneficial owner of 7% of the Company's
Common Stock.
Donald F. Logan, Jr. has served as Vice President, Operations since December
1996. From January 1995 through November 1996, Mr. Logan was Vice President,
Marketing and Sales of the Company. From January 1991 through December 1994, Mr.
Logan was Vice President Marine Systems for MMS, and from January 1985 through
December 1990, he was Vice President Microsystems of the Company. Mr. Logan also
served as a director of the Company from 1987 to May 1997. Prior to joining the
Company in 1979, Mr. Logan served in the Marine Department of Exxon Company with
responsibility for navigation and supervision of cargo operations. Mr. Logan
received a BS from the U.S. Merchant Marine Academy.
Arie Slot has served as Vice President, Sales of the Company since joining the
Company in January 1997. From May 1991 to December 1996, Mr. Slot was an area
sales director for Hyperion Software, a developer of enterprise-wide financial
software applications. From October 1989 to May 1991, Mr. Slot was a regional
director for Execucom Systems Corporation, a provider of decision support
software, and from September 1984 to October 1989, he held various sales manager
positions with Boeing Computer Services, a division of the Boeing Company.
Robert N. Anderson has served as Controller since joining the Company
in May 1997. Prior to joining MMS, Mr. Anderson was the Chief
Financial Officer for Harstans, Inc. from 1994 to 1997, and Manager of
Audit for Sterling Winthrop, the Pharmaceutical division of Eastman
Kodak from 1990 to 1994. Mr. Anderson received his BS in accounting
and finance from Syracuse University and is a Certified Public
Accountant in New York State.
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<PAGE> 18
Lyman C. Hamilton, Jr. has served as a director of the Company since January
1990. Mr. Hamilton is currently an investment manager. From October 1994 to May
1995, he served as Chief Executive Officer of InterDigital Communications
Corporation, a specialized communications corporation. Previously, he served as
Chairman of Alpine PolyVision, Inc., a flat panel display manufacturer, during
1993, and as President and Chief Executive Officer from January 1991 to December
1992. He was Chairman and President of Imperial Corporation of America, a
financial services company, from July 1989 to February 1990, and Chairman and
President of Tamco Enterprises, Inc., a private investment company, from
November 1979 to January 1989. Mr. Hamilton was employed by ITT Corporation from
1962 until 1979 in a number of executive positions, including as President and
Chief Operating Officer during 1977 and as President and Chief Executive Officer
from 1978 until 1979. Mr. Hamilton is a director of ScanOptics, Inc.
Donald R. Yearwood was appointed a director of the Company on January 7, 1998.
Mr. Yearwood is a principal in Sanborn Yearwood & Associates, management
consultants; Chairman of Shoreline Mutual (Bermuda), a mutual insurance company
controlled by shipowners throughout the world; and director of Arvak (Bermuda)
Ltd., an insurance company. Previously, Mr. Yearwood was Chairman and CEO of
Attransco, Inc., a tanker and dry bulk shipping company; director and Senior
Vice President of American Trading and Production Corp., with responsibilities
for shipping as well as oil and gas exploration and production; director of
Crown Central Petroleum Corp.; director of Maritime Affairs for a European
Shipping Company; and President of an international ship brokerage and trading
organization. Mr. Yearwood graduated from the U.S. Merchant Marine Academy with
a BS degree and has an MBA from the City University of New York, Baruch School
of Business.
Alan K. Greene was appointed a director of the Company on February 17, 1998. Mr.
Greene retired from Price Waterhouse, Corporate Finance Group as a Partner in
1995 after serving his professional career with Price Waterhouse in various high
level positions including Corporate Finance Beratung GmbH, National Director Tax
Services-Mergers and Acquisitions, and others. Mr. Greene serves on the boards
of directors of Connecticut Innovations, Inc.; the Eli Whitney Investment
Advisory Committee, and Science Park Development Corporation, and on the
advisory boards of the Mezzanine Capital Advisory Board of the Connecticut
Development Authority and the Eli Whitney Investment Advisory Committee of CII,
and Chairman of Connecticut's Technology Advisory board Finance Committee.
All directors currently hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Executive officers serve at the discretion of the Board of Directors.
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<PAGE> 19
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the compensation
paid by the Company for the years ended December 31, 1997, 1996 and 1995 to each
of the Company's executive officers whose total salary and bonus exceeded
$100,000 in 1997 (together, the "Named Executive Officers") for services
rendered in all capacities to the Company.
Summary Compensation Table
<TABLE>
<CAPTION>
Long
Term
Compensation
Annual Compensation Awards
------------------------ -----------
All Other
Securities Compensation
Name and Principal Position Year Salary($) Bonus($) Underlying ($) (1)
Options (#)
- ---------------------- --------- -------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Eugene D. Story 1997 116,972 -- -- 2,729
Chairman of the Board 1996 107,000 -- -- 3,415
Former President and CEO 1995 96,000 -- -- 3,080
Michael P. Barney 1997 97,824 -- 25,000 2,257
President and CEO 1996 89,167 -- -- 3,121
Former COO 1995 43,333 -- -- --
Robert D. Ohmes 1997 116,972 -- -- 2,729
Executive Vice President, CFO, 1996 107,000 -- -- 3,415
Secretary 1995 96,000 -- -- 3,020
Arie Slot (2) 1997 95,517 51,040 15,000 --
Vice President, Sales 1996 -- -- -- --
1995 -- -- --
</TABLE>
(1) Represents the Company's contribution under the Company's 401(k) plan
(2) Mr. Slot joined the Company in January 1997.
Option Grants
The following table sets forth certain information with respect to stock options
granted to the Named Executive Officers during the year ended December 31, 1997.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------
% of Total
Number of Options
Securities Granted
Underlying to
Options Employees Exercise Price Expiration
Name Granted(#)(1) In 1997 ($/sh) Date
- ------------------ --------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Eugene D. Story -- -- -- --
Michael P. Barney 25,000 17.3% 2.35 9/9/07
Robert D. Ohmes -- -- -- --
Arie Slot 15,000 10.4% 4.31 5/20/07
- ------------------------------------------------------------------------------
</TABLE>
(1) Options granted vest 25% per year for 4 years from date of grant.
19
<PAGE> 20
Stock Option Exercises and Fiscal Year-End Option Values
The following table sets forth information concerning option holdings as of
December 31, 1997 with respect to the Named Executive Officers.
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-Ended Option Values
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at FY-End Options
(#) At FY-End ($)
--------------------- --------------------
Shares Value
Acquired Realized
on ($)
Exercise
Name (#) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- -------- ------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eugene D. Story - - -- -- -- --
Michael P. Barney - - 0 25,000 0 0
Robert D. Ohmes - - -- -- -- --
Arie Slot - - 0 15,000 0 0
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements, effective May 1, 1997, with each
of Eugene D. Story, Robert D. Ohmes and Michael P. Barney. The agreements
provide for an annual base of salary of $130,000 in the case of Messrs. Story
and Ohmes and $105,000 in the case of Mr. Barney, subject to salary increases on
an annual basis equal to the percentage increase, if any, in the consumer price
index for the Metropolitan New York area, and bonus as may be determined by the
Compensation Committee of the Board of Directors from time to time, such bonus
not to exceed 50% of the annual base salary then in effect. The agreements
expire on the earliest to occur of (i) May 1, 1999 (ii) the death of the
employee, and (iii) the termination of the employee for incapacity, upon written
notice from the Company and according to specified conditions, and are subject
to automatic renewal on an annual basis unless either party gives 90 days prior
notice of termination with respect to any renewal. Under the terms of the
agreements, if the Company terminates the agreements at the end of any term or
terminates the employee for incapacity, the employee shall be entitled to
receive his annual base salary then in effect for a period of nine months after
termination in the case of Messrs. Story and Ohmes and for a period of six
months after termination in the case of Mr. Barney. The agreements restrict each
employee from competing with the Company during their term of the agreement and
for a period of one year following any termination of the agreement; provided
that if the agreements are terminated for any reason other than for cause, the
Company shall pay to each employee 60% of his annual base salary then in effect
for a period of two years following the termination in consideration of such
agreement not to compete. In the event the Company should seek to enforce such
non-
20
<PAGE> 21
competition provisions in court, a state court, may, in exercising its
discretionary authority, determine not to enforce, or to limit enforcement of,
such provisions against an employee.
On July 31, 1997, the Company entered into an employment agreement with Mr. Arie
Slot, Vice President of Sales. The agreement provides for an annual salary base
of $100,000 subject to salary increases on an annual basis equal to the
percentage increase, if any, in the consumer price index for the Metropolitan
New York area, and quarterly performance bonuses that are negotiated between the
Company and Mr. Slot each year, but in 1997 were based on a percentage of the
quarterly software sales targets for 1997. The agreement expires on the earliest
to occur of (i) July 31, 1998, ( ii ) the death of the employee, ( iii ) the
termination of the employee for incapacity according to certain conditions, and
(iv) the termination of the employee for cause, and is subject to automatic
renewal on an annual basis unless either party, commencing thirty days prior to
the anniversary of the effective date of the agreement, shall give the other
party prior written notice of its intention to terminate the agreement on a
specified date at least thirty days from the date of such notice. If the Company
shall terminate the agreement at the end of any term or terminates the employee
for incapacity, the Company shall continue to pay to the employee his annual
base salary for six months after the effective date of such termination.
DIRECTOR COMPENSATION
The Company's directors do not receive any cash compensation for service on the
Board of Directors or any committee thereof, but are reimbursed for expenses
actually incurred in connection with attending meeting of the Board of Directors
and any committee thereof.
21
<PAGE> 22
MANAGEMENT WARRANTS
In April and June 1996, the Company issued to certain executive officers of the
Company and their affiliates warrants to purchase an aggregate of 222,219 shares
of Common Stock at a purchase price of $3.38 per share (the "Management
Warrants"). The Management Warrants are exercisable for a ten-year period
commencing on the date of grant. The following table sets forth certain
information regarding the Management Warrants issued in April and June of 1996.
<TABLE>
<CAPTION>
Number of Shares
Name Underlying Warrants Expiration Date
--------------- --------------------- --------------------
<S> <C> <C>
Eugene D. Story 19,259 6/3/06
Robert D. Ohmes 19,259 6/3/06
Donald F. Logan 10,370 6/3/06
Mark E. Story 92,592 4/1/06
Mark E. Story 6,666 6/3/06
Michael P. Barney 18,518 4/1/06
Robert F. Ohmes(1) 18,518 4/1/06
Scott R. Ohmes (1) 37,037 4/1/06
</TABLE>
----------
(1) Robert F. Ohmes and Scott R. Ohmes are the sons of Robert D. Ohmes
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1998, certain information known
to the Company regarding the beneficial ownership of the Company's Common Stock
by: (i) each person known by the Company to own beneficially more than 5% of the
outstanding Common Stock of the Company; (ii) each director of the Company;
(iii) each Named Executive Officer; and (iv) all directors and executive
officers of the Company as a group:
22
<PAGE> 23
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of Outstanding
Beneficial Owner (1) Beneficially Owned Shares Beneficially Owned (2)
- ---------------------- ------------------ -----------------------------
<S> <C> <C>
Eugene D. Story ................ 887,883(3) 20.0%
Sperry Marine Inc.
1070 Seminole Trail
Charlottesville, VA 22901 ..... 625,000(4) 13.2%
Robert D. Ohmes ................ 492,649(5) 11.1%
Scott R. Ohmes
41 Briar Oak Drive
Weston, CT 06883 .............. 313,830(6) 7.0%
Connecticut Innovations, Inc.
999 West Street
Rocky Hill, CT 06067 .......... 277,777 6.3%
COMSAT Mobile Investments, Inc.
6560 Rock Spring Drive
Bethesda, MD 20817 ............ 265,537 6.0%
Lyman C. Hamilton, Jr.
69 Byron Drive
Avon, CT 06001 ................ 72,074 1.6%
Michael P. Barney .............. - -
Arie Slot ...................... - -
Donald R. Yearwood
651 Ranger Court
Davidsonville, MD 21035 ....... - -
Alan K. Greene
6 Beach Drive
Darien, CT 06820 .............. - -
All directors and
executive officers as a
group (9 persons)............... 1,589,512(7) 35.4%
</TABLE>
- -------------------------
(1) Unless otherwise indicated, the address of each beneficial owner is c/o the
Company, 470 West Avenue, Stamford, CT 06902
23
<PAGE> 24
(2) Except as indicated in the footnotes to this table, the Company believes
that all the persons named in the table have sole voting and investment power
with respect to all Common Stock shown as beneficially owned by them, subject to
community property laws where applicable. In accordance with the rules of the
Commission, a person or entity is deemed to be the beneficial owner of Common
Stock that can be acquired by such person or entity within 60 days of March 31,
1998 upon the exercise of options or warrants or other rights to acquire Common
Stock. Each beneficial owner's percentage ownership is determined by assuming
that options and warrants that are held by such person (but not those held by
any other person) and which are exercisable within 60 days of March 31, 1998,
have been exercised. The inclusion herein of such shares listed as beneficially
owned does not constitute an admission of beneficial ownership. Percentages
herein assume a base of 4,421,120 shares of Common Stock outstanding.
(3) Includes 19,259 shares issuable upon the exercise of Management Warrants.
(4) Includes 325,000 shares issuable upon the exercise of warrants.
(5) Includes 3,703 shares owned by Evelyn Ohmes, Robert D. Ohmes' wife, and
19,259 shares issuable upon the exercise of Management Warrants. Mr. Ohmes
disclaims beneficial ownership of the shares owned by his wife.
(6) Includes 37,037 shares issuable upon the exercise of Management Warrants.
(7) Included 67,406 shares issuable to executive officers upon the exercise of
Management Warrants exercisable within 60 days of March 31, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 17, 1988, Christopher Story, the brother of Eugene D. Story, then the
President, Chief Executive Officer and a director of the Company, and currently
the Chairman of the Board of the Company loaned the Company $25,000 in exchange
for a convertible subordinated note of the Company bearing interest at 1% over
prime and convertible into 10,018 shares of Common Stock. On June 30, 1996,
Christopher Story exercised his right to convert such note into 10,018 shares of
Common Stock.
On July 1, 1994, Eugene D. Story loaned the Company $300,000 and Robert D.
Ohmes, the Executive Vice President, Chief Financial Officer and a director of
the Company, loaned the Company $200,000. In exchange, the Company issued to
Eugene D. Story and Robert D. Ohmes notes bearing interest at 2% over prime.
These notes were subordinated to other indebtedness of the Company existing at
the time of the loans.
On July 28, 1994, Scott R. Ohmes, son of Robert D. Ohmes, loaned the Company
$70,000 in exchange for a ten-year convertible subordinated debenture bearing
interest at 8% and convertible into 259,259 shares of Common Stock. On June 30,
1996, Scott Ohmes converted the subordinated note into 259,259 shares of Common
Stock. Over the period from November 1994 through December 1995, Scott Ohmes
made loans to the Company totaling $150,000, which the Company agreed to repay
with interest accruing at approximately 12%. On June 1, 1996, Scott Ohmes
exchanged the $150,000 of loans for 44,444 shares of Common Stock.
24
<PAGE> 25
On January 3, 1995, Lyman C. Hamilton, Jr., a director of the Company, exchanged
two existing convertible subordinated notes in the amount of $50,000 (dated
October 31, 1988) and $12,500 (dated April 1, 1989), including accrued interest
thereon, for a new convertible subordinated note bearing interest at 10% and
convertible into 62,074 shares of Common Stock. On June 30, 1996, Mr. Hamilton
exercised his right to convert such note.
On December 5, 1995, Robert D. Ohmes loaned to the Company $75,000, which the
Company agreed to repay with interest accruing at approximately 12%. On June 1,
1996, Robert D. Ohmes exchanged the $75,000 of loans for 22,222 shares of Common
Stock.
In April and June 1996, the Company issued to certain executive officers
Management Warrants to purchase an aggregate of 222,219 shares of Common Stock
at a purchase price of $3.38 per share. At the request of Robert D. Ohmes,
Management Warrants to purchase 55,555 shares issuable to him were issued to his
sons, Robert F. Ohmes and Scott R. Ohmes.
In May 1990, Eugene D. Story, Robert D. Ohmes and Donald F. Logan, Jr., a Senior
Vice President of the Company, received 840, 793 and 466 shares respectively, of
the Company's 6% Non-Cumulative Preferred Stock, par value $100 per share, as
part of their compensation for services rendered to the Company. On June 1,
1996, Messrs. Story, Ohmes and Logan exchanged such shares of 6% Non-Cumulative
Preferred Stock for 25,337, 23,151 and 13,703 shares, respectively, of Common
Stock.
During the period from 1987 through 1994, the Company made loans to Eugene D.
Story, Robert D. Ohmes, Donald F. Logan, Jr. and Mark E. Story, the son of
Eugene D. Story and then a Vice President and director of the Company. Interest
accrued on such loans over the period at rates ranging from 6% to 10%. The loans
were repaid in full immediately prior to the initial public offering of May 1,
1997 through the return to the Company for cancellation of 27,085, 26,910,
14,627 and 9,145 shares of Common Stock by Eugene D. Story, Robert D. Ohmes,
Donald F. Logan, Jr. and Mark E. Story, respectively.
In March, 1995, the Company obtained a $500,000 loan from CII, currently a
principal stockholder of the Company, bearing interest at the rate of 10% per
annum evidenced by a promissory note to CII (the "Senior Note"). In connection
with this loan, the Company issued warrants to CII to purchase an aggregate of
259,888 shares of its Common Stock at an initial exercise price of $2.31 per
share. In August 1996, the Company sold 7,500 shares of its Preferred Stock to
CII in exchange for (i) CII's payment of $500,000 in cash, (ii) the cancellation
of $236,924 of the $473,848 principal amount of indebtedness then outstanding
under the Senior Note, and (iii) CII's relinquishment of one-half of its
warrants, leaving CII with the CII Warrants to purchase 129,944 shares of Common
Stock. Immediately prior to the consummation of the initial public offering, the
7,500 shares of Preferred Stock held by CII were converted into an aggregate of
277,777 shares of Common Stock, which shares are subject to piggyback
registration rights. In addition,
25
<PAGE> 26
upon the consummation of the initial public offering, the Company used the
proceeds from this offering to repay the balance of the Senior Note ($236,924
plus approximately $23,000 in accrued interest) and to redeem the CII Warrants
(approximately $95,000).
