UNITED STATES 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 May 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 0-22735
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ROBOCOM SYSTEMS INC.
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(Name of small business issuer in its charter)
New York 11-2617048
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(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
511 Ocean Avenue, Massapequa, New York 11758
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (516) 795-5100
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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 [ ] No [X]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure is contained, to the
best of the 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]
State issuer's revenues for its most recent fiscal year. $7,513,490
State the number of shares outstanding of each of the issuer's classes of common
equity, as of September 19, 1997. 3,467,984
As of September 19, 1997, the aggregate market value of the registrant's common
stock held by non-affiliates was $13,763,876 (based upon the closing price of
the issuer's common stock on The Nasdaq Stock Market on such date).
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
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Part I
Item 1. Description of Business.
General
Robocom Systems Inc. (the "Company") develops, markets and supports
advanced warehouse management software solutions that enable companies to
realize significant cost savings by automating their warehouse operations. The
Company's primary product, RIMS.2001, is a customer-configurable software
solution that enables a company's warehouse to respond to a customer order with
greater accuracy and in a more timely manner, thereby turning the warehouse into
a competitive advantage. RIMS.2001 operates in an open system environment and
interfaces with an organization's existing information systems intrastructure.
In addition to providing RIMS.2001 software licenses, the Company provides
installation, design and maintenance services and related hardware when required
by the customer. The Company believes that its customers that have implemented
the RIMS.2001 solution have realized increased customer satisfaction directly
related to timely and accurate receipt of shipments.
Industry Background
In recent years, a number of business trends have converged to change the
historical relationships among retailers, manufacturers and suppliers, and
distributors. Increasing globalization of the marketplace has resulted in
greater geographic diversity of supply and production facilities and has
increased competition as more suppliers are offering a greater range of product
offerings at multiple price levels. In addition, a number of trends in
retailing, including shorter product life cycles, a significant increase in the
number and variety of product offerings, an increase in buying power resulting
from the evolution of the retailer from the small local store to the large
regional or national department store chain, specialty store chain or
"superstore" chain, and the emergence of a more informed and price conscious
consumer, have put increased pressure on retailers to reduce expenses to remain
competitive. Consequently, retailers are seeking to reduce inventory management
costs by selecting suppliers that can respond to "just-in-time" purchasing and
"quick response" delivery techniques that enable the retailer to better match
product inventory to actual customer demand. Retailers and other vendors also
are increasingly demanding that their suppliers comply with standards for
electronic data interchange ("EDI"), electronic commerce and very specific
labeling requirements.
As a result of these trends, manufacturers and suppliers are experiencing
significant pressures to satisfy customer demands for improved product delivery
and reduced delivery times. Historically, manufacturers have organized their
businesses primarily to increase manufacturing efficiency and output. However,
as major customers shift the burden of inventory management to the manufacturer
or distributor, manufacturers and distributors have refocused their business
process re-engineering efforts to evaluate the service and value provided to
customers from existing operations and are seeking alternatives for streamlining
the warehousing and distribution process. The need to satisfy customer demand
for more effective and efficient order fulfillment has caused manufacturers to
seek greater control over the entire supply chain to minimize materials
inventories, ensure the timing of deliveries from suppliers, reduce
manufacturing cycle times, minimize finished goods inventories, maximize the
efficiency of warehousing and transportation systems and provide superior
response times to customers.
Retailers, manufacturers and suppliers, and distributors are increasingly
recognizing that significant cost savings can be achieved through warehouse
computerization and automation. An effective warehouse management system will
reduce costs and assist in improving customer service by achieving the following
objectives:
o Reduction of Errors. Receiving, stocking and picking errors are
common in a manual paper-based warehouse. An automated warehouse
management system is self-checking and ensures virtually 100%
accuracy for every transaction.
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o Improvement of Inventory Accuracy. The self-checking nature of an
automated warehouse management system ensures inventory accuracy and
eliminates the costly series of manual checks and backtracking that
results when the inventory on the books and the physical inventory
in a warehouse do not match. As a result of the poor accuracy in
paper-based warehouses, costly physical inventories need be taken to
reconcile the system inventory to the actual inventory. The inherent
accuracy and cycle counting features of a warehouse management
system can eliminate the need for a physical inventory.
o Improved Space Utilization. A warehouse management system tracks all
warehouse locations and can direct where each product can best be
stored for maximum space utilization.
o Increased Productivity. A warehouse management system maximizes the
time operators spend adding value to the distribution process,
filling orders and receiving goods. System direction minimizes
search time and dispatches operators and pickers to the best task
given the equipment and current location. A warehouse management
system also gives the warehouse control of the workload and provides
visibility into the entire range of tasks that need be performed
within a given time period.
o Improved Labor Management and Reporting. Paperwork in a warehouse
for picking and stocking drastically hampers productivity. Paperless
warehouse management system applications provide real-time
information, reduce the possibility for data entry errors and
information delays and improve productivity. In addition, a
warehouse management system has vast reporting capabilities because
every transaction is recorded. In paper-based warehouses, the only
method available for tracking productivity and performance is a
manual log that is time consuming to keep, susceptible to error and
is only as good as the information each operator provides.
o Support of Customer EDI Requirements. Retailers and other vendors
are increasingly demanding that their suppliers comply with
standards for EDI, electronic commerce and specific labeling and
packaging requirements. A warehouse management system can provide
special bar-code labeling and can track any value-added packaging
operations required.
o Integration. Manufacturers require warehouse activities to be
integrated with their manufacturing and accounting systems. Such
levels of data processing and system integration require a capable,
highly integrated warehouse management system solution.