In June 1996, Robert D. Ohmes acquired a $75,000 loan from a bank, the proceeds
of which he, in turn, loaned to the Company. Subsequently, in November 1996,
such loans were amended to reflect the Company as the bank's borrower and
eliminating Mr. Ohmes as a lender.
On October 29, 1996, Lyman C. Hamilton, Jr., a trust for the benefit of Donald
F. Logan, Jr.'s mother, Christopher Story, and Tiffany Story, the niece of
Eugene D. Story, loaned the Company $100,000, $50,000, $5,000 and $5,000
respectively. Each of these loans bore interest at 10% per annum and was paid by
the Company out of the proceeds from its initial public offering.
From September through December 1996, the Company borrowed $90,000 from Scott R.
Ohmes, $29,000 from Eugene D. Story, $10,000 from Robert D. Ohmes, $15,000 from
Mark E. Story and $22,000 from Donald F. Logan, Jr. All of such indebtedness
bears interest at the rate of 9% per annum and matures on December 2, 1998. In
addition, all of such indebtedness is subordinated to all other indebtedness of
the Company except for an aggregate of $500,000 payable to Eugene D. Story and
Robert D. Ohmes.
In December 1996, the Company entered into (the "Sperry Agreement"), a five-year
marketing and distribution agreement with Sperry Marine, Inc. ("Sperry"), a
principal stockholder of the Company. In connection with the Sperry Agreement,
Sperry provided $500,000 in financing to the Company, which financing consisted
of a 9% promissory note of the Company in the principal amount of $250,000,
convertible into an aggregate of 100,000 shares of Common Stock (the "Sperry
Convertible Note"), a 9% promissory note of the Company in the principal amount
of $250,000 (the "Sperry Non-Convertible Note") and warrants to purchase 125,000
shares of Common Stock at an exercise price of $5.00 per share. Upon the
consummation of the Company's initial public offering, the Convertible Note was
converted into 100,000 shares of Common Stock and the Non-Convertible Note was
paid out of the proceeds of the Company's initial offering. In addition, Sperry
purchased 200,000 shares and 200,000 warrants in the Company's initial public
offering.
In connection with the Company's bridge financing in January 1997, Eugene D.
Story and Robert D. Ohmes contributed 45,000 and 25,000 of their shares of
Common Stock, respectively, to the Company's treasury immediately prior to the
closing of such financing. Such 70,000 shares were then issued by the Company to
the investors in the Bridge Financing as the Bridge Shares. Subsequently, 20,000
shares were returned to the Company's treasury by the investors.
Eugene D. Story and his spouse had personally guaranteed the payment of all
indebtedness of the Company to the Company's bank. Mr. Story's spouse had also
26
<PAGE> 27
executed an open-end mortgage deed with respect to the residence of Mr. Story
and his spouse, which mortgage deed secures the payment of the guarantee up to a
maximum of $225,000. In addition, Robert D. Ohmes and his spouse had personally
guaranteed the payment of all indebtedness of the Company to the bank. Mr. Ohmes
and his spouse had also executed an open-end mortgage deed with respect to the
residence of Mr. Ohmes and his spouse, which mortgage deed secured the payment
of the guarantee up to a maximum of $100,000. Furthermore, Mr. Ohmes and his
spouse pledged $131,000 in securities as additional collateral for the
guarantee. On November 1997 the bank eliminated the guarantees of both Mr. Story
and Mr. Ohmes, as the bank loan was secured by certificate of deposits.
There can be no assurance that all of the foregoing transactions were on terms
no less favorable to the Company than could be obtained from independent third
parties. Future transactions, if any, between the Company and any of its
directors, officers and/or 5% stockholders will be on terms no less favorable to
the Company than could be obtained from independent third parties and will be
approved by a majority of the independent, disinterested directors of the
Company.
27
<PAGE> 28
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Following is a list of exhibits filed with this Form 10-KSB
3.01(a) Amended and Restated Certificate of Incorporation (1)
3.01(b) Certificate of Amendment of Amended and Restated Certificate of
Incorporation (1)
3.02 By-laws (1)
4.01 Specimen Certificate representing shares of Common Stock, par
value $.002 per share.(1)
4.02 Specimen Certificate representing the Public Warrants.(1)
4.03 Form of Public Warrant Agreement among the Registrant, Whale
Securities co., L.P. as Underwriter and American Stock Transfer &
Trust Company as Warrant Agent. (1)
4.04 Form of Underwriter's Warrant Agreement, including form of warrant
certificate. (1)
4.05 $650,000 Commercial Revolving Note from Registrant to People's
Bank Dated November 5, 1997.(2)
4.06 $85,506 Commercial Note from Registrant to People's Bank Dated
December 22, 1997 (2).
10.01(a) Form of Purchase Warrant for Purchase of Common Stock, par value
$.001 per share.(1)
10.01(b) Schedule of Warrant holders. (1)
10.02 $300,000 Subordinated Note from the Registrant to Eugene D. Story,
dated July 1, 1994.(1)
10.03 $200,000 Subordinated Note from the Registrant to Robert D. Ohmes,
dated July 1, 1994(1)
10.04 $29,000 Subordinated Note from the Registrant to Eugene D. Story,
dated December 2, 1996.(1)
10.05 $10,000 Subordinated Note from the Registrant to Robert D. Ohmes,
dated December 2, 1996.(1)
10.06 $15,000 Subordinated Note from the Registrant to Mark E. Story,
dated December 2, 1996.(1)
10.07 $90,000 Subordinated Note from the Registrant to Scott R. Ohmes,
dated December 2, 1996.(1)
10.08 $22,000 Subordinated Note from the Registrant to Donald F. Logan,
Jr., dated December 2, 1996.(1)
10.09 Key Employee Agreement between the Registrant and Eugene D.
Story(1)
10.10 Key Employee Agreement between the Registrant and Robert D. Ohmes.
(1)
10.11 Form of Key Employee Agreement between the Registrant and each of
Michael P. Barney and Donald F. Logan (1).
10.12 Marine Management Systems, Inc. 1996 Key Employees' Stock Option
Plan as amended May 20,1997. (2)
10.13(a) Agreement of Lease between Seaboard Stamford Investor Associates,
LLC and the Registrant, dated October 31, 1995 with respect to
Premises located at 470 West Avenue, Stamford, Connecticut 06902.
(1)
28
<PAGE> 29
10.13(b) Letter Amendment to Agreement of Lease, dated September 21,
1995.(1)
10.13(c) Letter Amendment to Agreement of Lease.(1)
10.14(a) United States of America, Department of Transportation Maritime
Administration Notification of Assistance Approval (Cooperative
Agreement), Project Number: DTMA91-95-H-0069, Title: Integrated
Shipboard Information Technology (ISIT) Platform, Effective Date
July 12, 1995.(1)
10.14(b) Modification 0001 to Project Number DTMA91-95-H-00069, dated
September 29, 1995. (1)
10.14(c) Modification 0002 to Project Number DTMA91-95-H-00069, dated March
25, 1996. (1)
10.14(d) Modification 0003 to Project Number DTMA91-95-H-00069, dated July
10, 1996. (1)
10.14(e) Modification 0004 to Project Number DTMA91-95-H-00069, dated
August 9, 1996. (1)
10.14(f) Modification 0005 to Project Number DTMA91-95-H-00069, dated
January 14, 1997. (1)
10.14(g) Modification 0006 to Project Number DTMA91-95-H-00069, dated
October 21, 1997. (2)
10.15 Federal Technology Partnership Assistance Agreement between the
Registrant and Connecticut Innovations, Incorporated, dated July
31, 1995. (1)
10.16 Marketing and Distribution Agreement between the Registrant and
Sperry Marine Inc., dated December 12, 1996.(1)
10.17 Warrant for the Purchase of Common Stock, par value $.002 per
share, issued to Sperry Marine Inc., dated December 12, 1996.(1)
10.18(a) Form of Registration Rights Agreement between the Registrant and
the Holder, dated as of January 29, 1997.(1)
10.18(b) Schedule of Holders.(1)
10.19 Consulting Agreement between the Registrant and Whale Securities
Co.,L.P.(1)
10.20 Key Employee Agreement between the Registrant and Arie Slot. (2)
27.01 Financial Data Schedule (2)
27.02 Financial Data Schedule - Restatements (2)
(1) Incorporated by reference to Registration Statement on Form SB-2,
Registration No. 333-21043 .
(2) Filed herewith.
(b) Reports on Form 8-K
The Company filed, on December 11, 1997, a Current Report on Form 8-K dated
December 2, 1997 reporting in Item 5 thereof the promotion of Michael P. Barney
to the position of President and Chief Executive Officer of the Company and the
appointment of Eugene D. Story to the position of Chairman of the Board of the
Company.
29
<PAGE> 30
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.
MARINE MANAGEMENT SYSTEMS, INC.
/s/ Michael Barney, President
---------------------------
Date: April 10, 1998
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Eugene D. Story Chairman of the Board/Director April 10, 1998
- --------------------------------------
/s/ Michael P. Barney President/Chief Executive Officer/Director April 10, 1998
- --------------------------------------
/s/ Robert D. Ohmes Chief Financial Officer, Secretary/Director April 10, 1998
- --------------------------------------
/s/ Robert N. Anderson Controller April 10, 1998
- --------------------------------------
/s/ Lyman C. Hamilton, Jr. Director April 10, 1998
- --------------------------------------
/s/ Donald R. Yearwood Director April 10, 1998
- --------------------------------------
/s/ Alan K. Greene Director April 10, 1998
- --------------------------------------
</TABLE>
30
<PAGE> 31
MARINE MANAGEMENT
SYSTEMS, INC.
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Balance sheets F-3
Statements of operations F-4
Statements of stockholders' equity (deficit) F-5
Statements of cash flows F-6
Notes to financial statements F-7 - F-26
F-1
<PAGE> 32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Marine
Management Systems, Inc.
We have audited the accompanying balance sheet of Marine Management Systems,
Inc. as of December 31, 1997, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the two years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Marine Management Systems, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
BDO Seidman, LLP
Valhalla, New York
March 17, 1998
Except for Note 15 which is
as of April 9, 1998
F-2
<PAGE> 33
MARINE MANAGEMENT
SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS (NOTES 4 AND 7)
CURRENT:
Cash $19,150
Accounts receivable, less allowance of $100,000 for possible losses (Note 11) 1,400,020
Inventories 9,044
Prepaid expenses and other 22,297
- -------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,450,511
CASH - RESTRICTED (NOTES 6 AND 8) 650,000
PROPERTY AND EQUIPMENT, NET (NOTE 2) 181,530
COMPUTER SOFTWARE COSTS, NET OF ACCUMULATED AMORTIZATION OF $1,803,595 2,767,139
- -------------------------------------------------------------------------------------------------------------
$5,049,180
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Short-term borrowings (Note 4) $85,504
Accounts payable and accrued expenses 749,072
Subordinated debt - related parties (Notes 3, 4 and 7) 166,000
Billings in excess of costs and estimated earnings on uncompleted
contracts (Note 5) 149,960
Deferred revenue 341,824
Customer deposits 65,749
Current portion of long-term debt and capital lease obligations (Note 6) 37,300
- -------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,595,409
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION (NOTE 6) 663,110
SUBORDINATED DEBT - RELATED PARTIES (NOTES 3 AND 7) 500,000
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,758,519
- -------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 12)
STOCKHOLDERS' EQUITY (NOTES 3 AND 9):
Common stock, $.002 par value, 9,000,000 shares authorized, 4,421,120
issued and outstanding 8,842
Additional paid-in capital 11,540,352
Accumulated deficit (9,258,533)
- -------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,290,661
- -------------------------------------------------------------------------------------------------------------
$5,049,180
=============================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 34
MARINE MANAGEMENT
SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1996 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES (NOTE 11):
Marine Sales - Software $1,163,363 $1,444,626
Marine Sales - Hardware 199,294 416,808
Marine Sales - Service 764,401 851,104
Hardware Sales - Non-Marine 1,267,777 498,260
Contract Sales 955,447 199,458
- -------------------------------------------------------------------------------------------------
4,350,282 3,410,256
- -------------------------------------------------------------------------------------------------
COST OF REVENUES:
Software and services 887,170 1,181,503
Software amortization 519,647 497,169
Hardware 1,105,238 580,991
Contract 505,895 150,419
- -------------------------------------------------------------------------------------------------
3,017,950 2,410,082
- -------------------------------------------------------------------------------------------------
GROSS PROFIT 1,332,332 1,000,174
- -------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 401,791 167,800
Selling and administrative 2,249,372 3,625,489
Depreciation and amortization 67,951 96,927
- -------------------------------------------------------------------------------------------------
2,719,114 3,890,216
- -------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (1,386,782) (2,890,042)
- -------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income - 53,652
Interest expense (455,532) (465,760)
- -------------------------------------------------------------------------------------------------
(455,532) (412,108)
- -------------------------------------------------------------------------------------------------
NET LOSS $(1,842,314) $(3,302,150)
=================================================================================================
NET LOSS PER COMMON SHARE - BASIC $(.78) $(.89)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (NOTE 13) 2,354,343 3,704,449
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 35
MARINE MANAGEMENT
SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Paid-in
Capital
---------------------- ----------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, AT DECEMBER 31, 1995 2,099 $ 209,900 2,007,576 $ 4,015 $ 3,759,587
Sale of common stock for cash, net of offering costs -- -- 233,326 467 732,408
Conversion of stock (2,099) (209,900) 62,191 124 209,776
Conversion of debt to common stock -- -- 398,017 796 381,704
Adjustment from revaluation of convertible debt -- -- -- -- 250,000
Net loss -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 -- -- 2,701,110 5,402 5,333,475
Conversion of loans receivable officers -- -- (77,767) (155) (388,682)
Officers shares returned to company -- -- (70,000) (140) --
Shares issued in connection with Bridge financing -- -- 50,000 100 122,900
Conversion of redeemable preferred stock -- -- 277,777 555 749,445
Conversion of debt to common stock -- -- 100,000 200 249,800
Proceeds of initial public offering, net of offering
costs -- -- 1,440,000 2,880 5,473,414
Dividends on redeemable preferred stock -- -- -- -- --
Net loss -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 -- $ -- 4,421,120 $ 8,842 $ 11,540,352
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated Loans Total
Deficit Receivable Stockholders'
Officers Equity
(Deficit)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, AT DECEMBER 31, 1995 $(4,108,315) $(388,837) $ (523,650)
Sale of common stock for cash, net of offering costs -- -- 732,875
Conversion of stock -- -- --
Conversion of debt to common stock -- -- 382,500
Adjustment from revaluation of convertible debt -- -- 250,000
Net loss (1,842,314) -- (1,842,314)
- ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 (5,950,629) (388,837) (1,000,589)
Conversion of loans receivable officers -- 388,837 --
Officers shares returned to company -- -- (140)
Shares issued in connection with Bridge financing -- -- 123,000
Conversion of redeemable preferred stock -- -- 750,000
Conversion of debt to common stock -- -- 250,000
Proceeds of initial public offering, net of offering
costs -- -- 5,476,294
Dividends on redeemable preferred stock (5,754) -- (5,754)
Net loss (3,302,150) -- (3,302,150)
- -------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $(9,258,533) $ -- $ 2,290,661
===============================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 36
MARINE MANAGEMENT
SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH (NOTE 14)
<TABLE>
<CAPTION>
Years ended December 31, 1996 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,842,314) $(3,302,150)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 587,598 594,096
Provision for losses on accounts receivable 25,000 100,000
Discount on issuance of preferred stock 13,076 --
Interest adjustment from revaluation of convertible debt 250,000 --
Changes in assets and liabilities:
Accounts receivable (87,940) (545,540)
Inventories 19,555 13,263
Prepaid expenses and other (11,893) 22,568
Other assets 8,258 5,914
Cash restricted -- (650,000)
Accounts payable and accrued expenses 286,235 (63,842)
Billings in excess of costs on uncompleted contracts (25,687) 68,256
Deferred revenue and deposits 170,599 53,107
- -------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (607,513) (3,704,328)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized computer software costs (1,233,727) (1,262,027)
Acquisitions of property and equipment (84,002) (68,008)
- -------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,317,729) (1,330,035)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) of short-term borrowings - net 1,010,000 (639,495)
Proceeds from issuance of long-term debt 166,000 650,000
Payments of long-term debt and capital lease obligations (126,725) (922,649)
Net proceeds from sale of common stock 732,875 5,913,294
Proceeds from sale of preferred stock 500,000 --
Deferred registration costs (314,141) --
Dividends on redeemable preferred stock -- (5,754)
- -------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,968,009 4,995,396
- -------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 42,767 (38,967)
CASH, BEGINNING OF PERIOD 15,350 58,117
- -------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 58,117 $ 19,150
=================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 37
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1.SUMMARY OF SIGNIFICANT Business Description
ACCOUNTING POLICIES
Marine Management Systems, Inc. (the
"Company") provides a variety of
products and services related to ship
operations and maintenance management.
The Company develops and sells computer
software programs, information systems
and computer equipment, as well as
provides support and engineering
services related to these products
throughout the world.
Inventories
Inventories, consisting primarily of
computer hardware are valued at the
lower of cost or market. Cost is
determined using the first-in, first-out
(FIFO) method.
Property, Equipment, Depreciation and
Amortization
Property and equipment are stated at
cost, less accumulated depreciation.
Depreciation is computed over the
estimated useful lives of the assets
using the straight-line and accelerated
methods for both financial reporting and
income tax purposes. Leasehold
improvements are amortized using the
straight-line method over the estimated
useful life of the improvement or the
term of the lease, whichever is shorter.
For leasehold improvements, expected
renewal terms are included in the term
of the lease.
The following estimated useful lives are
applied in the computation of
depreciation and amortization.
Years
----------------------------------------
Computer equipment 5-7
Leasehold improvements 7-10
Equipment under capital leases 7
Furniture and fixtures 7-10
========================================
Upon retirement or sale, the cost and
related accumulated depreciation are
removed from the accounts and any
resulting gains or losses are included
in the statement of operations.
F-7
<PAGE> 38
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Computer Software Costs and Amortization
The Company capitalizes the direct costs
and allocated overhead associated with
the development and testing of software
programs after technological feasibility
has been established. The annual
amortization of the capitalized costs is
the greater of the amount computed using
the rates that current gross revenues
for a product or products bear to the
total of current and anticipated future
gross revenues for that product or
products or the straight-line method
over the remaining estimated economic
life of the product including the period
being presented. The establishment of
technological feasibility and the on
going assessment of recoverability of
capitalized computer software costs
require considerable judgment by
management with respect to certain
external factors, including, but not
limited to, anticipated future revenues,
estimated economic life and changes in
software and hardware technologies. The
Company recognized $228,128 and $260,991
of software amortization based on a
change in estimate of the estimated
economic life of its products during the
fourth quarters of 1996 and 1997,
respectively. Research and development
expenditures are expensed in the period
incurred.
Revenue and Cost Recognition
Hardware revenues are revenues which are
derived from the sale of hardware to
non-marine and marine industry
customers.
Software revenues are revenues which are
derived from the sale of software,
extended warranty and support services
to the marine industry customers.
Revenues are recognized in the period
when the products are delivered or the
services are rendered. Revenues from the
sales of extended warranty contracts are
deferred and recognized on a
straight-line basis over the term of the
contract.
Revenues for contracts with a term in
excess of one year are recognized using
the percentage-of-completion method,
measured by percentage of costs incurred
to date to estimated total costs for
each contract. Contract costs include
all direct costs and those indirect
costs related to contract performance.
Provisions for estimated losses on
uncompleted contracts are made in the
period in which such losses are
determined. Changes in job performance,
job conditions, and estimated
profitability may result in revisions to
costs and income and are recognized in
the period in which the revisions are
determined. Billings in excess of costs
and estimated earnings on uncompleted
contracts represent billings in excess
of revenues recognized on contracts in
progress. Revenues for contracts with a
term of less than one year are
recognized when either the services are
performed or when the products are
delivered.
F-8
<PAGE> 39
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Credit Risk
Financial instruments which potentially
subject the Company to concentrations of
credit risk consist principally of
temporary cash investments and trade
accounts receivable. The Company's cash
investments are placed with high credit
quality financial institutions and may
exceed the amount of federal deposit
insurance. Concentrations of credit risk
with respect to trade receivables are
with other companies.
Income Taxes
Deferred income taxes are provided on
differences between the financial
reporting and income tax bases of assets
and liabilities based upon statutory tax
rates enacted for future periods.
Use of Estimates
In preparing the financial statements in
conformity with generally accepted
accounting principles, management is
required to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and
the disclosure of contingent assets and
liabilities at the date of the financial
statements, and revenues and expenses
during the reporting period. Actual
results could differ from those
estimates.
Financial Instruments
The carrying amounts of financial
instruments including cash, accounts
receivable, accounts payable and
short-term debt approximated fair value
as of December 31, 1997, because of the
relatively short maturity of these
instruments. The carrying value of
long-term debt, including the current
portion, approximated fair value as of
December 31, 1997, based upon quoted
market prices for similar debt issues.
The carrying value of amounts due from
and due to related parties cannot be
determined because of the nature of the
terms.
F-9
<PAGE> 40
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Loss Per Share of Common Stock
During February 1997, the Financial
Accounting Standards Board ("FASB")
issued Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earning Per
Share," which replaces the presentation
of primary earnings per share ("EPS"),
with basic EPS. It also requires dual
presentation of basic and diluted EPS.
The Company adopted SFAS 128 as of
January 1, 1997. The 1996 loss per share
has been restated, giving retroactive
effect to the 1 to 2.7 reverse stock
split (See Note 9) and to conform to
SFAS No. 128. Loss per common share is
computed on the weighted average number
of shares, less treasury stock. If
dilutive, common equivalent shares
(common shares assuming exercise of
options and warrants) utilizing the
treasury stock method are considered in
presenting diluted earnings per share.
Long-Lived Assets
The Company reviews certain long-lived
assets and identifiable intangibles for
impairment whenever events or changes in
circumstances indicate that the carrying
amount may not be recoverable. In that
regard, the Company assesses the
recoverability of such assets based upon
estimated non-discounted cash flow
forecasts.
Recent Accounting Standards
Statement of Financial Accounting
Standards No. 130 "Reporting
Comprehensive Income," established
standards for reporting and display of
comprehensive income, its components and
accumulated balances. Comprehensive
income is defined to include all changes
in equity except those resulting from
investments by owners and distributions
to owners. Among other disclosures, SFAS
No. 130 requires that all items that are
required to be recognized under current
accounting standards as components of
comprehensive income be recognized under
current accounting standards as
components of comprehensive income and
reported in a financial statement that
is displayed with the same prominence as
other financial statements.
F-10
<PAGE> 41
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of Financial Accounting
Standards No. 131 "Disclosures about
Segments of an Enterprise and Related
Information", which supersedes SFAS No.
14, "Financial Reporting for Segments of
a Business Enterprise" establishes
standards for the way that public
enterprises report information about
operating segments in annual financial
statements and requires reporting of
selected information about operating
segments in interim financial statements
issued to the public. It also
establishes standards for disclosures
regarding products and services,
geographical areas and major customers.
SFAS No. 131 defined operating segments
as components of an enterprise about
which separate financial information is
available that is evaluated regularly by
Management in deciding how to allocate
resources and in assessing performance.
Both SFAS Nos. 130 and 131 are effective
for financial statements for periods
beginning after December 15, 1997 and
require comparative information for
earlier years to be restated. The
adoption of SFAS No. 130 is not expected
to have a material effect on the
Company's financial position or results
of operations. The Company is currently
reviewing the effect of SFAS No. 131 but
has yet been unable to fully evaluate
the impact, if any, it may have on
future financial statement disclosures.
Statement of Position 97-2 "Software
Revenue Recognition", which supersedes
Statement of Position 91-1 "Software
Revenue Recognition" provides guidance
on when revenue should be recognized and
in what amounts for licensing, selling,
leasing, or otherwise marketing computer
software. Statement of Position 97-2 is
effective for transactions entered into
in fiscal years beginning after December
15, 1997. Earlier application is
encouraged, and retroactive application
of the provision is prohibited. The
adoption of SOP 97-2 is not expected to
have a material effect on the Company's
financial position or results of
operations.
F-11
<PAGE> 42
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2.PROPERTY AND
EQUIPMENT Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------
<S> <C>
Computer equipment $244,646
Leasehold improvements 10,642
Equipment under capital leases 167,818
Furniture and fixtures 25,692
----------------------------------------------------------
448,798
Less accumulated depreciation and amortization 267,268
----------------------------------------------------------
Property and equipment, net $181,530
==========================================================
</TABLE>
3.RELATED PARTY TRANSACTIONS During 1997, certain officers of the
Company satisfied the respective
outstanding loan balances in the
aggregate amount of $388,837 by selling
to the Company 77,767 shares of common
stock.
The Company has subordinated debt
payable to certain officers and related
parties at December 31, 1997 in the
amounts of $666,000 (See Note 7). At
December 31, 1997, this debt had
interest rates ranging from 9.00% to
10.50%.
4.SHORT TERM BORROWINGS On December 2, 1996, certain officers
and related parties issued notes
totaling $166,000 which mature December
1, 1998 and bear interest at 9% (See
Note 7).
On December 12, 1996, the Company issued
two promissory notes each in the amount
of $250,000 which bore interest at a
rate of 9% per annum and matured at the
earlier of January 31, 1998 or the
closing of an initial public offering.
One of these notes was convertible into
the Company's common stock at a rate of
$2.50 per share. The note and unpaid
interest thereon could be converted by
the holder at any time but automatically
converted upon the closing of an initial
public offering. In addition, the
Company issued a warrant to the holder
of the notes to purchase 125,000 shares
of its common stock at an exercise price
per share of $5.00. At the initial
public offering on May 1, 1997, one note
was repaid and the remaining debt was
converted into 100,000 common stock
shares and 125,000 warrants.
F-12
<PAGE> 43
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On December 22, 1997, the Company issued
a short term note to a bank for $85,504
secured by the assets of the Company.
The note has an interest rate of 2%
above prime, 10.5% at December 31, 1997,
and is due April 22, 1998.
The weighted average amounts outstanding
under the short-term borrowings were
$249,000 for 1997. Maximum amounts
outstanding during the year were
$975,000. The weighted average interest
rates were 8.57% for the year ended
December 31, 1997.
5.BILLINGS IN EXCESS OF Billings and costs on uncompleted
COSTS AND ESTIMATED contracts (See Note 11) are summarized
EARNINGS ON UNCOMPLETED as follows:
CONTRACTS
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------
<S> <C>
Billings to date $349,419
Costs incurred on uncompleted contracts 150,419
Estimated earnings 49,040
------------------------------------------------------------
Billings in excess of costs and estimated $149,960
earnings on uncompleted contracts
============================================================
</TABLE>
6.LONG-TERM DEBT AND CAPITAL Long-term debt and capital lease
LEASE OBLIGATIONS obligations consist of the following:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------
<S> <C>
Long term debt:
Note payable, maturing June 30, 1999, interest at bank's $619,167
dividend rate, 7.5% on December 31, 1997, secured by a
certificate of deposit for $625,000
Capital lease obligations (See Note 8) 81,243
-----------------------------------------------------------------------
700,410
Less current maturities of long-term debt and capital 37,300
lease obligations
-----------------------------------------------------------------------
$663,110
=======================================================================
</TABLE>
F-13
<PAGE> 44
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Maturities of long-term debt as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------
<S> <C>
1998 $37,300
1999 638,696
2000 16,460
2001 7,954
------------------------------------------------------
$700,410
======================================================
</TABLE>
7.SUBORDINATED DEBT - Subordinated debt consists of the following:
RELATED PARTIES
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------
<S> <C>
Note payable, officer and director, interest $300,000
payable monthly at the prime rate plus 2%, 10.5%
at December 31, 1997 with no principal payment
provisions, secured by the general assets of the
Company (a).
Note payable, officer and director, interest at the 200,000
prime rate plus 2%, 10.5% at December 31, 1997,
with no principal payment provisions, secured by
the assets of the Company (a).
Note payable, officers and related party, interest 166,000
at 9%, payable monthly, due December 1998,
secured by the assets of the Company (a).
---------------------------------------------------------------
$666,000
===============================================================
</TABLE>
(a) The debt is subordinated to the
bank's note (Note 6) and the principal
cannot be repaid without its approval or
until that debt has been satisfied. The
bank's note is due in 1999. Therefore,
for maturity purposes, such debt, except
for $166,000 which is considered
currently due, has been presented as if
it would be repaid in 1999.
8.COMMITMENTS AND The Company leases certain operating and
CONTINGENCIES data processing equipment under capital
leases expiring at various dates.
F-14
<PAGE> 45
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company also rents office space and
equipment under operating leases.
In most cases, management expects that
in the normal course of business, leases
will be renewed or replaced by other
leases.
On October 31, 1995, the Company entered
into a facility lease for seven years
with an option to extend the lease for
five years. The commencement date of the
lease was March 1, 1996. The agreement
calls for fixed rent to be paid in
monthly installments in advance
commencing on July 1, 1996 and on the
first day of each month thereafter. In
addition to the fixed rent, the lease
provides for escalation of the lease
payment as maintenance cost and taxes
increase. The Company received a rent
abatement from the period March 1, 1996
through June 30, 1996. The Company has
established an unconditional letter of
credit through a bank in the name of the
lessor for $25,000 which remained in
place at December 31, 1997, supported by
cash deposits in the same amount.
In May 1997, the Company exercised an
option and leased another approximately
4,000 square feet in the same building.
This is a one year lease with six
options to continue the lease on a
year-to-year basis. This portion of the
lease payments is $3,656 per month.
Future net minimum lease payments under
capital leases, and future minimum
rental payments required under operating
leases as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Years ended December 31, Capital Operating
-----------------------------------------------------------------
<S> <C> <C>
1998 $53,700 $264,459
1999 29,656 263,504
2000 25,254 256,012
2001 12,461 236,565
2002 - 236,565
Later years - 39,428
-----------------------------------------------------------------
Total $121,071 $1,296,533
Less amounts representing interest 39,828 -
-----------------------------------------------------------------
Net $81,243 $1,296,533
=================================================================
</TABLE>
Total facilities rental expense was
$156,547 and $191,869 for the years
ended December 31, 1996 and 1997,
respectively.
F-15
<PAGE> 46
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has entered into employment
agreements, effective at the date of the
initial public offering (May 1, 1997)
and extending through January 1999, with
each of five employees, one of which has
left the Company as of December 31,
1997. The minimum aggregate annual
compensation under these agreements is
$483,000. The annual compensation is
subject to annual increases based upon
the Consumer Price Index. In addition,
these employees are eligible to receive
a bonus at the discretion of the Board
of Directors, not to exceed 50% of their
annual compensation.
Additionally, the Company entered into
another key employee employment
agreement in July 1997, extending
through January 1999, which calls for
$103,000 minimum annual compensation.
The Company has agreed, in connection
with the exercise of warrants pursuant
to solicitation (commencing one year
following the date of the initial public
offering, May 1, 1997) to pay to the
underwriter, Whale Securities Co., L.P.,
a fee of 5% of the exercise price for
each warrant exercised; provided,
however, that the underwriter will not
be entitled to receive such compensation
in warrant exercise transactions in
which (1) the market price of Common
Stock at the time of the exercise is
lower than the exercise price of the
warrants; (2) the warrants are held in
any discretionary account; (3)
disclosure of compensation arrangements
is not made in documents provided to
holders of the warrants at the time of
the exercise; (4) the holder of the
warrants has not confirmed in writing
that the underwriter solicited such
exercise; or (5) the solicitation of
exercise of the warrants was in
violation of Rule 101 promulgated under
the Exchange Act. No warrants have been
exercised as of December 31, 1997.
F-16
<PAGE> 47
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9.CAPITAL TRANSACTIONS On February 20, 1996 the Company
completed a reorganization and
incorporated in the State of Delaware.
The Company authorized 9,000,000 shares
of common stock with a par value of
$.001 and 2,100 shares of preferred
stock with a par value of $.001. As a
result of the reorganization, each
previously issued and outstanding share
of common stock of the Company was
converted into fifty shares of common
stock. In addition, each issued and
outstanding share of preferred stock was
converted into one share of preferred
stock. As prescribed by their terms, the
holders of convertible notes and
warrants also had each share available
to them converted into fifty shares of
common stock. Effective August 21, 1996,
the Company completed a recapitalization
of its common shares by declaring a 1
for 2.7 reverse stock split. The Company
issued one share of $.002 par value
common stock for 2.7 shares of existing
$.001 par value common stock. In
connection with the August 21, 1996
recapitalization, the Company authorized
7,500 shares of 8% cumulative preferred
stock with a par value of $100 per
share. All references to par value and
shares of capital stock in the financial
statements have been adjusted to give
retroactive effect for these actions.
During the year ended December 31, 1996,
the Company sold 233,326 shares of
common stock for net proceeds of
$732,875 pursuant to a private placement
of its stock. At June 30, 1996, advances
payable to related parties of $225,000
were exchanged for 66,666 shares of
common stock. In addition, at June 30,
1996, all of the Company's outstanding
preferred stock was converted into
62,191 shares of common stock.
In April and June 1996, the Company
issued to certain executive officers of
the Company and their affiliates
warrants to purchase an aggregate of
222,219 shares of Common Stock at a
purchase price of $3.38 per share (the
"Management Warrants"). The Management
Warrants vested immediately and are
exercisable for a ten year period
commencing on the date of the grant.
F-17
<PAGE> 48
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In March 1995, the Company obtained a
$500,000 loan from Connecticut
Innovators Inc. (CII), a principal
stockholder of the Company, bearing 10%
per annum evidence by a Senior Note. In
connection with this loan, the Company
issued warrants to CII to purchase an
aggregate 259,888 shares of its common
stock at an initial exercise price of
$2.31 per share. In August 1996, the
Company sold 7,500 share of its
preferred stock to CII in exchange for
(1) CII's payments of $500,000 cash and
(2) the cancellation of $236,924 of the
$473,848 principal amount of
indebtedness then outstanding under the
Senior Note, and (3) CII's
relinquishment of one-half of its
warrants, leaving CII with the CII
Warrants to purchase 129,944 shares of
common stock. Immediately on the
consummation of the Company's initial
public offering ("IPO") on May 1, 1997,
the 7,500 shares of preferred stock held
by CII were converted into an aggregate
of 277,777 shares of common stock which
shares piggybacked on the registration
rights at the IPO. In addition, upon the
completion of the IPO, the Company used
proceeds from the offering to repay the
balance of the Senior Note ($236,924,
plus approximately $23,000 in accrued
interest) and used $94,185 of the
proceeds from the IPO to buy back from
CII warrants which were exercisable to
purchase 129,944 shares of common stock
at an exercise price of $2.31 per share,
which amount was charged to operations
(interest expense) during the second
quarter of 1997.
In December 1996, the Company and Sperry
Marine Inc. ("Sperry") entered into a
marketing and distribution agreement. As
part of that agreement, Sperry provided
the Company with $500,000 in financing
for which Sperry received a 9%
promissory note of the Company in the
principal amount of $250,000, which note
converted upon the Company's IPO into
100,000 shares of common stock, and a 9%
promissory note of the Company in the
principal amount of $250,000 maturing
upon the consummation, and paid out of
the proceeds, of the IPO. In addition,
Sperry received warrants to purchase
125,000 shares of common stock at an
exercise price of $5.00 per share.