Initial warehouse automation software systems developed in the early 1980s
only produced "batch" picking, shipping, receiving and product movement reports
that detailed the expected merchandise handling operations for an entire day.
These systems provided initial improvements in warehouse efficiencies, but were
unable to respond quickly to unexpected circumstances, such as unscheduled
shipments or scheduled deliveries that did not arrive, damaged goods that could
not be shipped when scheduled, and products stored in incorrect locations.
During the 1980s, automatic identification (primarily bar coding) became
widely accepted, and the cost of computer platforms supporting the initial
warehouse automation systems dropped as mini-computers and personal computers
were introduced and gained acceptance in the business workplace. In addition,
radio frequency hardware technology was introduced that first enabled software
designers to develop warehouse automation software that utilizes a local radio
network installed in the customer's warehouse to connect hand-held and
forklift-mounted mobile data terminals with the warehouse's central computer.
This development made possible software systems that manage a warehouse
dynamically in "real time" rather than batch mode. Real-time systems offer many
advantages over batch mode systems, including the ability to adapt to unexpected
circumstances, such as "rush" orders, late or unexpected in-bound shipments, and
incorrectly located merchandise; the ability to conduct partial inventory counts
while the warehouse remains fully operational; and the ability to improve
employee productivity
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by directing each worker to the next task to be performed based upon the
worker's current location and the location and priority of the task.
Initially, warehouse management systems were custom-developed by internal
management information system (MIS) departments or third-party software
developers. These early custom-developed systems were often based on proprietary
operating systems, written in second and third generation programming languages
and very specific to the user's current methods of operation. As cost and time
overruns became commonplace, the finished system often exceeded budget, fell
behind schedule and was incapable of adapting to change as the business
developed. As computer hardware prices declined and less-costly minicomputers,
personal computers and computer networks replaced mainframes in the workplace,
it became desirable for computer applications to be written in a manner that
allowed the application to be transported from one computer to another. The
emergence of open system technology addressed this problem and evolved into the
preferred platform for many software applications, including warehouse
management systems, and many different data collection applications. Open
systems are based on industry standards, permit the integration of multi-vendor
hardware and software components and are designed to accommodate new components
and technology as they become available. The Company believes that it was one of
the first suppliers of an open system warehouse management system.
The proliferation of open system technologies in the early 1990s and the
availability of software development tool sets has led to the recent development
of custom configurable off-the-shelf products. Recent improvements in software
design, computer hardware, warehouse equipment and radio frequency technology
have enabled warehouse management software developers, such as the Company, to
design and install more affordable systems with increased functionality.
According to an industry analyst, at December 31, 1996, there were more
than 550,000 domestic warehouses and distribution centers, of which no more than
10% were employing some level of automation. The Company believes that the
increasing need of manufacturers and distributors to satisfy customer demand for
more effective and efficient order fulfillment will continue the trend of
manufacturers and distributors to seek the benefits of a state-of-the-art
warehouse management system.
Strategy
The Company's objective is to continue to be a leading provider of
warehouse management software solutions and services and to expand its presence
worldwide. To achieve these objectives, the Company has adopted the following
strategies:
o Strategic Alliances. The Company intends to supplement its marketing
efforts by aligning itself with complementary solutions providers
and technology partners. Strategic alliances also will assist the
Company in keeping pace with technological developments of the major
software and hardware vendors and, in certain instances, provide the
Company with product development services. The Company has entered
into a strategic alliance with QAD, Inc., a leading provider of
global supply chain management and enterprise resource management
solutions. This relationship includes co-marketing and
technology-sharing arrangements and provides the Company access to a
very large existing customer base. Through similar alliances, the
Company expects to gain greater exposure and acceptance of its
products and services. See "-- Sales and Marketing."
o New Product Development. The Company intends to continue to produce
a quality warehouse management system product that meets client
expectations in terms of functionality, flexibility, procurement
cost, implementation cost and ongoing maintenance cost. The Company
believes that the RIMS product line meets these expectations and
will continue to do so as the product evolves. The Company is
committed to continuous product improvement through a software
development program that is driven by industry focus groups and
customer input. The Company intends to continue to utilize its
industry, customer and supplier relationships to keep abreast of
emerging standards,
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protocols and application programming interfaces as such trends are
introduced and gain market acceptance. The Company believes that
Internet-based applications will be the next significant technology
change in the warehouse management system industry. Development is
currently underway for RIMS.2001 enhancements that will utilize this
technology. The Company believes that a portable, open, world wide
web-based, multi-tiered, front-end application architecture will
supplant the traditional proprietary client/server technology
currently employed by its competitors. See "-- Products, "-- Third
Party Hardware Products," and "-- Product Development."