F-18
<PAGE> 49
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In January 1997, the Company completed
the sale of seven investments units (the
"Bridge Loan") to six private investors
at a price of $50,000 per Bridge Unit
for total gross proceeds of $350,000
(the "Bridge Financing"). Each Bridge
Unit consisted of a 9% promissory note
of the Company in the principal amount
of $50,000 maturing upon the
consummation, and payable out of the
proceeds, of the Company's IPO, and
10,000 shares of common stock (the
"Bridge Shares"). Immediately prior to
the Bridge Financing, two officers (who
were also directors) of the company,
contributed 45,000 and 25,000 of their
shares of common stock, respectively, to
the Company's treasury, which treasury
shares were then issued by the Company
to the investors. The two officers
treated such contribution of shares as a
contribution to capital and did not, and
will not, receive any consideration in
exchange for the shares. In May 1997, an
aggregate of 20,000 Bride Shares were
returned to the Company by two investors
in the Bridge Financing for no
consideration. After the payment of
$35,000 in placement fees to the
Underwriter, who acted as placement
agent for the Company with respect to
the sale of the Bridge Units, and other
offering expenses of approximately
$20,000, the Company received net
proceeds of approximately $295,000 in
connection with the Bridge Financing. In
connection with the sale of the units,
the Company recognized a loan discount
in the amount of $146,000 and debt
issuance cost of $32,000. The Company
recognized a charge to operations in the
amount of $178,000 upon satisfaction of
the debt from the proceeds of the IPO.
Immediately prior to the Company's IPO,
certain executive officers returned to
the Company, and the Company canceled,
77,767 shares of common stock in
satisfaction of loans outstanding from
the company of $388,837.
Initial Public Offering
The Company completed an initial public
offering underwritten by Whale
Securities Co., L.P. on May 1, 1997 of
1,440,000 Common Stock of the Company at
a price of $5.00 per share and 1,656,000
warrants at a price of $.10 per warrant.
Each warrant will be exercisable
effective May 1, 1998, to purchase one
share of Common Stock at $5.50 per
share. The initial public offering
raised $5,476,294 net of commissions,
fees, registration and other associated
costs.
F-19
<PAGE> 50
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Stock Option Plan
In March 1996 and as amended in December
1996 and May 20, 1997, the Board of
Directors approved a stock option plan
for key employees. The board retained
the authority to determine the
individuals to whom, and the times at
which, stock grants would be made, along
with the number of shares, vesting
schedule and other provisions relating
to the stock grants. All options vest at
the rate of 25% per year over four years
from the date of the grant.
As of December 31, 1997, the Company has
1,176,214 shares of its common stock
reserved for issuance pursuant to
options, warrants and convertible
securities.
Certain of the outstanding indebtedness
and warrants either prohibit or restrict
the declaration or payment of dividends.
At December 31, 1997, the Company has a
stock option plan and has issued
warrants to certain employees. The
Company applies APB Opinion No. 25 and
related interpretations by recording
compensation expense for the excess of
the fair market value over the exercise
price per share as of date of grant in
accounting for its stock options.
Accordingly, no compensation expense has
been recognized for its issuance of
options or warrants to employees since
the exercise price was equal to the then
fair market value on the date of grant.
SFAS No. 123 requires the Company to
provide pro forma information regarding
net loss and net loss per share as if
compensation cost for the Company's
stock awards had been determined in
accordance with the fair value based
method prescribed in SFAS No. 123. The
Company estimates fair value of each
stock based award at the date of grant
using the Black Scholes option-pricing
model with the following weighted
average assumptions used for grants
since 1995;
<TABLE>
<CAPTION>
Years ended December 31, 1996 1997
Assumptions
-----------------------------------------------
<S> <C> <C>
Dividend yield 0 0
Risk free interest rate 7.0% 6.4%
Expected volatility .0001% 46.50%
Expected lives in years 10 10
===============================================
</TABLE>
F-20
<PAGE> 51
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Had compensation cost for the issuance
of options and warrants been determined
based on the fair value at the grant
dates consistent with the fair value
method of SFAS No. 123, the Company's
net loss and loss per share would have
been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
December 31, 1996 1997
--------------------------------------------------------------
<S> <C> <C>
Net loss:
As reported $(1,842,314) $(3,307,904)
Pro forma $(1,940,314) $(3,468,904)
Loss per share of common stock:
As reported $(.78) $(.89)
Pro forma $(.80) $(.90)
==============================================================
</TABLE>
A summary of the Company's stock awards
at December 31, 1996 and 1997, and the
years then ended are as follows:
<TABLE>
<CAPTION>
Shares Weighted-
Average
Exercise
Price
---------------------------------------------------------------------
<S> <C> <C>
Outstanding, at December 31, 1995 - $ -
Granted 293,509 3.38
---------------------------------------------------------------------
Outstanding, at December 31, 1996 293,509 3.38
Granted 144,500 3.23
Forfeited (32,572) 3.46
---------------------------------------------------------------------
Outstanding, at December 31, 1997 405,437 $3.32
=====================================================================
</TABLE>
F-21
<PAGE> 52
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Data summarizing year-end options
exercisable and weighted average
fair-value of options granted during the
years ended December 31, 1996 and 1997
is shown below:
<TABLE>
<CAPTION>
Options exercisable
Years ended December 31, 1996 1997
-------------------------------------------------------------------------
<S> <C> <C>
Options exercisable at year end 231,130 273,769
Weighted average exercise price $3.38 $3.38
Weighted average fair value of options granted $1.70 $2.18
during the year
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Options exercisable at December 31, 1997
Range of Prices Number Outstanding Weighted-Average Exercise
Price
----------------------------------------------------------------
<S> <C> <C>
$3.00 to $4.31 273,769 $3.38
================================================================
</TABLE>
The following table summarizes
information about stock options
outstanding at December 31, 1997:
Options outstanding at December 31, 1997
<TABLE>
<CAPTION>
Range of Prices Number Weighted-Average Weighted-Average
Outstanding Remaining Exercise Price
Contractual Life
-------------------------------------------------------------------------
<S> <C> <C> <C>
$3.00 to $4.31 405,437 8.8 years $3.32
=========================================================================
</TABLE>
During the initial phase-in period of
SFAS 123, the effects on the pro forma
results are not likely to be
representative of the effects on pro
forma results in future years since
options vest over several years and
additional awards could be made each
year.
F-22
<PAGE> 53
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10.INCOME TAXES No tax provision has been recognized due
to losses incurred during the periods
presented. At December 31, 1997, the
Company has net operating loss
carryforwards in the amount of
approximately $7,700,000 which expire
during the period 1999 to 2012. The
Company had deferred tax assets of
approximately $2,600,000 at December 31,
1997, relating to the net operating loss
carryforwards. The Company has
recognized a valuation allowance for the
entire deferred tax asset. The need for
the valuation allowance is evaluated
periodically by the Company.
11.REVENUES Two customers accounted for 12% and 26%
of revenues for the year ended December
31, 1996. One customer accounted for
10.3% of revenues for the year ended
December 31, 1997. One customer
accounted for 22% of accounts receivable
as of December 31, 1996. Two customers
accounted for 17.1% and 13.9% of
accounts receivable at December 31,
1997.
For the year ended December 31, 1996,
the Company had revenues from foreign
customers of approximately $926,000 of
which the Company had revenues from
customers located in the Middle East and
Australia of approximately $228,000 and
$221,000, respectively. For the year
ended December 31, 1997, the Company had
revenues from foreign customers of
approximately $1,846,000 of which the
Company had revenues from customers
located in the South America, the Far
East and the United Kingdom of
approximately $347,000, $234,000 and
$225,000 respectively.
On July 11, 1995, the Company, as part
of the Integrated Shipboard Information
Technology (ISIT) Consortium, entered
into an agreement with the United States
Department of Transportation, Maritime
Administration (the "Government") to
provide advanced software, state of the
art hardware and standardized
procedures, which together provide the
ability to collect, process and store
information electronically from
shipboard sub-systems, and distribute
that information throughout the ship and
to the ship's land-based offices via
seamless satellite communications. The
total estimated cost to the consortium
of this project as of December 31, 1997
is approximately $4,600,000. The
Company's share of the project is
approximately $2,640,000 of which the
Government has funded approximately
$977,000 of project costs.
F-23
<PAGE> 54
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On July 8, 1996, the Company as part of
the Ship Life Cycle Support
Infrastructure ("SLCSI") entered into an
agreement with the United States,
ARPA/MARITECH, (the "Government") to
enable our domestic shipbuilders to
leverage advances in Information
Technology by developing new business
practices to provide owners and ship
operators with comprehensive life cycle
support services to increase the life of
the ship, lower cost of ownership and
increase safety of ship operations. The
adjusted total estimated cost to the
consortium of this project as of
December 31, 1997 is approximately
$1,681,000 over an eighteen month
period. The Company's share of the
project is approximately $687,000 of
which the Government will fund
approximately $394,000.
For the years ended December 31, 1996
and 1997, $912,076 and $150,258,
respectively, has been recognized as
contract revenues against these
contracts based on the
percentage-of-completion of the project
measured by the cost-to-cost method
which is based on the completion of
certain milestones as defined in the
Government agreements. As of December
31, 1997, an additional $49,200 in
contract revenue was generated by non
government sources.
12.PROFIT SHARING PLAN The Company sponsors a 401(K) profit
sharing plan which covers substantially
all employees. Company contributions to
the plan totaled $43,862 and $39,668 for
the years ended December 31, 1996 and
1997, respectively.
13.EARNINGS PER SHARE Basic loss per share for each of the two
years ended December 31, 1997 are
calculated as follows:
<TABLE>
<CAPTION>
For the Year ended December 31, 1997
-------------------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss $(3,302,150)
Less: Preferred dividends (5,754)
Basic loss per share $(3,307,904) 3,704,449 $(.89)
================================================================================
</TABLE>
F-24
<PAGE> 55
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Options to purchase 183,218 shares of
common stock at prices ranging from
$2.35 to $4.31 per shares and warrants
to purchase 2,055,219 shares of common
stock at prices ranging from $3.38 to
$8.26 were not included in the
computation of diluted loss per share
because the exercise prices were greater
than the average market price of the
common stock or are anti-dilutive due to
the net loss. The options and warrants,
which expire through September 2007,
were still outstanding at the end of
year 1997.
Had the proceeds from the Company's
initial public offering been applied to
repay debt, and the conversion of
redeemable preferred stock and debt to
common stock occurred as of January 1,
1997 rather than May 1, 1997, basic loss
per share would have decreased to the
pro forma amount indicated below:
<TABLE>
<CAPTION>
For the year ended December 31, 1997
--------------------------------------------
Pro forma Loss Shares Per Share
(Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss $(3,302,150)
Less: preferred dividends (5,754)
Plus: interest on debt 33,750
Basic loss per share $(3,274,154) 4,056,856 $(.81)
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1996
-------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------------------------------
<S> <C> <C> <C>
Net loss $(1,842,314)
Basic loss per share $(1,842,314) 2,354,343 $(.78)
===================================================================
</TABLE>
Options to purchase 46,218 shares of
common stock at price of $3.38 per
share, warrants to purchase 222,219
shares of common stock at prices of
$3.38 and convertible securities with
conversion features to 377,777 shares of
common stock at prices ranging from
$2.50 to $2.70 were not included in the
computation of diluted loss per share
because the exercise prices were greater
than the average market price of the
common stock or are anti-dilutive due to
the net loss. The options, warrants and
convertible securities, which expire
through March 2006, were still
outstanding at the end of year 1996.
F-25
<PAGE> 56
MARINE MANAGEMENT
SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14.STATEMENTS OF CASH FLOWS - Supplemental disclosure of cash flow
SUPPLEMENTAL DISCLOSURES information:
<TABLE>
<CAPTION>
Years ended December 31, 1996 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash paid for interest $185,483 $202,000
Supplemental disclosure of non-cash investing and
financing activities:
Conversion of debt to common stock 382,500 250,000
Conversion of debt to preferred stock 236,924 -
Conversion of preferred stock to common stock - 750,000
Return of common stock for loans receivable - officers - 388,837
Adjustment from revaluation of convertible debt 250,000 -
Increase in capital lease obligations 97,477 -
===========================================================================
</TABLE>
15.SUBSEQUENT EVENTS On April 9, 1998, the Company received
$700,000 in a bridge loan from an
individual investor, in the form of a
bridge note which is convertible into
shares of common stock at $1.00 per
share. The bridge note bears interest at
10% and is due September 30, 1998.
The investor intends to replace the
bridge note by the purchase of a
$2,000,000 Senior Convertible Note,
convertible into common stock of the
Company at $1.00 per share on or before
September 30, 1998.
Upon the issuance of the convertible
bridge note and the Senior Convertible
Note, the Company may recognize
additional interest expense to the
extent, if any, the market value of the
Company's common stock exceeds the
stated $1.00 conversion price.
The Senior Convertible Note will bear
interest at 10% and have a maturity of
five years from the date of issuance.
The senior convertible notes are subject
to the approval of stockholders.
F-26
<PAGE> 57
INDEX TO EXHIBITS
NUMBER NAME
(a) Following is a list of exhibits filed with this Form 10-KSB
3.01(a) Amended and Restated Certificate of Incorporation (1)
3.01(b) Certificate of Amendment of Amended and Restated Certificate of
Incorporation (1)
3.02 By-laws (1)
4.01 Specimen Certificate representing shares of Common Stock, par
value $.002 per share.(1)
4.02 Specimen Certificate representing the Public Warrants.(1)
4.03 Form of Public Warrant Agreement among the Registrant, Whale
Securities co., L.P. as Underwriter and American Stock Transfer &
Trust Company as Warrant Agent. (1)
4.04 Form of Underwriter's Warrant Agreement, including form of warrant
certificate. (1)
4.05 $650,000 Commercial Revolving Note from Registrant to People's
Bank Dated November 5, 1997.(2)
4.06 $85,506 Commercial Note from Registrant to People's Bank Dated
December 22, 1997 (2).
10.01(a) Form of Purchase Warrant for Purchase of Common Stock, par value
$.001 per share.(1)
10.01(b) Schedule of Warrant holders. (1)
10.02 $300,000 Subordinated Note from the Registrant to Eugene D. Story,
dated July 1, 1994.(1)
10.03 $200,000 Subordinated Note from the Registrant to Robert D. Ohmes,
dated July 1, 1994(1)
10.04 $29,000 Subordinated Note from the Registrant to Eugene D. Story,
dated December 2, 1996.(1)
10.05 $10,000 Subordinated Note from the Registrant to Robert D. Ohmes,
dated December 2, 1996.(1)
10.06 $15,000 Subordinated Note from the Registrant to Mark E. Story,
dated December 2, 1996.(1)
10.07 $90,000 Subordinated Note from the Registrant to Scott R. Ohmes,
dated December 2, 1996.(1)
10.08 $22,000 Subordinated Note from the Registrant to Donald F. Logan,
Jr., dated December 2, 1996.(1)
10.09 Key Employee Agreement between the Registrant and Eugene D.
Story(1)
10.10 Key Employee Agreement between the Registrant and Robert D. Ohmes.
(1)
10.11 Form of Key Employee Agreement between the Registrant and each of
Michael P. Barney and Donald F. Logan (1).
10.12 Marine Management Systems, Inc. 1996 Key Employees' Stock Option
Plan as amended May 20,1997. (2)
10.13(a) Agreement of Lease between Seaboard Stamford Investor Associates,
LLC and the Registrant, dated October 31, 1995 with respect to
Premises located at 470 West Avenue, Stamford, Connecticut 06902.
(1)
<PAGE> 58
10.13(b) Letter Amendment to Agreement of Lease, dated September 21,
1995.(1)
10.13(c) Letter Amendment to Agreement of Lease.(1)
10.14(a) United States of America, Department of Transportation Maritime
Administration Notification of Assistance Approval (Cooperative
Agreement), Project Number: DTMA91-95-H-0069, Title: Integrated
Shipboard Information Technology (ISIT) Platform, Effective Date
July 12, 1995.(1)
10.14(b) Modification 0001 to Project Number DTMA91-95-H-00069, dated
September 29, 1995. (1)
10.14(c) Modification 0002 to Project Number DTMA91-95-H-00069, dated March
25, 1996. (1)
10.14(d) Modification 0003 to Project Number DTMA91-95-H-00069, dated July
10, 1996. (1)
10.14(e) Modification 0004 to Project Number DTMA91-95-H-00069, dated
August 9, 1996. (1)
10.14(f) Modification 0005 to Project Number DTMA91-95-H-00069, dated
January 14, 1997. (1)
10.14(g) Modification 0006 to Project Number DTMA91-95-H-00069, dated
October 21, 1997. (2)
10.15 Federal Technology Partnership Assistance Agreement between the
Registrant and Connecticut Innovations, Incorporated, dated July
31, 1995. (1)
10.16 Marketing and Distribution Agreement between the Registrant and
Sperry Marine Inc., dated December 12, 1996.(1)
10.17 Warrant for the Purchase of Common Stock, par value $.002 per
share, issued to Sperry Marine Inc., dated December 12, 1996.(1)
10.18(a) Form of Registration Rights Agreement between the Registrant and
the Holder, dated as of January 29, 1997.(1)
10.18(b) Schedule of Holders.(1)
10.19 Consulting Agreement between the Registrant and Whale Securities
Co.,L.P.(1)
10.20 Key Employee Agreement between the Registrant and Arie Slot. (2)
27.01 Financial Data Schedule (2)
27.02 Financial Data Schedule - Restatements (2)
(1) Incorporated by reference to Registration Statement on Form SB-2,
Registration No. 333-21043 .
(2) Filed herewith.
<PAGE> 1
EXHIBIT 4.05
COMMERCIAL REVOLVING NOTE (SECURED)
People's Bank
$650,000.00 Stamford, Connecticut
- ----------- --------------------- --------------------
City Date
For value received, the undersigned ("Borrower" whether one or more" jointly
and severally promises to pay to the order of PEOPLE'S BANK ("People's") at
any of its offices, or at such other address as the holder of this Note shall
specify in writing, the principal sum of the lesser of (i) Six hundred fifty
thousand ***************** 00/100 dollars or (ii) such other amount as is
indicated on People's books and records as the unpaid principal balance of
this Note together with interest in arrears at the RATE indicated below on
the unpaid principal balance. (All amounts which may be payable under this
Note, including the obligations described in Paragraph 5, are collectively
referred to in this Note as the "Entire Note Balance.) The amount of the
unpaid principal balance of this Note as is indicated on People's books and
records shall, in the absence of manifest error, be conclusive as to the
outstanding principal balance of this Note.
This Note shall remain a continuing agreement between Borrower and People's
notwithstanding the fact that the principal balance may from time to time be
zero. All covenants by Borrower in this Note shall apply to all advances
made by People's to Borrower under this Note. Each time an advance is made
under this Note, Borrower shall be deemed to have certified that the
representatives set forth in this Note are true and correct in all material
respects on and as of that date with the same effect as though those
representations and warranties had been made on and as of that date.
Nothing in this Note shall be construed to obligate People's to make advances
under this Note. It is not intended that this Note be a continuing
commitment on the part of People's to lend to Borrower. Borrower expressly
acknowledges that People's may withhold advances hereunder at any time in its
sole discretion for any reason.
1. Rate. Borrower promises to pay interest on the unpaid principal balance
at the rate checked below. (Mark an "X" in the box that applies.)
|___| At a fixed rate of ________% per year.
|___| At a variable rate per year equal to People's "Prime Rate" plus
_________ percentage points.
|_X_| In accordance with the attached Rider which is a part of this Note.
If the interest rate is variable, each change in Borrower's rate of
interest shall take effect on the same day that People's "Prime Rate"
changes. People's "Prime Rate" is an index People's uses to set interest
rates on certain types of loans, and is not necessarily the lowest rate
People's charges its customers. People's Prime Rate is increased and
decreased by People's from time to time in response to changes in money
market conditions. Interest shall be calculated on the basis of a 360 day
counting the actual number of days elapsed.
2. Payment Schedule. Borrower will repay the amounts due under this Note in
the manner checked below.
A. REPAYMENT. (Mark an "X" in the box that applies.)
|_X_| The unpaid principal balance in full on June 30, 1999, with interest
payable as set forth in Paragraph B below.
|___| The unpaid principal balance on demand, with interest payable as set
forth in Paragraph B below.
|___| The consecutive __________________________________ payments of
principal of $__________________________ each, commencing on
______________________ 19____ and continuing on the same day of each
successive ________________ with interest payable as set forth in Paragraph B
Below. A final payment of the Entire Note Balance shall be due and payable
on
<PAGE> 2
___________________________, 19____.
|___| in accordance with the attached Rider which is a part of this Note.
B. INTEREST. (Mark an "X" in the box that applies.)
|_X_| In consecutive monthly payments commencing on December 5, 1997.
|___| In consecutive quarterly payments commencing on _________________,
19___ and continuing on the same day of each successive ______________,
________________________, _____________________ and _______________________.
|___| In accordance with the attached Rider which is a part of this Note.
3. Collateral. Borrower grants to People's a security interest in the
following property (the "Collateral") to secure the payment of the Entire
Note Balance and any renewals and extensions of this Note. (Mark an "X"
in the boxes that apply.)
A. |_X_| The following Collateral has been pledged and delivered to
People's as security for this Note: 2 People's Bank Certificates of
Deposit A/C #25-7602149 $625,000.00 and A/c #25-80056738 for $25,000.00
and a Pledge Agreement dated June 11, 1997 and has been signed and
delivered to People's
B. |_X_| This Note is secured by All business assets of the Borrower as
more particularly described in a signed Security Agreement dated June 11,
1997.
|___| This Note is secured by
____________________________________________________________________________
as more particularly described in a signed Open-End Mortgage Deed dated
______________, 19___ to be recorded on the land records of the
________________________ of ________________________.
|___| This Note is declared to be a commercial revolving loan agreement
within the meaning of the Connecticut General Statutes Section 49-2(c).
Borrower represents that it is a corporation, partnership or sole
proprietorship or association organized for profit and engaged primarily
in commercial, manufacturing or industrial pursuits.
|___| This Note is declared to be a consumer revolving loan agreement
within the meaning of Connecticut General Statutes Section 49-2(c).
|___| Other Security:______________________________________________________
Borrower agrees to promptly provide to People's such additional collateral
as People's in good faith may reasonably require from time to time.
Borrower will promptly deliver to People's any securities received
(through stock dividend, stock split or otherwise) with respect to any
security pledged as Collateral.
4. Special Provisions. (Mark an "X" in the box if applicable.)
|___| Special provisions of this Note appear in the attached Rider which
is a part of this Note.
<TABLE>
<CAPTION>
Individual Borrower(s) Sole Proprietorship: Business Borrower(s)
<S> <C>
Marine Management Systems, Inc.
- ------------------------------------------- ------------------------------------------------
Print Name(s) of Individual Borrower(s) Print Name of Corporation,
Sole Proprietorship Partnership, Entity
- -------------------------------------------
Signature of Borrower By:
------------------------------------------------
Print Name and Title Robert D. Ohmes, EVP, CFO
- -------------------------------------------
Address 470 West Avenue, Stamford, CT 06905
------------------------------------------------
Address
- -------------------------------------------
Signature of Borrower
------------------------------------------------
Print Name of Corporation, Partnership, Entity
- -------------------------------------------
Address By:
------------------------------------------------
Print Name and Title Robert D. Ohmes, EVP, CFO
------------------------------------------------
Address
</TABLE>
<PAGE> 3
I/We endorse this Note. I/We waive presentment for payment, notice of
dishonor and all other demands or notices regarding this Note. People's may
renew or extend this Note or require its payment in full without giving me/us
any notice. People's may release or substitute collateral for this Note
without giving me/us any notice. Each endorser consents and agrees to be
bound by the terms and provisions of this Note. Each endorser is jointly and
severally liable for the payment of the Entire Note Balance.
- --------------------------------- ------------------------------------
Endorser Endorser
Additional Terms and Conditions
5. Other Obligations
A. Borrower agrees to pay interest on the unpaid principal balance of
this Note at the rate set forth in Paragraph 1 both before and after
maturity, by acceleration or otherwise, and before and after any
judgement and until the entire indebtedness evidenced by this Note
is paid in full. Borrower agrees to pay all taxes assessed upon this
Note against the holder of this Note, and to pay all costs,
expenses, attorneys' fees and their disbursements incurred by
People's in the collection of amounts due under this Note and in
protecting and maintaining People's security interest in the
Collateral. The principal sum plus all interest payable on this Note
plus all amounts payable under this Paragraph are referred to
collectively in this Note as the Entire Note Balance.
B. To the extent that the Entire Note Balance is reduced or paid in
full by reason of any payment to People's by any accommodation
maker, endorser or guarantor, and all or any part of such payment is
rescinded, avoided or recovered from People's for any reason
whatsoever, including without limitation, any proceedings in
connection with the insolvency, bankruptcy or reorganization of the
accommodation maker, endorser or guarantor, the amount of such
rescinded, avoided or returned payment shall be added to or, in the
event the Note has been previously paid in full, shall revive the
principal balance of this Note upon which interest may be charged at
the applicable rate set forth in this Note and shall be considered
part of the Entire Note Balance and all terms and provisions herein
shall thereafter apply to same.
6. Borrower's Representations. Borrower is generally paying its debts as they
become due. Borrower knows of no act, event or occurrence that would
adversely affect the present financial condition of Borrower in any
material way.
7. Financial Statements. People's may from time to time require from
Borrower, any accommodation maker or endorser such financial information
including, without limitation, balance sheets, statements of income and
changes in financial position as People's shall deem necessary or
desirable.
8. Right of Set-Off. Upon the occurrence of an event of default (as defined
below), or upon demand if this Note is payable on demand, People's shall
have the right to set-off the Entire Note Balance against all of
Borrower's, any accommodation maker's or endorser's deposits, credit and
property now or hereafter in the possession or control of People's, its
agent or bailee or in transit to it. People's may apply the same, or any
part thereof, to the Entire Note Balance without prior notice or demand.
9. Prepayment. Notwithstanding the payment schedule set forth in Paragraph 2
or this Note, Borrower may prepay all or any part of the unpaid principal
balance of this Note at anytime. Prepayments shall not incur any penalty.
In the event that this Note is prepaid in full before $50 in interest as
accrued, there will be a minimum interest charge of $50.
10. Default.
<PAGE> 4
A. If any of the following events occur (which is a "default"),
People's may declare the Entire Note Balance, together with any
other amounts that Borrower owes to People's, to be immediately due
and payable:
i. Borrower fails to pay when due any installment of principal or
interest under this Note.
ii. Borrower or any accommodation maker, endorser or guarantor
fails to observe or perform any covenant or agreement set
forth in this Note, in any guaranty or in any instrument,
document or agreement concerning the Collateral;
iii. Borrower or any accommodation maker, endorser or guarantor
defaults in the payment of any other indebtedness to People's;
iv. Borrower or any accommodation maker, endorser or guarantor
becomes generally unable to pay its debts as they become due
or admits its inability to pay its debts as they become due;
v. Borrower or any accommodation maker, endorser or guarantor
makes a general assignment for the benefit of its creditors,
files or becomes the subject of a petition in bankruptcy, for
an arrangement with its creditors or for reorganization under
any federal or state bankruptcy or other insolvency law;
vi. Borrower or any accommodation maker, endorser or guarantor
files or becomes the subject of a petition for the appointment
of a receiver, custodian, trustee or liquidator of the part or
of all or substantially all of its assets under any federal or
state bankruptcy or other insolvency law;
vii. Borrower or any accommodation maker, endorser or guarantor
dies or is adjudicated incompetent, or if an entity, is
voluntarily or involuntarily terminated or dissolved;
viii. Any individual who is a 10% or more owner of, partner in or
joint venturer with Borrower or any accommodation maker,
endorser or guarantor dies or is adjudicated incompetent;
ix. Any change in beneficial ownership of 10% or more of Borrower
or any accommodation maker, endorser or guarantor;
x. Borrower or any accommodation maker, endorser or guarantor
enters into any merger or consolidation, or sale, lease,
liquidation or other disposition of all or substantially all
of its assets or any transaction outside the ordinary course
of its business or for less than fair consideration or
substantially equivalent value without People's prior written
consent;
xi. Any judgement is entered against Borrower or any accommodation
maker, endorser or guarantor or any attachment upon or
garnishment of any property of Borrower or any accommodation
maker, endorser or guarantor is issued;
xii. Any representation or statement made herein or any other
representation or statement made or furnished to People's by
Borrower or any accommodation maker, endorser or guarantor was
materially incorrect or misleading at the time it was made or
furnished;
xiii. People's determines that the value of the Collateral securing
this Note is not adequate to secure Borrower's indeptedness;
or
xiv. People's at any time in good faith for any commercially sound
reason deems itself insecure.
The defaults in this Subparagraph A shall not apply if this Note is
payable on demand because People's may declare the Entire Note
Balance immediately due and payable at any time for any reason.
B. As to any Collateral, People's shall have the rights of a secured
party under the Uniform Commercial Code as in effect in the State of
Connecticut. If People's should be required
<PAGE> 5
by law to give nay notice to Borrower or any accommodation maker or
endorser of the sale of any Collateral, Borrower and such parties
agree that notice at least 10 days before the sale shall be
commercially reasonable. Borrower and such parties waive notice of
the sale of any Collateral where the Collateral is perishable or
threatens to decline in value quickly or is of a type customarily
sold on a recognized market.
C. If any payment of principal or interest is not paid when due,
whether by acceleration or otherwise, and whether or not judgement
has yet been rendered on this Note, Borrower will thereafter pay, at
the option of People's, interest at a rate two percentage points
above the rate that would otherwise be payable under Paragraph 1
until the Entire Note Balance is paid in full.
D. If People's has not received the full amount of any payment of
principal or interest by the end of 10 calendar days after the date
it is due, Borrower will pay a late charge to People's. The amount
of the charge will be 5% of the overdue payment. Borrower will pay
this late charge promptly but only once on each late payment.
E. All payments made under this Note shall be applied first to costs
and expenses, if any, incurred in the collection of amounts due
under this Note or in protecting or maintaining People's security
interest in the Collateral, then to the payment of accrued interest
and the remainder to principal.
F. If the principal balance of this Note exceeds $10,000, and Borrower
will use the proceeds of the loan for a commercial, manufacturing,
industrial or non-consumer purpose, for any interest payment that is
not paid when due, the amount of such accrued and unpaid interest
may, at the option of People's, be added to the principal of the
debt upon which interest may be charged at the applicable rate set
forth in this Note.
11. Binding Effect. Each Borrower and accommodation maker signing this Note is
jointly and severally responsible for making all payments and performing
all other obligations specified in this Note. The provisions of this Note
are binding on the heirs, executors, administrators, assigns and
successors of each Borrower, accommodation maker and endorser under this
Note and shall inure to the benefit of People's, its successors and
assigns and to subsequent holders of this Note.
12. Prejudgment Remedy Waiver. Borrower and each accommodation maker and
endorser under this Note acknowledge that the loan evidenced by this Note
is a commercial transaction and waive their rights to notice or hearing
under Chapter 903a of the Connecticut General Statutes or as otherwise
required by any law with respect to any prejudgment remedy that People's
may use.
13. Waivers. The liability of Borrower and each accommodation maker and
endorser under this Note is unconditional and People's may, without notice
and without affecting the liability of any of them, grant extensions of
time or renewals of this Note, add or release any obligor on this Note,
acquire additional Collateral or release or exchange any Collateral.
Borrower and each accommodation maker and endorser under this Note waive
presentment, demand for payment, dishonor, protest and any other notices
or demands in connection with the delivery, acceptance, performance,
default and enforcement of this Note. Any delay, failure or waiver by
People's to exercise any right it may have under this Note is not a waiver
of People's right to exercise the same or any other right at any other
time.
14. Changes. No agreement to change or waive the terms of this Note shall be
valid unless it is in writing and signed by People's and Borrower.
15. Connecticut Law. The provisions of this Note shall be governed by the laws
of the State of Connecticut, but excluding such rules as govern conflict
of laws. Borrower and each accommodation maker and endorser under this
Note agree that any proceeding arising out of this Note or any document
executed herewith may be instituted in any federal or state court in the
State of Connecticut and Borrower irrevocably submits to the jurisdiction
of any such court.
16. Jury Trial Waiver. In the interest of a speedy resolution of any lawsuit
with may arise hereunder, Borrower and each accommodation maker and
endorser under this Note waive a trial by jury in any action with respect
to this Note and as to any issues arising relating to this Note.
<PAGE> 6
17. Interpretation. Captions and headings used in this Note are for
convenience only. The term "Borrower" and any pronoun referring thereto as
used herein shall be construed in the masculine, feminine or neuter as the
context may require. The singular includes the plural and the plural
includes the singular. "Any" means any and all.
18. Invalidity. If any provision of this Note or the application of any
provision to any person or circumstance shall be invalid or unenforceable,
neither the balance of this Note nor the application of the provision to
other persons or circumstances shall be affected.
<PAGE> 1
EXHIBIT 4.06
COMMERCIAL NOTE (SECURED)
People's Bank
$85,505.63 Stamford, Connecticut December 22, 1997
FOR VALUE RECEIVED, the undersigned ("Borrower" whether one or more) jointly and
severally promises to pay to the order of PEOPLE'S BANK ("People's") at any of
its offices, or such other address as the holder of this Note shall specify in
writing, the principal sum of Eighty-Five Thousand Five Hundred Five
************* 63/100 dollars together with interest in arrears at the RATE
indicated below on the unpaid principal balance. (All amounts which may be
payable under this Note, including the obligations described in Paragraph 5, are
collectively referred to in this Note as the "Entire Note Balance".)
1. Rate. Borrower promises to pay interest on the unpaid principal balance at
the rate checked below. (Mark an "X" in the box that applies.)
|___| At a fixed rate of __________% per year.
|_X_| At a variable rate per year equal to People's "Prime Rate" plus
2.00 percentage points.
|___| In accordance with the attached Rider which is a part of this Note.
If the interest rate is variable, each change in Borrower's rate of
interest shall take effect on the same day that People's "Prime Rate"
changes. People's "Prime Rate" is an index People's uses to set interest
rates on certain types of loans, and is not necessarily the lowest rate
People's charges its customers. People's Prime Rate is increased and
decreased by People's from time to time in response to changes in money
market conditions. Interest shall be calculated on the basis of a 360 day
year counting the actual number of days elapsed.
2. Payment Schedule. Borrower will repay the amounts due under this Note in
the manner checked below.
A. REPAYMENT. (Mark an "X" in the box that applies.)
|_X_| The unpaid principal balance in full on March 2, 1998, with
interest payable as set forth in Paragraph B below.
|___| The unpaid principal balance on demand, with interest payable
as set forth in Paragraph B below.
|___| In consecutive __________ payments of principal of $__________
each, commencing on __________, 19____ and continuing on the same
day of each successive __________ with interest payable as set forth
in Paragraph B below. A final payment of the Entire Note Balance
shall be due and payable on __________, 19_____.
|___| In consecutive __________ payments of principal and interest
of $__________ each, commencing on __________, 19_____ and
continuing on the same day of each successive __________. A final
payment of the Entire Note Balance shall be due and payable on
__________, 19_____.
|___| In accordance with the attached Rider which is a part of this
Note.
B. INTEREST. (Mark an "X" in the box that applies.)
|_X_| In consecutive monthly payments commencing on January 22,
1998.
|___| In consecutive quarterly payments commencing on __________,
19_____ and continuing on the same day of each successive
__________, __________, __________ and __________.
|___| On __________, 19_____.
|___| In accordance with the attached Rider which is a part of this
Note.
|___| Not Applicable.