o Establish Vertical Market Concentration. By tailoring RIMS.2001 to
support the uniqueness of certain targeted markets, the Company
believes it will have a competitive advantage in selling to
prospective customers in the same industry in which similar
functional and implementation issues arise. The Company believes
that the expertise developed in each of these vertical markets also
will further contribute to its standard RIMS.2001 product. In the
development of RIMS.Food, the Company established a focus group
consisting of current and potential clients in the food
manufacturing and distribution industry. This focus group provided
direction, guidance and partial funding for the development of
RIMS.Food. The Company intends to replicate this process to
establish itself in other vertical markets and has identified the
following vertical markets as additional targets: automotive,
consumer products, petro chemical products, public utilities and
pharmaceutical products. See "-- Product Development."
o International Expansion. The Company intends to establish itself in
the international business market. In this regard, the Company has
established formal relationships with distributors in Canada, the
United Kingdom, Mexico, Brazil, Argentina and New Zealand that are
established systems integrators with large customer bases in their
respective regions. The Company intends to establish additional
international relationships and to strategically locate sales and
support offices worldwide to support its distributors as the number
of foreign distributors expands. See "-- Sales and Marketing."
o Training, Implementation and Support. A key to the success of a
warehouse management system supplier is its ability to provide the
necessary services and expertise required to effectively implement a
complex warehouse management system. The Company believes that the
efficiency of its implementation process will allow the Company to
increase sales to prospective customers seeking standard,
configurable software solutions and enable the Company to increase
its market share with respect to its competitors. The Company
intends to continue to develop and improve its services organization
and its innovative conference room pilot program to ensure a
continued simple and efficient implementation process for its
customers. See "-- Service and Maintenance" and "-- Sales and
Marketing."
Products
The Company's principal product, RIMS.2001, is a full-featured,
state-of-the-art warehouse management solution. The Company also markets
RIMS.Food, which is a modified version of RIMS.2001 that was recently developed
and is targeted at fresh and frozen food manufacturers and distributors. The
RIMS.2001 product line is a highly scaleable, highly configurable and flexible
product with baseline functionality and features sufficient for most warehouse
installations. The strength of RIMS.2001 is its adaptability to varied
environments without modification. RIMS.2001 is generally sold as an entire
turnkey solution that provides the Company's customers with both the software
and the hardware, if requested, necessary for a comprehensive warehouse
management system.
As a standard, "off-the-shelf," highly-configurable software system,
RIMS.2001 is designed to be deployed in approximately four months and to achieve
measurable cost savings for customers. The efficiency of implementing the
Company's software solutions results from the open systems architecture of
RIMS.2001, which runs on various operating platforms and uses either Oracle or
Progress database management system software, and the Company's extensive
experience in developing warehouse management systems. The Company believes that
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its customers recognize cost savings throughout the warehousing and distribution
processes as a result of increases in worker productivity, efficiencies in space
utilization, increases in inventory accuracy, increases in lot number controls,
product expiration date controls and product serialization controls, and the
elimination of costly shipping errors through the use of bar code technology.
RIMS.2001. RIMS.2001 is a responsive software application designed to
manage an entire warehouse operation. As a user configurable solution, RIMS.2001
incorporates numerous warehousing practices and strategies as standard
capability. RIMS.2001 is an open systems solution that is not restricted to any
particular equipment or computer system. As such, the application software has
been installed on numerous hardware platforms and database management systems.
RIMS.2001 can interface with an organization's current materials handling
equipment and transactions-based systems and is easily integrated with customer
or third party purchasing, electronic data exchange, bar coding, accounting,
manufacturing resource planning ("MRP") and enterprise resource planning ("ERP")
applications. RIMS.2001 also utilizes radio frequency communications and bar
coding to provide real-time management, validation and tracking of all warehouse
activities. RIMS.2001 directs personnel and equipment and manages the inventory,
space, radio terminals, bar code scanners and printers in the warehouse in an
efficient and cost effective manner.
RIMS.2001 is a comprehensive application that manages the receiving, put
away, outbound order processes, and general warehouse operations. With each
warehouse process, RIMS.2001 provides a variety of tactical choices that can be
user defined to a customer's specific requirements and needs and that are
designed to maximize efficiency. Major system functions include:
o Receiving. The receiving process provides control over the receipt
of inventory through scanning the bar codes of incoming product to
ensure accuracy of inventory in the warehouse. This process
facilitates the matching of purchase orders, transfer orders,
advanced shipping notices and customer returns. The receiving
process supports pre-storage activities, such as returned goods
processing and quality assurance inspection.
o Putaway Process. The putaway process ensures that all inventory is
stored in the most efficient location available based on
pre-configured management strategies. The Company or the customer
will configure the system to implement the customer's unique
business demands, assigning locations based on the customer's
parameters with consideration given to product characteristics,
product velocity, demand codes, delivery and shipping requirements,
storage devices and cross-docking strategies.
o Picking and Shipping. The RIMS.2001 outbound order process analyzes
each order to determine the most efficient packing, loading and
shipping procedures. The order processing function is configured to
match each customer's management strategies. The outbound order
process includes, among other features, order selection, allocation,
picking, loading and shipping.
o Management. The general warehouse operations process manages the
availability of space and the movement of warehouse personnel,
inventory and material handling equipment through information shared
by management and warehouse employees. The real-time information and
product flexibility allows a customer to test or implement different
strategies to maximize productivity and efficiency. The system
allows customers to combine multiple tasks into a single job
assignment, such as grouping a put-away and picking assignment into
one trip. RIMS.2001 facilitates cycle counting, automatic
replenishment, product moves, inventory control and consolidation,
labor tracking, system security, space utilization, vehicle
management and rewarehousing.