3. Collateral. Borrower grants to People's security interest in the following
property (the "Collateral") to secure the payment of the Entire Note
Balance and any renewals and extensions of this Note. (Mark an "X" in the
boxes that apply.)
A. |_X__| The following Collateral has been pledged and delivered to
People's as security for this Note: People's Bank Certificate of
Deposit A/C #25-7602149 $625,000.00 and A/C #25-80056738 for
$25,000.00 and a Pledge Agreement dated June 11, 1997, has been
signed and delivered to People's.
B. |_X_| This Note is secured by All Business Assets as more
particularly described in a signed Security Agreement dated June 11,
1997.
C. |___| This Note is secured by
___________________________________________________________________
___________________________________________________________________
<PAGE> 2
as more particularly described in a signed Mortgage Deed dated
__________, 19_____ to be recorded on the land records of the
__________ of __________.
|___| Other Security:______________________________________________
Borrower agrees to promptly provide to People's such additional collateral as
People's in good faith may reasonably require from time to time. Borrower will
promptly deliver to People's any securities received (through stock dividend,
stock split or otherwise) with respect to any security pledged as Collateral.
4. Special Provisions. (Mark an "X" in the box if applicable.)
|___| Special provisions of this Note appear in the attached Rider which
is a part of this Note.
Notice: See reverse side for additional Terms and Conditions which are a part of
this Note.
<TABLE>
<CAPTION>
Individual Borrower(s) Sole Proprietorship: Business Borrower(s)
<S> <C>
- ------------------------------------------- ------------------------------------------------
Print Name(s) of Individual Borrower(s) Print Name of Corporation,
/Sole Proprietorship Partnership, Entity
By:
- ------------------------------------------- ------------------------------------------------
Signature of Borrower Print Name and Title
Address Address
- ------------------------------------------- ------------------------------------------------
Signature of Borrower Print Name of Corporation, Partnership, Entity
By:
- ------------------------------------------- ------------------------------------------------
Address Print Name and Title
------------------------------------------------
Address
</TABLE>
I/We endorse this Note. I/We waive presentment for payment, notice of dishonor
and all other demands or notices regarding this Note. People's may renew or
extend this Note or require its payment in full without giving me/us any notice.
People's may release or substitute collateral for this Note without giving me/us
any notice. Each endorser consents and agrees to be bound by the terms and
provisions of this Note. Each endorser is jointly and severally liable to the
payment of the Entire Note Balance.
- ---------------------------- -------------------------------
Endorser Endorser
Additional Terms and Conditions
5. Other Obligations
A. Borrower agrees to pay interest on the unpaid principal balance of
this Note at the rate set forth in Paragraph 1 both before and after
maturity, by acceleration or otherwise, and before and after any
judgement and until the entire indebtedness evidenced by this Note
is paid in full. Borrower agrees to pay all taxes assessed upon this
Note against the holder of this Note, and to pay all costs,
expenses, attorneys' fees and their disbursements incurred by
People's in the collection of amounts due under this Note and in
protecting and maintaining People's security interest in the
Collateral. The principal sum plus all interest payable on this Note
plus all amounts payable under this Paragraph are referred to
collectively in this Note as the Entire Note Balance.
<PAGE> 3
B. To the extent that the Entire Note Balance is reduced or paid in
full by reason of any payment to People's by any accommodation
maker, endorser or guarantor, and all or any part of such payment is
rescinded, avoided or recovered from People's for any reason
whatsoever, including without limitation, any proceedings in
connection with the insolvency, bankruptcy or reorganization of the
accommodation maker, endorser or guarantor, the amount of such
rescinded, avoided or returned payment shall be added to or, in the
event the Note has been previously paid in full, shall revive the
principal balance of this Note upon which interest may be charged at
the applicable rate set forth in this Note and shall be considered
part of the Entire Note Balance and all terms and provisions herein
shall thereafter apply to same.
6. Borrower's Representations. Borrower is generally paying its debts as they
become due. Borrower knows of no act, event or occurrence that would
adversely affect the present financial condition of Borrower in any
material way.
7. Financial Statements. People's may from time to time require from
Borrower, any accommodation maker or endorser such financial information
including, without limitation, balance sheets, statements of income and
changes in financial position as People's shall deem necessary or
desirable.
8. Right of Set-Off. Upon the occurrence of an event of default (as defined
below), or upon demand if this Note is payable on demand, People's shall
have the right to set-off the Entire Note Balance against all of
Borrower's, any accommodation maker's or endorser's deposits, credit and
property now or hereafter in the possession or control of People's, its
agent or bailee or in transit to it. People's may apply the same, or any
part thereof, to the Entire Note Balance without prior notice or demand.
9. Prepayment. Notwithstanding the payment schedule set forth in Paragraph 2
or this Note, Borrower may prepay all or any part of the unpaid principal
balance of this Note at anytime. Prepayments shall not incur any penalty.
In the event that this Note is prepaid in full before $50 in interest as
accrued, there will be a minimum interest charge of $50.
10. Default.
A. If any of the following events occur (which is a "default"),
People's may declare the Entire Note Balance, together with any
other amounts that Borrower owes to People's, to be immediately due
and payable:
i. Borrower fails to pay when due any installment of principal or
interest under this Note.
ii. Borrower or any accommodation maker, endorser or guarantor
fails to observe or perform any covenant or agreement set
forth in this Note, in any guaranty or in any instrument,
document or agreement concerning the Collateral;
iii. Borrower or any accommodation maker, endorser or guarantor
defaults in the payment of any other indebtedness to People's;
iv. Borrower or any accommodation maker, endorser or guarantor
becomes generally unable to pay its debts as they become due
or admits its inability to pay its debts as they become due;
v. Borrower or any accommodation maker, endorser or guarantor
makes a general assignment for the benefit of its creditors,
files or becomes the subject of a petition in bankruptcy, for
an arrangement with its creditors or for reorganization under
any federal or state bankruptcy or other insolvency law;
vi. Borrower or any accommodation maker, endorser or guarantor
files or becomes the subject of a petition for the appointment
of a receiver, custodian, trustee or liquidator of the part or
of all or substantially all of its assets under any federal or
state bankruptcy or other insolvency law;
vii. Borrower or any accommodation maker, endorser or guarantor
dies or is adjudicated incompetent, or if an entity, is
voluntarily or involuntarily terminated or dissolved;
viii. Any individual who is a 10% or more owner of, partner in or
joint venturer with Borrower or any accommodation maker,
endorser or guarantor dies or is adjudicated incompetent;
<PAGE> 4
ix. Any change in beneficial ownership of 10% or more of Borrower
or any accommodation maker, endorser or guarantor;
x. Borrower or any accommodation maker, endorser or guarantor
enters into any merger or consolidation, or sale, lease,
liquidation or other disposition of all or substantially all
of its assets or any transaction outside the ordinary course
of its business or for less than fair consideration or
substantially equivalent value without People's prior written
consent;
xi. Any judgement is entered against Borrower or any accommodation
maker, endorser or guarantor or any attachment upon or
garnishment of any property of Borrower or any accommodation
maker, endorser or guarantor is issued;
xii. Any representation or statement made herein or any other
representation or statement made or furnished to People's by
Borrower or any accommodation maker, endorser or guarantor was
materially incorrect or misleading at the time it was made or
furnished;
xiii. People's determines that the value of the Collateral securing
this Note is not adequate to secure Borrower's indebtedness;
or
xiv. People's at any time in good faith for any commercially sound
reason deems itself insecure.
The defaults in this Subparagraph A shall not apply if this Note is
payable on demand because People's may declare the Entire Note
Balance immediately due and payable at any time for any reason.
B. As to any Collateral, People's shall have the rights of a secured
party under the Uniform Commercial Code as in effect in the State of
Connecticut. If People's should be required by law to give nay
notice to Borrower or any accommodation maker or endorser of the
sale of any Collateral, Borrower and such parties agree that notice
at least 10 days before the sale shall be commercially reasonable.
Borrower and such parties waive notice of the sale of any Collateral
where the Collateral is perishable or threatens to decline in value
quickly or is of a type customarily sold on a recognized market.
C. If any payment of principal or interest is not paid when due,
whether by acceleration or otherwise, and whether or not judgement
has yet been rendered on this Note, Borrower will thereafter pay, at
the option of People's, interest at a rate two percentage points
above the rate that would otherwise be payable under Paragraph 1
until the Entire Note Balance is paid in full.
D. If People's has not received the full amount of any payment of
principal or interest by the end of 10 calendar days after the date
it is due, Borrower will pay a late charge to People's. The amount
of the charge will be 5% of the overdue payment. Borrower will pay
this late charge promptly but only once on each late payment.
E. All payments made under this Note shall be applied first to costs
and expenses, if any, incurred in the collection of amounts due
under this Note or in protecting or maintaining People's security
interest in the Collateral, then to the payment of accrued interest
and the remainder to principal.
F. If the principal balance of this Note exceeds $10,000, and Borrower
will use the proceeds of the loan for a commercial, manufacturing,
industrial or non-consumer purpose, for any interest payment that is
not paid when due, the amount of such accrued and unpaid interest
may, at the option of People's, be added to the principal of the
debt upon which interest may be charged at the applicable rate set
forth in this Note.
11. Binding Effect. Each Borrower and accommodation maker signing this Note is
jointly and severally responsible for making all payments and performing
all other obligations specified in this Note. The provisions of this Note
are binding on the heirs, executors, administrators, assigns and
successors of each Borrower, accommodation maker and endorser under this
Note and shall inure to the benefit of People's, its successors and
assigns and to subsequent holders of this Note.
<PAGE> 5
12. Prejudgment Remedy Waiver. Borrower and each accommodation maker and
endorser under this Note acknowledge that the loan evidenced by this Note
is a commercial transaction and waive their rights to notice or hearing
under Chapter 903a of the Connecticut General Statutes or as otherwise
required by any law with respect to any prejudgment remedy that People's
may use.
13. Waivers. The liability of Borrower and each accommodation maker and
endorser under this Note is unconditional and People's may, without notice
and without affecting the liability of any of them, grant extensions of
time or renewals of this Note, add or release any obligor on this Note,
acquire additional Collateral or release or exchange any Collateral.
Borrower and each accommodation maker and endorser under this Note waive
presentment, demand for payment, dishonor, protest and any other notices
or demands in connection with the delivery, acceptance, performance,
default and enforcement of this Note. Any delay, failure or waiver by
People's to exercise any right it may have under this Note is not a waiver
of People's right to exercise the same or any other right at any other
time.
14. Changes. No agreement to change or waive the terms of this Note shall be
valid unless it is in writing and signed by People's and Borrower.
15. Connecticut Law. The provisions of this Note shall be governed by the laws
of the State of Connecticut, but excluding such rules as govern conflict
of laws. Borrower and each accommodation maker and endorser under this
Note agree that any proceeding arising out of this Note or any document
executed herewith may be instituted in any federal or state court in the
State of Connecticut and Borrower irrevocably submits to the jurisdiction
of any such court.
16. Jury Trial Waiver. In the interest of a speedy resolution of any lawsuit
with may arise hereunder, Borrower and each accommodation maker and
endorser under this Note waive a trial by jury in any action with respect
to this Note and as to any issues arising relating to this Note.
17. Interpretation. Captions and headings used in this Note are for
convenience only. The term "Borrower" and any pronoun referring thereto as
used herein shall be construed in the masculine, feminine or neuter as the
context may require. The singular includes the plural and the plural
includes the singular. "Any" means any and all.
18. Invalidity. If any provision of this Note or the application of any
provision to any person or circumstance shall be invalid or unenforceable,
neither the balance of this Note nor the application of the provision to
other persons or circumstances shall be affected.
<PAGE> 1
EXHIBIT 10.12
MARINE MANAGEMENT SYSTEMS, INC.
1996 KEY EMPLOYEES' STOCK OPTION PLAN
As Amended, May 20, 1997
SECTION 1. Purpose.
The purpose of the 1996 Key Employees' Stock Option Plan, as amended
May 20, 1997 (the "Plan") is to secure for Marine Management Systems, Inc.
(the "Company") and any subsidiaries of the Company (collectively the
"Related Corporations") the benefits arising from capital stock ownership by
those key employees, directors, officers and consultants of the Company and
any Related Corporations who will be responsible for the Company's future
growth and continued success.
The Plan will provide a means whereby (a) key employees of the Company
and any Related Corporations may purchase stock in the Company pursuant to
options which qualify as "incentive stock options" ("Incentive Stock
Options") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), (b) directors, key employees and consultants of the Company and
any Related Corporations may purchase stock in the Company pursuant to
options granted hereunder which do not qualify as Incentive Stock Options
("Non-Qualified Option" or "Non-Qualified Options"); (c) directors, key
employees and consultants of the Company and any Related Corporations may be
awarded stock in the Company ("Awards"); and (d) directors, key employees and
consultants of the Company and any Related Corporations may receive stock
appreciation rights ("SARs"). Both Incentive Stock Options and Non-Qualified
Options are referred to hereafter individually as an "Option" and
collectively as "Options." As used herein, the term "subsidiary" means
"subsidiary corporation" as that term is defined in Section 424 of the Code.
Options, Awards and SARs are referred to hereafter individually as a "Plan
Benefit" and collectively as "Plan Benefits." Directors, key employees and
consultants of the Company and any Related Corporations are referred to
herein as "Participants."
SECTION 2. Administration.
The Plan will be administered by the Board of Directors of the Company
whose construction and interpretation of the terms and provisions hereof shall
be final and conclusive. Any director to whom a Plan Benefit is awarded shall be
ineligible to vote upon his or her Plan Benefit, but Plan Benefits may be
granted any such director by a vote of the remainder of the directors, except as
limited below. The Board of Directors may in its sole discretion grant Options,
issue shares upon exercise of such Options, grant Awards and grant SARs, all as
provided in the Plan. The Board of Directors shall have authority, subject to
the express provisions of the Plan, to construe the Plan and its related
agreements, to prescribe, amend and rescind rules and regulations relating to
the Plan, to determine the terms and provisions of the
<PAGE> 2
respective Option, Award and SAR agreements, which need not be identical, and to
make all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration of the Plan. The Board of
Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any related agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No director shall be liable for any
action or determination made in good faith. The Board of Directors may delegate
any or all of its powers under the Plan to a Compensation Committee or other
Committee (the "Committee") appointed by the Board of Directors consisting of at
least two members of the Board of Directors. Members of the Committee shall at
all times be "non-employee directors" within the meaning of Rule 16b-3 (or any
successor rule) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as such term is interpreted from time to time. If the Committee
is so appointed, all references to the Board of Directors herein shall mean and
relate to such Committee, unless the context otherwise requires.
SECTION 3. Eligibility.
3.1 Incentive Stock Options. Participants who are employees shall be
eligible to receive Incentive Stock Options pursuant to the Plan; provided
that no person shall be granted any Incentive Stock Option under the Plan
who, at the time such Option is granted, owns, directly or indirectly, Common
Stock of the Company possessing more than l0% of the total combined voting
power of all classes of stock of the Company or of its Related Corporations,
unless the requirements of Section 6.6(b) hereof are satisfied. In
determining whether this 10% threshold has been reached, the stock
attribution rules of Section 424(d) of the Code shall apply. Directors who
are not regular employees are not eligible to receive Incentive Stock
Options.
3.2 Non-Qualified Options, Awards, and SARs. Non-Qualified Options,
Awards and SARs may be granted to any Participant
3.3 Generally. The Board of Directors may take into consideration a
Participant's individual circumstances in determining whether to grant an
Incentive Stock Option, a Non-Qualified Option, an Award or an SAR. Granting
of any Option, Award or SAR for any individual shall neither entitle that
individual to, nor disqualify that individual from, participation in any
other grant of Plan Benefits.
SECTION 4. Stock Subject to Plan.
Subject to adjustment as provided in Sections 9 and 10 hereof, the
stock to be offered under the Plan shall consist of shares of the Company's
Common Stock, $.002 par value, and the maximum number of shares of stock
which will be reserved for issuance, and in respect of which Plan Benefits
may be granted pursuant to the provisions of the Plan, shall not exceed in
the aggregate Two Hundred Twenty-Five Thousand, Forty (225,040) shares. Such
shares may be authorized and unissued shares or may be treasury shares. If
an Option or SAR granted hereunder shall expire or terminate for any reason
without having been exercised in full, or if the
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<PAGE> 3
Company shall reacquire any unvested shares issued pursuant to Awards, any
unvested shares so reacquired shall again be available for subsequent grants of
Plan Benefits under the Plan. Stock issued pursuant to the Plan may be subject
to such restrictions on transfer, repurchase rights or other restrictions as
shall be determined by the Board of Directors.
SECTION 5. Granting of Options, SARs and Awards.
Plan Benefits may be granted under the Plan at any time after March 22,
1996 and prior to March 22, 2006. The date of grant of Plan Benefits under
the Plan will be the date specified by the Board of Directors at the time the
Board of Directors grants such Plan Benefits; provided, however, that such
date shall not be prior to the date on which the Board of Directors takes
such action. The Board of Directors shall have the right, with the consent
of a Participant, to convert an Incentive Stock Option granted under the Plan
to a Non-Qualified Option pursuant to Section 6.7. Plan Benefits may be
granted alone or in addition to other grants under the Plan.
SECTION 6. Special Provisions Applicable to Options and SARs.
6.1 Purchase Price and Shares Subject to Options and SARs.
(a) The purchase price per share of stock deliverable upon the
exercise of an Option shall be determined by the Board of Directors,
provided, however, that (i) in the case of an Incentive Stock Option,
the exercise price shall not be less than l00% of the fair market value
of such stock on the day the option is granted (except as modified in
Section 6.6(b) hereof), and (ii) in the case of a Non-Qualified Option,
the exercise price shall not be less than 50% of the fair market value
of such stock on the day such Option is granted.
(b) Options granted under the Plan may provide for the payment
of the exercise price by delivery of (i) cash or a check payable to the
order of the Company in an amount equal to the exercise price of such
Options, (ii) shares of Common Stock of the Company owned by the
Participant having a fair market value equal in amount to the exercise
price of the Options being exercised, or (iii) any combination of (i)
and (ii). The fair market value of any shares of the Company's Common
Stock which may be delivered upon exercise of an Option shall be
determined by the Board of Directors. The Board of Directors may also
permit Participants, either on a selective or aggregate basis, to
simultaneously exercise Options and sell the shares of Common Stock
thereby acquired, pursuant to a brokerage or similar arrangement,
approved in advance by the Board of Directors, and to use the proceeds
from such sale as payment of the purchase price of such shares.
(c) If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the date such Option is granted or, if not traded on
such date, the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such Option
is granted, (the "Determination Date") and shall mean (i) the average
(on the Determination Date) of
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<PAGE> 4
the high and low prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if such Common
Stock is then traded on a national securities exchange; (ii) the last
reported sale price (on the Determination Date) of the Common Stock on the
Nasdaq Stock Market if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on the Determination Date) by an established
quotation service for over-the-counter securities, if the Common Stock is
not reported on the Nasdaq Stock Market. However, if the Common Stock is
not publicly traded at the time an Option is granted under the Plan, "fair
market value" shall be deemed to be the fair value of the Common Stock as
determined by the Board of Directors after taking into consideration all
factors which it deems appropriate, including, without limitation, recent
sale and offer prices of the Common Stock in private transactions
negotiated at arm's length.
6.2 Duration of Options and SARs. Subject to Section 6.6(b) hereof,
each Option and SAR and all rights thereunder shall be expressed to expire on
such date as the Board of Directors may determine, but in no event later than
ten years from the day on which the Option or SAR is granted and shall be
subject to earlier termination as provided herein.
6.3 Exercise of Options and SARs.
(a) Subject to Section 6.6(b) hereof, each Option and SAR
granted under the Plan shall be exercisable at such time or times and
during such period as shall be set forth in the instrument evidencing
such Option or SAR. To the extent that an Option or SAR is not
exercised by a Participant when it becomes initially exercisable, it
shall not expire but shall be carried forward and shall be exercisable,
on a cumulative basis, until the expiration of the exercise period. No
partial exercise may be for less than ten (l0) full shares of Common
Stock (or its equivalent).
(b) The Board of Directors shall have the right to accelerate
the date of exercise of any installments of any Option or SAR; provided
that the Board of Directors shall not accelerate the exercise date of
any installment of any Option granted to a Participant as an Incentive
Stock Option (and not previously converted into a Non-Qualified Option
pursuant to Section 6.7) if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code, which
provides generally that the aggregate fair market value (determined at
the time the Option is granted) of the stock with respect to which
Incentive Stock Options granted to any Participant are exercisable for
the first time by such Participant during any calendar year (under all
plans of the Company and any Related Corporations) shall not exceed
$100,000.
6.4 Nontransferability of Options and SARs.
No Option or SAR granted under the Plan shall be assignable or
transferable by the Participant, either voluntarily or by operation of law,
except by will or the laws of descent and distribution or, with respect to
Non-Qualified Options and SARs, pursuant to a qualified domestic
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<PAGE> 5
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act ("ERISA") or the rules promulgated thereunder or unless the
Participant's non-qualified stock option agreement granting such options (the
"Non-Qualified Stock Option Agreement") or the Participant's SAR agreement
granting such SARs (the "SAR Agreement") provides otherwise. Unless otherwise
provided by the Non-Qualified Stock Option Agreement or the SAR Agreement,
during the life of the Participant, the Option or SAR shall be exercisable only
by him or her. If any Participant should attempt to dispose of or encumber his
or her Options or SARs, other than in accordance with the applicable terms of a
Non-Qualified Stock Option Agreement or SAR Agreement, his or her interest in
such Options or SARs shall terminate.
6.5 Effect of Termination of Employment or Death.
(a) If a Participant ceases to be employed by the Company or a
Related Corporation for any reason, including retirement but other than
death, any Option or SAR granted to such Participant under the Plan
shall immediately terminate; provided, however, that any portion of
such Option or SAR which was otherwise exercisable on the date of
termination of the Participant's employment may be exercised within the
three-month period following the date on which the Participant ceased
to be so employed, but in no event after the expiration of the exercise
period. Any such exercise may be made only to the extent of the number
of shares subject to the Option or SAR which were purchasable on the
date of such termination of employment. If the Participant dies during
such three-month period, the Option or SAR shall be exercisable by the
Participant's personal representatives, heirs or legatees to the same
extent and during the same period that the Participant could have
exercised the Option or SAR on the date of his or her death.
(b) If the Participant dies while an employee of the Company or
any Related Corporation, any Option or SAR granted to such Participant
under the Plan shall be exercisable by the Participant's personal
representatives, heirs or legatees, for the purchase of that number of
shares and to the same extent that the Participant could have exercised
the Option or the SAR on the date of his or her death. The Option or
SAR or any unexercised portion thereof shall terminate unless so
exercised prior to the earlier of the expiration of six months from the
date of such death or the expiration of the exercise period.
6.6 Designation of Incentive Stock Options; Limitations.
Options granted under the Plan which are intended to be Incentive Stock
Options qualifying under Section 422 of the Code shall be designated as
Incentive Stock Options and shall be subject to the following additional
terms and conditions:
(a) Dollar Limitation. The aggregate fair market value
(determined at the time the option is granted) of the Common Stock for
which Incentive Stock Options are exercisable for the first time during
any calendar year by any person under the Plan (and all other incentive
stock option plans of the Company and any Related Corporations) shall
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<PAGE> 6
not exceed $100,000. In the event that Section 422(d)(1) of the Code
is amended to alter the limitation set forth therein so that following
such amendment such limitation shall differ from the limitation set
forth in this Section 6.6(a), the limitation of this Section 6.6(a)
shall be automatically adjusted accordingly.
(b) 10% Stockholder. If any key employee to whom an Incentive
Stock Option is to granted pursuant to the provisions of the Plan is on
the date of grant the owner of stock possessing more than l0% of the
total combined voting power of all classes of stock of the Company or
any Related Corporations, then the following special provisions shall
be applicable to the Incentive Stock Option granted to such individual:
(i) The option price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than
110% of the fair market value of one share of Common Stock on the
date of grant; and
(ii) The option exercise period shall not exceed five
years from the date of grant.
In determining whether the 10% threshold has been reached, the stock
attribution rules of Section 424(d) of the Code shall apply.
(c) Except as modified by the preceding provisions of this
Section 6.6, all of the provisions of the Plan shall be applicable to
Incentive Stock Options granted hereunder.
6.7 Conversion of Incentive Stock Options into Non-Qualified
Options; Termination of Incentive Stock Options. The Board of Directors, at
the written request of any Participant, may in its discretion take such
actions as may be necessary to convert such Participant's Incentive Stock
Options (or any installments or portions of installments thereof) that have
not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such Incentive Stock Options, regardless
of whether the Participant is an employee of the Company or a Related
Corporation at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise
price of the appropriate installments of such Options. At the time of such
conversion, the Board of Directors (with the consent of the Participant) may
impose such conditions on the exercise of the resulting Non-Qualified Options
as the Board of Directors in its discretion may determine, provided that such
conditions shall not be inconsistent with the Plan. Nothing in the Plan
shall be deemed to give any Participant the right to have such Participant's
Incentive Stock Options converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Board of Directors takes
appropriate action. The Board of Directors, with the consent of the
Participant, may also terminate any portion of any Incentive Stock Option
that has not been exercised at the time of such termination.
-6-
<PAGE> 7
6.8 Stock Appreciation Rights. An SAR is the right to receive,
without payment, an amount equal to the excess, if any, of the fair market
value of a share of Common Stock on the date of exercise over the grant
price, which amount will be multiplied by the number of shares with respect
to which the SARs shall have been exercised. The grant of SARs under the
Plan shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the express terms
of the Plan, as the Board of Directors shall deem desirable:
(a) Grant. SARs may be granted in tandem with, in addition to
or completely independent of any Plan Benefit.
(b) Grant Price. The grant price of an SAR may be the fair
market value of a share of Common Stock on the date of grant or such
other price as the Board of Directors may determine.
(c) Exercise. An SAR may be exercised by a Participant in
accordance with procedures established by the Board of Directors or as
otherwise provided in any agreement evidencing any SARs. The Board of
Directors may provide that an SAR shall be automatically exercised on
one or more specified dates.
(d) Form of Payment. Payment upon exercise of an SAR may be
made in cash, in shares of Common Stock or any combination thereof, as
the Board of Directors shall determine.
(e) Fair Market Value. Fair market value shall be determined
in accordance with Section 6.1(c) with the "Determination Date" being
determined by reference to the date of grant or the date of exercise of
an SAR, as applicable.
6.9 Rights as a Stockholder.
The holder of an Option or SAR shall have no rights as a stockholder
with respect to any shares covered by the Option or SAR until the date of
issue of a stock certificate to him or her for such shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
SECTION 7. Special Provisions Applicable to Awards
7.1 Grants of Awards. The Board of Directors may grant a Participant
an Award subject to such terms and conditions as the Board of Directors deems
appropriate, including, without limitation, restrictions on the pledging,
sale, assignment, transfer or other disposition of such shares and the
requirement that the Participant forfeit all or a portion of such shares back
to the Company upon termination of employment.
-7-
<PAGE> 8
7.2 Conditions. Approvals of Awards may be subject to the following
conditions:
(a) Each Participant receiving an Award shall enter into an
agreement (a "Stock Restriction Agreement") with the Company, if
required by the Board of Directors, in a form specified by the Board of
Directors agreeing to such terms and conditions of the Award as the
Board of Directors deems appropriate.
(b) Shares issued and transferred to a Participant pursuant to
an Award may, if required by the Board of Directors, be deposited with
the Treasurer or other officer of the Company designated by the Board
of Directors to be held until the lapse of the restrictions upon such
shares, and each Participant shall execute and deliver to the Company
stock powers enabling the Company to exercise its rights hereunder.
(c) Certificates for shares issued pursuant to an Award shall,
if the Company shall deem it advisable, bear a legend to the effect
that they are issued subject to specified restrictions.
(d) Certificates representing the shares issued pursuant to an
Award shall be registered in the name of the Participant and shall be
owned by such Participant. Such Participant shall be the holder of
record of such shares for all purposes, including voting and receipt of
dividends paid with respect to such shares.
7.3 Nontransferability. Shares issued pursuant to an Award may not be
sold, assigned, transferred, alienated, commuted, anticipated, or otherwise
disposed of (except, subject to the provisions of such Participant's Stock
Restriction Agreement, by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of ERISA or the rules promulgated thereunder), or pledged or hypothecated as
collateral for a loan or as security for the performance of any obligation, or
be otherwise encumbered, and are not subject to attachment, garnishment,
execution or other legal or equitable process, prior to the lapse of
restrictions on such shares, and any attempt at action in contravention of this
Section shall be null and void. If any Participant should attempt to dispose of
or encumber his or her shares issued pursuant to an Award prior to the lapse of
the restrictions imposed on such shares, his or her interest in such shares
shall terminate.
7.4 Effect of Termination of Employment or Death on Awards. If, prior to
the lapse of restrictions applicable to Awards, the Participant ceases to be an
employee of the Company or the Related Companies for any reason, Awards to such
Participant, as to which restrictions have not lapsed, shall be forfeited to the
Company, effective on the date of the Participant's termination of employment.
The Board of Directors shall have the sole power to decide in each case to what
extent leaves of absence shall be deemed a termination of employment.
SECTION 8. Requirements of Law.
-8-
<PAGE> 9
8.1 Violations of Law. No shares shall be issued and delivered upon
exercise of any Option or the making of any Award or the payment of any SAR
unless and until, in the opinion of counsel for the Company, any applicable
registration requirements of the Securities Act of l933, as amended, any
applicable listing requirements of any national securities exchange on which
stock of the same class is then listed, and any other requirements of law or of
any regulatory bodies having jurisdiction over such issuance and delivery, shall
have been fully complied with. Each Participant may, by accepting Plan Benefits,
be required to represent and agree in writing, for himself or herself and for
his or her transferees by will or the laws of descent and distribution, that the
stock acquired by him, her or them is being acquired for investment. The
requirement for any such representation may be waived at any time by the Board
of Directors.
8.2 Compliance with Rule 16b-3. The intent of this Plan is to qualify for
the exemption provided by Rule 16b-3 under the Exchange Act. To the extent any
provision of the Plan does not comply with the requirements of Rule 16b-3, it
shall be deemed inoperative to the extent permitted by law and deemed advisable
by the Board of Directors and shall not affect the validity of the Plan. In the
event Rule 16b-3 is revised or replaced, the Board of Directors may exercise
discretion to modify this Plan in any respect necessary to satisfy the
requirements of the revised exemption or its replacement.
SECTION 9. Recapitalization.
In the event that dividends are payable in Common Stock of the Company or
in the event there are splits, sub-divisions or combinations of shares of Common
Stock of the Company, the number of shares available under the Plan shall be
increased or decreased proportionately, as the case may be, and the number of
shares deliverable upon the exercise thereafter of any Option previously granted
shall be increased or decreased proportionately, as the case may be, without
change in the aggregate purchase price, and the number of shares to which
granted SARs relate shall be increased or decreased proportionately, as the case
may be, and the grant price of such SARs shall be decreased or increased
proportionately, as the case may be.
SECTION 10. Reorganization.
In case the Company is merged or consolidated with another corporation and
the Company is not the surviving corporation, or, in case the property or stock
of the Company is acquired by any other corporation, or in case of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company hereunder, shall, as to outstanding Plan Benefits, either (i)
make appropriate provision for the protection of any such outstanding Plan
Benefits by the substitution on an equitable basis of appropriate stock of the
Company or of the merged, consolidated or otherwise reorganized corporation
which will be issuable in respect of the shares of Common Stock of the Company,
provided only that the excess of the aggregate fair market value of the shares
subject to the Plan Benefits immediately after such substitution over the
purchase price thereof is not more than the excess of the aggregate fair market
value of the shares subject to such Plan Benefits immediately before such
substitution over the purchase price thereof, (ii) upon
-9-
<PAGE> 10
written notice to the Participants, provide that all unexercised Plan Benefits
must be exercised within a specified number of days of the date of such notice
or such Plan Benefits will be terminated, or (iii) upon written notice to the
Participants, provide that the Company or the merged, consolidated or otherwise
reorganized corporation shall have the right, upon the effective date of any
such merger, consolidation, sale of assets or reorganization, to purchase all
Plan Benefits held by each Participant and unexercised as of that date at an
amount equal to the aggregate fair market value on such date of the shares
subject to the Plan Benefits held by such Participant over the aggregate
purchase price therefor, such amount to be paid in cash or, if stock of the
merged, consolidated or otherwise reorganized corporation is issuable in respect
of the shares of the Common Stock of the Company, then, in the discretion of the
Board of Directors, in stock of such merged, consolidated or otherwise
reorganized corporation equal in fair market value to the aforesaid amount. In
any such case the Board of Directors shall, in good faith, determine fair market
value and may, in its discretion, advance the lapse of any waiting or
installment periods and exercise dates.
SECTION 11. No Special Employment Rights.
Nothing contained in the Plan or in any Plan Benefit documentation shall
confer upon any Participant receiving a grant of any Plan Benefit any right with
respect to the continuation of his or her employment by the Company (or any
Related Corporation) or interfere in any way with the right of the Company (or
any Related Corporation), subject to the terms of any separate employment
agreement to the contrary, at any time to terminate such employment or to
increase or decrease the compensation of the Participant from the rate in
existence at the time of the grant of any Plan Benefit. Whether an authorized
leave of absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Board of Directors.
SECTION 12. Amendment of the Plan.
The Board of Directors may at any time and from time to time modify or
amend the Plan in any respect. The termination or any modification or amendment
of the Plan shall not, without the consent of a recipient of any Plan Benefit
affect his or her rights under any Plan Benefit previously granted to. With the
consent of the affected Participant, the Board of Directors may amend
outstanding agreements relating to any Plan Benefit, in a manner not
inconsistent with the Plan. The Board of Directors hereby reserves the right to
amend or modify the terms and provisions of the Plan and of any outstanding
Options to the extent necessary to qualify any or all Options under the Plan for
such favorable federal income tax treatment (including deferral of taxation upon
exercise) as may be afforded incentive stock options under Section 422 of the
Code, provided, however, that the consent of an optionee is required if such
amendment or modification would cause unfavorable income tax treatment for such
optionee.
-10-
<PAGE> 11
SECTION 13. Withholding.
The Company's obligation to deliver shares of stock upon the exercise of
any Option or the granting of an Award or to make payment upon any exercise of
any SAR shall be subject to the satisfaction by the Participant of all
applicable federal, state and local income and employment tax withholding
requirements.
SECTION 14. Effective Date and Duration of the Plan.
14.1 Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within l2
months after the date of the Board's adoption of the Plan, then any Incentive
Stock Options previously granted under the Plan shall terminate and no further
Incentive Stock Options shall be granted. Subject to such limitation, Options
may be granted under the Plan at any time after the effective date and before
the date fixed herein for termination of the Plan.
14.2 Duration. Unless sooner terminated in accordance with Section 10
hereof, the Plan shall terminate upon the earlier of (i) the tenth anniversary
of the date of its adoption by the Board of Directors or (ii) the date on which
all shares available for issuance under the Plan shall have been issued pursuant
to any Awards or the exercise or cancellation of Options and SARs granted
hereunder. If the date of termination is determined under (i) above, then Plan
Benefits outstanding on such date shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such Plan Benefits.
SECTION 15. Governing Law.
The Plan and all actions taken thereunder shall be governed by the laws of
the State of Delaware.
-11-
<PAGE> 1
EXHIBIT 10.14
UNITED STATES OF AMERICA
DEPARTMENT OF TRANSPORTATION
MARITIME ADMINISTRATION
COOPERATIVE AGREEMENT
PROJECT NUMBER DTMA91-95-00069
MODIFICATION: 0006
TITLE: "Integrated Shipboard Information Technology
Platform (ISIT)"
FUNDING DATA: N/A
RECIPIENT NAME
AND ADDRESS: Marine Management Systems, Inc.