RIMS.Food. RIMS.Food is a specialized application of RIMS.2001 targeted at
the food industry. This product includes all of the basic features and benefits
of the base RIMS.2001 product, and is the first product created by the Company
to focus on a particular vertical market. RIMS.Food is pre-configured to address
the
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unique requirements of the food industry. Key features include: specialized
processing, such as date triggers (sell by date, cure date, use by date, freeze
date, etc.), enhanced lot tracking, and industry-specific bar coding.
Service and Maintenance
In addition to licensing of RIMS.2001, the Company offers certain services
and maintenance agreements to its customers. Services provided by the Company
include project management, product customization, configuration support,
training and implementation support.
Maintenance is not provided as part of the Company's license agreement;
however, the Company offers turnkey maintenance services for the RIMS.2001
software and certain hardware components of the system under a separate
maintenance agreement. Maintenance agreements are typically initiated at the
time of implementation, are renewable annually, and entitle the customer to
telephone support, software upgrades, installation assistance and priority
problem resolution, including software fixes. Maintenance fees are typically a
percentage of the license fees (excluding hardware), with additional fees for
extended hours. If elected by the customer, maintenance support is offered
24-hours per day, seven days per week. In the event a customer does not enter
into a maintenance agreement with the Company, it would still be entitled to
software fixes for reported problems during the first year of its system's
installation, pursuant to the one-year warranty provided to the Company's
customers in connection with the standard RIMS.2001 license fee; however, to
date, all RIMS.2001 customers have entered into a maintenance agreement with the
Company after system implementation.
The Company has several groups responsible for offering services and
maintenance to ensure customer satisfaction, including Software Engineering,
Product Support, Training and Customer Support. The Company's Software
Engineering Group offers a structured implementation program that typically
lasts two to three months and begins with the development of joint business
scenarios between the Company and the customer. This process consists of
training, business scenario development, configuration of the software, the
conference room pilot program, project management and implementation support
services. The conference room pilot program enables the Company and the customer
to model warehouse management operations and resolve operating issues prior to
live implementation. The Company's Product Support Group is responsible for
managing and installing operational systems, hardware, networks, communication
links and relational database management systems. Further, the Company offers
training to its customers for its RIMS products. Standard training for RIMS
includes three courses over three to four weeks. The Configuration course
explains basic RIMS terminology and methodology related to system configuration
and setup. The Supervisors course provides warehouse management the training
necessary to effectively control and monitor the facility. The Operators course
is a hands-on training course for warehouse workers concentrating in the
execution of RIMS-related tasks. Customized courses are also made available on
request. A Train-the-Trainer course provides information and materials to
third-party trainers who will perform the future RIMS training. A RIMS Internals
course is designed to provide technical personnel with knowledge of the software
design and internal operations of the RIMS system. The Company offers extensive
customer support to its maintenance customers, including a 24-hour help line.
In those cases in which the standard RIMS.2001 product cannot meet the
customers needs, the Company can enter into contracts to perform certain
modifications to the baseline product.
Third Party Hardware Products
The Company's RIMS.2001 products use an open architecture that enables
customers to use various operating systems, operate on multiple hardware
platforms and interoperate with many third party software applications and
legacy systems. This open system capability enables customers to continue using
their existing computer resources and to choose among a wide variety of existing
and emerging computer hardware and peripheral technologies.
In conjunction with virtually all sales of RIMS.2001, the Company resells
a variety of hardware products developed by third parties, including computer
hardware, radio frequency terminal networks, bar code printers and scanners, and
other peripherals. In addition, the Company resells computer hardware and
network devices in
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support of office client server systems. The Company resells all third-party
products pursuant to agreements with the products' manufacturers or through
distributor authorized reseller agreements pursuant to which the Company is
entitled to purchase products at discount prices and to receive technical
support in connection with product installations and subsequent product
malfunctions. The RIMS.2001 hardware-related agreements generally permit the
Company to resell the third-parties' products to any RIMS.2001 user in the
United States. The Company anticipates that its foreign distributors or other
third party vendors will sell any hardware or peripherals required in connection
with the sale of RIMS.2001 outside of the United States. The Company anticipates
that sales of third-party products will decrease in importance and as a
percentage of revenues over time as sales of the Company's software licenses and
services increase.