470 West Avenue
Stamford, CT 06902
AGENCY NAME AND
ADDRESS DOT/Maritime Administration
Office of Administration, mAE-384
400 Seventh Street, SW, Rm 7310
Washington, D.C. 20590
MODIFICATION Article 10, Modifications
AUTHORITY:
DESCRIPTION:
1. In accordance with Article 11, Agreement Administration, technical matters
under this agreement shall be referenced to the following representative:
Recipient: Mr. Raymond Kaufman, P.E.
Marine Management Systems, Inc.
c/o Radix Systems, Inc.
201 Perry Parkway
Gaithersburg, MD. 20877
The Project Manager Organization is being changed from Radix Systems, Inc. to
Marine Management Systems, Inc.
33
<PAGE> 2
2. Article 1 - Parties, on page 4, line 10, delete General Electric marine
Systems and replace with PDI division of Bird Johnson Company.
3. Article 9 - Project Management, on page 9, under 9(1.), line 14, delete
General Electric marine Systems and replace with PDI Division of Bird
Johnson Company.
4. All other terms and conditions of the Cooperative Agreement remain
unchanged.
MARIGIME ADMINISTRATION
DEPARTMENT OF TRANSPORTATION
/s/ John E, Carr
Agreements / Contracting Officer
Date: 10/21/97
<PAGE> 1
EXHIBIT 10.20
AGREEMENT made and entered into as of the 31st day of July, 1997 by and
between MARINE MANAGEMENT SYSTEMS, INC. (the "Company"), a Delaware corporation,
and Arie Slot (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive desires
to be employed by the Company, upon the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, the parties hereto hereby agree as follows:
FIRST: A. Upon the terms and subject to the conditions of this Agreement,
the Company hereby employs the Executive as the Vice President of the Company,
and the Executive hereby accepts such employment.
B. The Executive shall perform his duties and exercise his authority as Vice
President of the Company pursuant to such direction as may from time to
time be given by the Company's Board of Directors (the "Board") and he
shall, from time to time as and when required, report to the Chairman of
the Board of the Company with respect to his activities as Vice President.
C. If the Company shall so request, the Executive shall become and shall
during such portion of the term of this Agreement as the Company shall
request, act as a director of the Company and/or as a director and/or
officer of any of its parents or subsidiaries, or any affiliates thereof,
without any compensation in addition to that provided for in Article Third
hereof.
D. The Executive shall devote his full business time and efforts and all
reasonable energy and skill to the business of the Company, its
subsidiaries and affiliates, and shall use his best efforts to promote the
interests thereof. The Executive's services shall be rendered with due
regard by the Executive for the prompt, efficient and economical operation
of the Company's business to the end of maximizing the Company's
profitability.
During the term of this Agreement, the Executive will not, without the prior
written consent of the Board, engage in any other business or business
activity, except that he may buy, sell and hold securities of, or otherwise
invest in, corporations and other business entities for his own account and
that of his immediate family, and participate in investment decisions with
respect thereto, provided that such investment activities do not interfere
with his duties hereunder and provided further, that he does not buy, sell,
or hold shares of stock of a company traded on a national securities exchange
or in the national over-the-counter market which shall constitute two percent
(2%) or more of the outstanding shares of the stock of such company if such
company competes with the Company or with any of its
<PAGE> 2
subsidiaries and he shall not, in any event, thereby become involved in the
management or operation of any business.
SECOND: A. This Agreement shall commence on the date herein and shall terminate
on the earliest to occur of:
(1) The first anniversary of the effective date of this Agreement;
provided, however, that this agreement shall thereafter be automatically renewed
from year to year unless either party, commencing thirty days prior to the
anniversary of the effective date of this Agreement, shall have given the other
party prior written notice of its intention to terminate this Agreement on a
specified date at least thirty days from the date of such notice;
(2) The death of the Executive; or
(3) After the Company shall have given at least thirty (30) days' prior
written notice to the Executive of its intention to terminate this Agreement on
a specified date, which specified date shall be either on or after there shall
have elapsed a consecutive period of 120 days or a non-consecutive period of 180
days during any twelve month period during which the Executive has been
incapacitated or unable to perform his duties; provided, however, that, if the
Company shall terminate this Agreement in accordance with either clause (1) or
(3) above, the Company shall continue to pay to the Executive his annual base
salary at the rate specified in Article THIRD, section A, hereof for six months
after the effective date of such termination.
B. In addition to the events specified in Paragraph A of this Article
SECOND, the Company shall at any time, at its option, be entitled to terminate
this Agreement:
(1) For cause, which for the purposes of this Agreement shall mean the
continuing inattention to, refusal to perform or neglect of the Executive's
obligations hereunder, which inattention, refusal or neglect is not the result
of the Executive's illness; or
(2) If the Executive has been indicted on charges of committing a crime
other than minor misdemeanors or traffic violations.
C. Termination in accordance with any of the foregoing provisions of
Paragraph A or B above shall be effective on the date applicable to the
particular termination section referred to above, and from and after such date,
this Agreement shall be of no further force and effect, except that (i) the
Company's rights under Articles FOURTH and FIFTH hereof shall survive the
termination of this Agreement and (ii) the Company's obligations to make any
payments under paragraph 3 of part A of this Article SECOND shall survive the
termination of this Agreement.
THIRD: A. The Executive shall receive, during his employment hereunder, an
annual base salary commencing on the date hereof, payable in such installments
as shall accord with normal pay practices of the Company but not less often than
monthly, at the following rates:
<PAGE> 3
(i) from the date hereof to the first anniversary of the date of
employment, 1/20/97, at the rate of $100,000 per annum, and
(ii) during each subsequent yearly period (an "Employment Year"), at a
rate per annum equal to the immediately prior Employment Year's rate plus a
percentage of such prior Employment Year's amount equal to the percentage
increase, if any, in the U.S Bureau of Labor Statistics Consumer Price Index for
the Metropolitan New York Area ("CPI") as at the beginning of such subsequent
Employment Year. To illustrate the foregoing, assume that the CPI at the
beginning of the first Employment Year is 200 and at the beginning of the Second
Employment Year is 210 (or an increase of 10 points or 5%). In such case, the
rate of compensation for the second Employment Year will be increased by $5,000
(5% of $100,000) to $105,000.
B. The Executive shall also be eligible to receive, during the period of
actual employment only, quarterly bonuses to be determined based on achievement
of specific goals within the Executive's functional area of responsibility.
Details of that bonus structure and goals are included in Appendix A.
C. The Executive shall be entitled to participate, on the same basis,
subject to the same qualifications, as all other regular full time employees of
the Company in any fringe benefit plans of the Company maintained from time to
time for all its employees, as well as all fringe benefit plans maintained from
time to time for its key executives (herein collectively called the "Benefit
Plans"), including any pension, medical benefits and life insurance plans;
provided, that, the Company shall, at its sole expense, maintain in the name and
for the benefit of the Executive and his designated beneficiaries, group
insurance on the life of the Executive in an amount not less $50,000, as the
same may be adjusted from time to time hereunder, whether or not the Company
generally provides such benefit to its regular full time employees or its other
key executives and, provided further, that the Company shall not be required to
expend or accrue, in any calendar year, for benefits in addition to the benefits
normally provided any employee, an amount which, without giving effect to the
resulting federal, state and local tax benefits resulting therefrom, will exceed
25% of the Executive's salary. If and to the extent that the costs of and
accruals for the benefits provided for under the Benefit Plans shall exceed said
25% limitation in any calendar year, (i) the Executive and the Company shall
consult and determine which specific benefits under the Benefit Plans will be
reduced and the extent thereof in order to bring the total costs and accruals
within the aforesaid 25% limitation, but in the event of the failure of the
Executive and the Company to agree upon the nature and extent of such reduction,
then, the determination of the Company as to which benefit or benefits shall be
reduced, and the extent of such reduction, shall be binding
<PAGE> 4
and conclusive between the parties hereto and (ii) if permitted by law and the
terms of the particular Benefit Plans, the benefits of which have been reduced,
the Executive will be given the opportunity to contribute his own funds to such
Benefit Plan to restore such benefits. For the purposes of this Paragraph D, all
amounts required to be expended or accrued by the Company shall be determined by
the independent certified public accountants regularly retained to audit the
books and records of the Company, in accordance with generally accepted
accounting principles, consistent with the accounting principles actually and
consistently applied by the Company in preparation of its financial statements,
and the determination of such accountants shall be final and binding on the
parties hereto.
D. The Company shall pay or reimburse the Executive for all reasonable
expenses incurred or paid by him in connection with the performance of his
services under this Agreement upon presentation of expense statements or
vouchers or such other supporting information as it may reasonably require.
E. The Executive shall be entitled to reasonable paid vacations during
each Employment Year at mutually convenient time or times in addition to usual
holidays.
FOURTH: During the term of this Agreement, the Executive shall bring any
and all business developments and potentially profitable situations related to
the Company's business to the Company for exploitation by the Company. In
addition, the Executive shall promptly and fully disclose and assign to the
Company any and all inventions, discoveries, improvements, developments,
concepts and ideas which are related to the Company's business, whether or not
patentable and whether or not conceived, developed or reduced to practice by the
Executive or by others, or both.
FIFTH: A. The Executive acknowledges that he has been informed that it is
the policy of the Company to maintain as secret and confidential all valuable
information, not generally known by others, which gives the Company a
competitive advantage in its business, as such may relate to the business and
operations heretofore or hereafter acquired, developed and/or used by the
Company and relating to the customers and employees of the Company (all such
information hereinafter referred to as "Confidential Information"). The parties
recognize that the services to be performed by the Executive are special and
unique, and that by reason of his employment hereunder, he has acquired and will
acquire Confidential Information. In consideration of the Executive's employment
with the Company pursuant to this Agreement, the Executive agrees that:
(1) except as required by the duties of his employment
with the Company, the Executive shall not, directly or indirectly, use, publish,
disseminate or otherwise disclose any Confidential Information obtained during
his employment
<PAGE> 5
with the Company without the prior written consent of the Company's Board; and
(ii) during his employment with the Company, the Executive shall exercise all
due and diligent precautions to protect the integrity of the Company's customer
and prospective customer lists, mailing lists and sources thereof, statistical
data, compilations, agreements, contracts, manuals or any other documents
embodying any Confidential Information and, upon termination of employment he
shall return all such documents (and copies thereof) in his possession or
control.
B. During his employment with the Company, and (subject to Paragraph D of
this Article FIFTH) for a period of one year after the termination (for any
reason whatsoever) of his employment with the Company, the Executive shall not,
directly or indirectly, own, manage, operate, control, form or participate in
the ownership, management, operation or control of any business, firm or
corporation which engages in the business of developing or marketing information
processing systems directed to the maritime industry or otherwise competes with
the business of the Company or of any of its subsidiaries as conducted on such
date or as it had been conducted during the eighteen months prior to such date;
provided, however, that the provisions of this Paragraph B of this Article FIFTH
shall not apply (i) to investment in shares of stock traded on a national
securities exchange or on the national over-the-counter market which shall
constitute less than two (2%) percent of the outstanding shares of such stock
(ii) if, at the time of such termination, the Executive shall be a shareholder
of the Company unless such termination has occurred pursuant to part B of
Article SECOND hereof or (iii) if this Agreement has been terminated by the
Company in violation of the terms hereof.
C. During his employment with the Company, and (subject to Paragraph D of
this Article FIFTH) for a period of two years after the termination (for any
reason whatsoever) of his employment with the Company, the Executive shall not
seek to persuade any person who is an employee of the Company or of any of its
subsidiaries on such date or during the eighteen months prior to such date to
discontinue that individual's status or employment with the Company or any of
its subsidiaries, nor to become employed in any activity similar to or
competitive with the activities described in Paragraph B above, nor will he hire
or retain any such person (except, following the termination of the Executive's
employment hereunder, with the express prior written consent of the Company),
nor will he solicit or cause or authorize, directly or indirectly, to be
solicited, for or on behalf of himself or any third party, any business similar
to or competitive with the activities described in Paragraph B above from others
who are, or were at any time during his employment hereunder, customers of the
Company or of any of its subsidiaries, or if the
<PAGE> 6
Executive is no longer employed by the Company, from others who were, at any
time within eighteen months prior to the cessation of his employment hereunder,
customers of the Company or of any of its subsidiaries.
D. If any of the restrictions on post-employment competitive activities
contained in this Article FIFTH shall for any reason be held by a court of
competent jurisdiction to be excessively broad as to duration, geographical
scope, activity or subject, such restrictions shall be construed so as to
thereafter be limited or reduced to be enforceable to the extent compatible with
the applicable law as it shall then appear; it being understood that by the
execution of this Agreement the parties hereto regard such restrictions as
reasonable and compatible with their respective rights.
E. The Executive acknowledges that were he to breach the provisions of
this Article FIFTH, the damages to the Company would be irreparable and he
therefore agrees that, in addition to damages and reasonable attorneys' fees,
the Company shall be entitled to enjoin any such breach in any competent court.
SIXTH: In any case where it will be necessary for the Executive to take a
medical examination, whether for insurance purposes, to verify physical
condition or otherwise, the Executive agrees to submit to such medical
examination and in general to cooperate with the Company in connection
therewith, including, without limitation, the completion of any documentation
therefor.
SEVENTH: This Agreement constitutes the entire agreement as to employment
between the parties and there are no terms other than those contained herein,
except as set forth in the Benefit Plans. No variation hereof shall be deemed
valid unless in writing and signed by the parties hereto and no discharge of the
terms hereof shall be deemed void unless in writing signed by the parties
hereto. No waiver by either party of any provision or condition of this
Agreement by him or it to be performed shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or any prior or subsequent time.
EIGHTH: This Agreement shall inure to the benefit of and be binding upon
the Company, its successors and assigns, and the Executive, his heirs,
executors, administrators and legal representatives.
NINTH: This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut applicable to agreements made and
wholly performed within such state.
TENTH: Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by registered mail or certified mail,
postage prepaid, addressed, if to the Executive, at 470 West Avenue, Stamford,
CT 06902, and if to the Company, at 470 West Avenue, Stamford, CT 06902 with a
copy to Brian O'Connor, Esq., Diserio Martin O'Connor & Castiglioni at 1
Atlantic Street, Stamford, CT 06901 or such other address as shall
<PAGE> 7
have been specified in writing by either party to the other. Such notice or
communication shall be deemed to have been given as of the date so mailed,
except notice of change of address which shall be deemed given as of the date
received. IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the day and year first above written.
MARINE MANAGEMENT SYSTEMS, INC.
By: /s/ Eugene D. Story
date 7/31/97
/s/ Arie Slot
date 7/30/97
<PAGE> 8
APPENDIX A
The responsibilities of the Executive, as Vice President of Sales, include all
sales activities for all maritime software, hardware, engineering services
worldwide, including management of all staff and the agent distribution network.
The Executive will be eligible for a quarterly performance bonus. For 1997,
that quarterly bonus will be paid at the rate of $37,500 multiplied by the
percentage of target software sales achievement during each quarter. The
quarterly target software sales levels will be as follows:
<TABLE>
<S> <C>
First Quarter $ 594,000
Second Quarter $ 891,000
Third Quarter $1,386,000
Fourth Quarter $2,079,000
Total $4,950,000
</TABLE>
The Executive will also receive 15,000 options under the MMS Key Employee
Stock Option Plan.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BT REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY>US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 19,150
<SECURITIES> 0
<RECEIVABLES> 1,500,020
<ALLOWANCES> 100,000
<INVENTORY> 9,044
<CURRENT-ASSETS> 1,450,511
<PP&E> 448,798
<DEPRECIATION> 267,268
<TOTAL-ASSETS> 5,049,180
<CURRENT-LIABILITIES> 1,595,409
<BONDS> 0
0
0
<COMMON> 8,842
<OTHER-SE> 2,281,959
<TOTAL-LIABILITY-AND-EQUITY> 6,049,180
<SALES> 3,410,256
<TOTAL-REVENUES> 3,410,256
<CGS> 2,410,082
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,890,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 412,108
<INCOME-PRETAX> (3,302,150)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,302,150)
<EPS-PRIMARY> (0.89)
<EPS-DILUTED> (0.89)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE PERIODS ENDED 1ST, 2ND, AND 3RD QUARTER, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THESE
FINANCIAL DATA STATEMENTS ARE RESTATED FOR EPS CALCULATIONS PER FAS 128
"EARNINGS PER SHARE" EFFECTIVE IMMEDIATELY MARCH 12, 1998.
</LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 21,283 2,195,976 853,352
<SECURITIES> 0 0 0
<RECEIVABLES> 947,347 1,280,221 1,582,554
<ALLOWANCES> 0 0 0
<INVENTORY> 13,038 47,221 16,061
<CURRENT-ASSETS> 1,066,142 3,597,788 2,667,338
<PP&E> 388,182 480,738 449,164
<DEPRECIATION> 190,888 216,888 240,327
<TOTAL-ASSETS> 4,031,788 6,482,369 5,823,475
<CURRENT-LIABILITIES> 3,763,795 1,515,624 1,545,482
<BONDS> 923,404 666,000 666,000
0 0 0
750,000 0 0
<COMMON> 5,402 8,842 8,842
<OTHER-SE> 1,410,845 4,135,512 3,473,944
<TOTAL-LIABILITY-AND-EQUITY> 4,031,758 6,482,388 5,823,476
<SALES> 751,014 1,861,791 2,737,615
<TOTAL-REVENUES> 751,014 1,861,791 2,737,615
<CGS> 451,328 1,094,096 1,626,732
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 784,238 1,847,325 2,848,488
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 83,302 369,714 373,328
<INCOME-PRETAX> (527,845) (1,448,344) (2,110,912)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (527,845) 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (527,845) (1,448,344) (2,110,912)
<EPS-PRIMARY> .20 (0.46) (0.59)
<EPS-DILUTED> 0.18 (0.39) (0.57)
</TABLE>