Other Sales and Services
In addition to its RIMS.2001 systems, the Company designs, implements,
installs and supports computer systems networks and office software on a limited
basis. Customers range from Fortune 100 companies with sophisticated
fault-tolerant, inter-networking, high connectivity needs, to medium- and
small-size companies requiring implementation and support of a workgroup local
area network. The Company provides entire turnkey software solutions,
consulting, systems analysis and custom training on almost any application to be
run on a network. The Company is fully equipped to support most "off-the-shelf"
software applications written for Novell, NT or UNIX, and offers its customers a
full range of support services, ranging from the resolution of a specific
application problem to a full software support contract encompassing any or all
of its customer applications. The Company is a single source provider due to its
ability to (i) install hardware and application software for local area
networks, (ii) configure, upgrade and maintain such systems, and (iii) provide
training relating to such systems to its customers.
Customers
The Company targets its marketing efforts primarily on manufacturers,
distributors, retailers and wholesalers in the food processing, consumer
products, petro chemical products, public utilities and pharmaceutical sectors,
as well as other high-volume wholesalers. As of May 31, 1997, the Company had
licensed RIMS.2001 to 22 customers operating a total of 28 warehouses.
Customer orders for the Company's RIMS.2001 products over the last three
fiscal years have ranged from approximately $50,000 to over $2 million. Due to
the size of most orders and the need for differing amounts of modification for
each installation, the Company historically has obtained orders from a
relatively small number of new customers each fiscal quarter. As a result,
individual customers have often accounted for more than 10% of total revenues in
a particular fiscal period. For the fiscal year ended May 31, 1995, the Company
had two customers that accounted for approximately 34% and 13% of total
revenues. For the fiscal year ended May 31, 1996, the Company had three
customers that accounted for approximately 15%, 14% and 12% of total revenues.
For the fiscal year ended May 31, 1997, the Company had two customers that
accounted for approximately 21% and 13% of total revenues. Because of the nature
of the Company's business operations, the Company anticipates that the number of
customers that account for more than 10% of total revenues for a fiscal period
will vary from period to period depending on the status and timing of
significant orders by a particular customer or customers in any given fiscal
period. However, as sales of the standard RIMS.2001 product increase and the
average dollar amount of system orders decreases, the Company expects that the
number of customers accounting for more than 10% of total revenues for a fiscal
period will decline.
Sales and Marketing
The Company currently markets its products and services primarily through
a direct sales force in North America and directly and indirectly in other parts
of the world. The Company conducts comprehensive marketing programs that include
telemarketing, public relations, direct mail, advertising, seminars, trade shows
and ongoing customer communications programs. Sales and marketing personnel are
located at the Company's headquarters in Massapequa, New York and in field
offices located in Atlanta, Georgia, Pittsburgh, Pennsylvania, Cranston, Rhode
Island and San Ramon, California. The Company expects to upgrade and expand its
existing field offices and to
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open an additional North American sales and support office in fiscal 1998, which
office will likely be located in Chicago, Illinois. The Company also expects to
open in fiscal 1998 its first two international sales and support offices, which
offices will likely be located in Europe and Australia.
The Company obtains sales leads through advertising, seminars, trade shows
and relationships with industry consultants. A typical sales cycle begins with
the generation of a sales lead or the receipt of a request for proposal ("RFP")
from a prospective customer or his representative. After qualification of the
sales lead and analysis of the prospective customer's requirements, a formal
proposal in response to the RFP is prepared. The proposal generally describes
how RIMS.2001 is expected to meet the RFP requirements and associated costs.
Product demonstrations are often conducted at the prospective customer's
facilities using realistic data and scenarios. Site visits to other RIMS.2001
installations are also encouraged by the Company's sales staff. While the sales
cycle varies substantially from customer to customer, it typically ranges from
three to six months for a standard system and from six to 12 months for a system
requiring substantial modification The Company expects that the sales cycle for
the standard RIMS.2001 system will be reduced to 60 to 90 days as the system
becomes more widely known through increased advertising.
The Company often employs an innovative conference room pilot approach for
potential new customers. The potential customer is offered a fully-functioning
RIMS.2001 system for configuration, evaluation and analysis. The client executes
the RIMS.2001 application by working hands-on with a test machine in a
controlled environment at its own headquarters. The conference room pilot offers
a unique opportunity to confront issues that a customer might otherwise face in
the actual operation of its warehouse, and to work with the Company to solve
potential problems prior to full-scale system implementation. The Company
believes this program is instrumental in establishing client confidence and
promoting additional awareness of the broad functionality of the RIMS system.
The conference room pilot also enables potential customers to define additional
requirements for modification and provides mutual assurance to the Company and
the customer that any defined modifications are, in fact, needed. A client fee
and the costs of the necessary training services are charged to the potential
customer in connection with this program. At the conclusion of the pilot period,
the customer has the option to request a full refund of any license fees paid.
To date, no customer has requested a refund.
In addition, the Company has developed a standardized, comprehensive and
detailed implementation plan to guide new customers smoothly from contract
signing to system startup. The Company's project managers utilize this plan to
ensure that projects are completed effectively and within budget. Depending on
the experience level of the customer and the ease of host integration, a first
time customer will be placed on a plan that ranges from 16 to 24 weeks past
contract signing. Subsequent sites can typically be implemented four to eight
weeks apart.
The Company intends to supplement its marketing efforts by aligning itself
with complimentary solutions providers and technology partners. Strategic
alliances also assist the Company in keeping pace with technological
developments of the major software and hardware vendors and, in certain
instances, provide the Company with product development services. The Company
has entered into a strategic alliance with QAD, Inc., the developer of the
MFG/PRO ERP system. This relationship includes co-marketing and
technology-sharing arrangements, and will provide the Company access to a very
large existing customer base. Purchasers of the MFG/PRO ERP system may be linked
to RIMS.2001 through an application program interface module that contains
software of the Company as an integral component. The integration of the
Company's software into the application program interface assures purchasers of
the MFG/PRO ERP system that any future upgrades to the system will also upgrade
the warehouse management system of such customer if such customer has RIMS.2001
in place. A purchaser of an MFG/PRO ERP system that is not linked to RIMS.2001
will not receive the benefit of this upgrade capability. Currently, RIMS.2001 is
the only available warehousing solution that conforms with the MFG/PRO ERP
system application program interface and provides upgrade capability. This
upgrade capability provides customers with a significant cost savings by
eliminating the customer's need to adjust interfaces to maintain the integrity
between MFG/PRO ERP system and RIMS.2001.
The Company intends to establish itself in the international business
market and currently markets RIMS.2001 through resellers located in Canada,
South America, Mexico, the United Kingdom and New Zealand. These resellers are
established systems integrators with large customer bases in their respective
regions. The
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Company's agreements with such resellers are not exclusive, except for the
Company's agreement with its United Kingdom reseller, which is exclusive in the
United Kingdom and Ireland and non-exclusive in Scandinavia and Germany. The
Company intends to establish additional non-exclusive international resellers in
Europe, Africa, the Middle East and Asia. As the number of foreign resellers
expands, the Company intends to strategically locate sales and support offices
throughout the world to support these distributors.
For the fiscal year ended May 31, 1997, approximately 3.3% of the
Company's revenues were generated outside the United States. The Company expects
that international sales will significantly increase as it adds additional
international resellers and opens Company-owned international sales and support
offices. There are a number of risks inherent in the Company's current and
proposed international business activities. There can be no assurance that such
factors will not have an adverse effect on the revenues from the Company's
future international sales and, consequently, on the Company's results of
operations.
Product Development
The Company seeks to offer an extensive, integrated product line that
provides complete warehouse management functionality to warehouses worldwide. To
effect this strategy, the Company intends to continue to introduce new modules,
upgraded functionality and enhancements to existing products.
The Company, through its development and support personnel, works closely
with its customers and prospective customers to determine their requirements and
to design enhancements and new products to meet customer needs. Using the focus
group approach and input from the user community, the Company's steering
committee will select suitable enhancements for inclusion in future releases of
RIMS.2001. Software development is funded by Company funds and, to a lesser
extent, customer funds. Product improvements are often initiated by customer
funding of modifications that can be incorporated into the standard package.
Customers benefit by funding enhancements that improve the baseline product
through lower maintenance costs and future ability to upgrade. All Company
product development is performed by its employees. The Company's capitalized
software development costs were $464,477, $815,908 and $1,518,298 in fiscal
1995, 1996 and 1997, respectively.
The original version of RIMS.2001 was introduced in June 1994 (Version
3.0). The Company plans to undertake continuous product improvement to ensure
competitiveness. New modules and features are being added and the Company's goal
is to release two new versions per year. In May 1997, the Company released
Version 3.4, and Version 3.5 is scheduled for release in the fourth calendar
quarter of 1997.
Warehouses for different vertical markets often require different features
and functionality. In addition to modifying standard RIMS.2001 product, the
Company is in the initial stages of developing pre-configured versions of
RIMS.2001 that the Company anticipates will address the needs of specific
vertical markets. The Company believes that the expertise developed in each of
these vertical markets also will further contribute to its standard RIMS.2001
product. The RIMS.Food product, which was introduced in May 1997, was the first
of these versions. In the development of RIMS.Food, the Company established a
focus group consisting of current and potential clients in the food
manufacturing and distribution industry. The focus group provided direction,
guidance and partial funding for the development of RIMS.Food. The Company
intends to replicate this process to establish itself in other vertical markets
and, upon development of each industry-specific version of RIMS.2001, to hire a
dedicated sales force to market such product within the applicable vertical
market. The Company has initially targeted the automotive, consumer products,
petro chemical products, public utilities and pharmaceutical products industries
as additional markets for an industry-specific RIMS.2001 product, and intends to
have its next industry-specific focus group meeting in the fourth calendar
quarter of 1997.
The Company is continuing its software development efforts by designing
enhancements to RIMS.2001 using Internet and intranet-based technology,
including enhancements based on a combination of the Java language and HTML
(hypertext markup language). By incorporating this technology into RIMS.2001,
authorized users on the World Wide Web will be able to access information in any
RIMS.2001 World Wide Web-enabled server, utilizing standard World Wide Web
browsers. For example, a RIMS.2001 customer will be able to permit
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its authorized users to access its RIMS.2001 data repository via the World Wide
Web, which will reduce the burden on its customer service department because the
status of orders and the location of inventory for an order may be monitored
directly by the authorized user (i.e., a retail customer or plant manager). The
Company's development of an Intranet-based application (Java and HTML) will
permit warehouse management and related activity (e.g. customer service) to be
performed entirely through World Wide Web browsers within the confines of the
client organization. This architecture will permit access to data from
authorized users via a familiar browser interface. Scalability and ease of
maintenance are additional benefits of this architecture.
There can be no assurance that the development of these product
enhancements will be completed successfully or that they will include the
features required to achieve market acceptance. The introduction of each new
release of RIMS.2001 has resulted in enhancements of earlier releases as the new
releases offer improved features and functionality over prior versions. Since
the Company continues to offer earlier releases of RIMS.2001, to service,
support and provide maintenance on such earlier releases and to make new
releases of RIMS.2001 available to customers, the obsolescence of earlier
releases has not had and is not expected to have a material impact on the
Company's results of operations or financial condition. Delays or difficulties
associated with introductions of new features, modules and products could have a
material adverse effect on the Company's business, results of operations or
financial condition.
Competition
The market for warehouse management and distribution software and related
services is intensely competitive and is characterized by rapid changes in
technology and user needs and the frequent introduction of new products and
product enhancements. The Company's competitors and potential market entrants
range from small, privately-held firms to large national and international
organizations with more extensive technical staffs and technological resources,
larger marketing and sales organizations, and greater financial resources than
the Company. The Company also competes with software applications developed by
the internal management information system departments of its potential
customers. The Company, however, believes that potential customers increasingly
will purchase software applications from outside vendors, including the Company,
due to high development costs, poor support, the lack of comparable
functionality and inconsistent or delayed development schedules.
The Company believes that historically the market for warehouse management
and distribution software could be characterized by the size of the customer or
the complexity of the customer's warehouse handling environment. Competitors in
the high end of the market offered turnkey systems that typically integrated all
aspects of hardware, software and services related to the warehouse management
system, including real-time labor management functionality, labor planning,
tracking and management functionality, integrated host system communications,
modular software development, material handling device control, automated
storage equipment control, inbound/outbound traffic management, and full
receiving, putaway/storage, order processing, picking, shipping, inventory
control and management reporting functionality. Middle market competitors differ
from high end competitors primarily by offering systems with limited hardware
flexibility, little or no management, labor and storage reporting, little or no
radio frequency functionality and reduced hardware and software costs. Middle
market systems generally provide excellent tracking and control, but do not
actively help to manage the warehouse operation. At the lower end of the market,
competitors tend to specialize in a specific aspect of warehouse functionality,
such as receipts tracking, warehouse data collection tasks or carousel control,
and have smaller technical and development staffs.
The Company believes that, unlike most of its competitors, it can compete
effectively in both the high end and middle segments of the market due to the
scaleability, flexibility, configurability, functionality and price of
RIMS.2001. The Company has a large number of competitors in these markets and
believes that its primary competitors in these markets are McHugh Freeman and
Associates, Manhattan Associates and Catalyst International, Inc., each of which
provides complete warehouse management and distribution software. In addition,
certain well-known computer manufacturers and software developers, such as SAP
AG, J.D. Edwards & Co., BAAN Company N.V. and PeopleSoft, Inc., offer integrated
manufacturing or accounting software packages that
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include a warehouse management component. Many of the Company's competitors have
greater name recognition, more extensive engineering, management and marketing
capabilities and significantly greater financial, technological and personnel
resources that the Company.
Over the last few years, as software developers began to develop software
for more than one customer in the same industry, the market for warehouse
management systems has increasingly been characterized by the industry in which
the customer competes. By tailoring RIMS.2001 to support the unique features of
certain targeted markets, the Company believes it will have a competitive
advantage in selling prospective customers in the same industry in which similar
functionality and implementation issues arise. The Company has identified the
foods, automotive, consumer products, petro chemical products, public utilities
and pharmaceutical products markets as its target markets, and has developed
RIMS.Food as a specialized application of RIMS.2001 targeted at the food
industry.
The Company believes that the competitive factors affecting its markets
include features such as openness, scalability, ability to integrate with third
party products, functionality, adaptability, ease of use, product reputation,
quality, performance, price, customer service and support, effectiveness of
sales and marketing efforts and company reputation. Although the Company
believes that it currently competes favorably with respect to such factors,
there can be no assurance that the Company can maintain its competitive position
against current and potential competitors, especially those with greater
financial, marketing, service, support, technical and other resources than the
Company.
Proprietary Rights, Licenses and Pricing
The Company relies on a combination of contract, copyright, trademark and
trade secret laws, and other measures to protect its proprietary information.
The Company does not have any software patents or patent applications. Trade
secret and copyright laws afford only limited protection. The Company believes
that, because of the rapid pace of technological change in the computer software
industry, trade secret and copyright protection are less significant in
affecting the Company's business, results of operations or financial condition
than factors such as the knowledge, ability and experience of the Company's
employees, frequent product enhancements and timeliness and quality of support
services.
The Company generally sells its products to its customers under a
non-transferable perpetual license. The Company generally licenses its products
solely for the customers' internal operations and only at designated sites. The
Company also makes available multi-site licenses and enterprise licenses.
Domestic multi-site licenses are discounted from the first license fee for the
second site and beyond. Enterprise licenses are structured as a one time fee
with unlimited usage, plus a nominal fee as additional sites are installed with
the software. Licensing of RIMS.2001 is concurrent user based. Discounts are
generally applied for multi-site licenses. International license fees tend to be
slightly higher and are structured by region.
The Company does not provide source code to the customer under its
licenses. The Company believes that providing source code increases the
likelihood of misappropriation or other misuse of the Company's intellectual
property. The Company has, however, entered into source code escrow agreements
with certain customers whereby, under certain circumstances, source code is made
available to a customer. This is a common practice in the software industry.
Under the terms of the Company's license agreements, the Company generally owns
all modifications to its software that are implemented for a customer.
The Company is not aware of any case in which its products, trademarks or
other proprietary rights infringe the property rights of third parties, but has
not performed any independent investigations to determine whether such
infringement exists. Accordingly, there can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products or that any such assertion may not require
the Company to enter into royalty arrangements or result in litigation. As the
number of software products in the industry increases and the functionality of
these products further overlap, the Company
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believes that software developers may become increasingly subject to
infringement claims. Any such claims, with or without merit, can be time
consuming and expensive to defend.
Employees
As of September 19, 1997, the Company had 52 employees. The Company had
five employees primarily in management and administration, 18 in product
development, eight in software services, eight in customer support, and twelve
in sales and marketing. The Company's employees are not represented by any
collective bargaining organization and the Company has never experienced a work
stoppage. The Company considers its relations with its employees to be
satisfactory.
Item 2. Description of Property.
The Company's headquarters are located in Massapequa, New York in
approximately 10,000 square feet of office space that is leased from Robocom
Properties, Inc., a corporation of which the principal shareholders are
currently officers or directors of the Company. See "Item 12. Certain
Relationships and Related Transactions". The annual rental on the corporate
headquarters is $168,000 (excluding operating expenses, insurance, property
taxes and assessments), subject to increases based upon fluctuations in the
prime rate, as published in the Wall Street Journal. The lease expires on
December 31, 2010.
The Company also leases approximately 2,000 square feet in Teaneck, New
Jersey. The lease expires on January 1, 2002 and may be extended by the Company
for an additional five-year period. The lease has an annual rental rate of
$33,297 (excluding operating expenses, insurance, property taxes and
assessments).
In addition, the Company has short-term leases for its salespeople across
the United States.
The Company believes that its existing facilities are sufficient for its
operations, although it intends to open additional sales and support offices in
the future.
Item 3. Legal Proceedings.
The Company is not a party to any material legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
Effective as of May 15, 1997, the shareholders of the Company unanimously
approved by written consent the adoption of the Company's 1997 Stock Option and
Long-Term Incentive Compensation Plan and the amendment and restatement of the
Company's certificate of incorporation and by-laws in contemplation of the
Company's initial public offering of its Common Stock.
Part II
Item 5. Market for Common Equity and Related Shareholder Matters.
The Company's Common Stock is listed on The Nasdaq Stock Market under the
symbol RIMS. Since the initial public offering of the Common Stock on June 26,
1997 at $6.50 per share, the Common Stock has traded at a high of $8 per share
and a low of $6-7/8 per share. These prices are determined by over-the-counter
market and therefore do not reflect broker's fees or commissions.
As of September 19, 1997, there were 3,467,984 shares of the Company's
Common Stock outstanding held by approximately 15 shareholders of record.
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The Company does not currently pay dividends on its Common Stock. It is
management's intention not to declare or pay dividends on the Common Stock, but
to retain earnings, if any, for the operation and expansion of the Company's
business.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Certain statements in this Report and in the documents incorporated by
reference herein constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Factors that might
cause such a difference include, among others, uncertainties relating to general
economic and business conditions; industry trends; changes in demand for the
Company's product; uncertainties relating to customer plans and commitments and
the timing of orders received from customers; announcements or changes in
pricing policies by the Company or its competitors; unanticipated delays in the
development, market acceptance or installation of the Company's products;
availability of management and other key personnel; availability, terms and
deployment of capital; relationships with third-party equipment suppliers;
governmental export and import policies; global trade policies; and worldwide
political stability and economic growth. The words "believe", "expect",
"anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made.
Overview
The Company's principal activities include marketing and support of
comprehensive warehouse management software systems. In addition to its core
business, the Company also provides, to a limited extent, system integration
services in support of office client server systems. The Company licenses its
RIMS warehouse management systems and, in connection with its other system
integration services, certain third-party software products; it provides related
services (including customization and modification, project management, training
and implementation) and maintenance support; and it sells related third-party
hardware products. The Company has achieved annual increases in revenues in the
last three fiscal years due primarily to the development and deployment of its
standard RIMS.2001 product in fiscal 1995. Prior to such time, the Company's
revenues were principally derived from highly-customized RIMS warehouse systems
and adaptations that required substantial modifications to meet the
functionality required by customers. Over the past three fiscal years, the
Company's results of operations increased from net income of $744,248 in fiscal
1995 to net income of $1,816,580 in fiscal 1997. In addition, since the
Company's introduction of the standard RIMS.2001 product in fiscal 1995, the
rate of RIMS.2001 installations has increased from a total of six installations
in the fiscal year ended May 31, 1995 to 17 installations in the fiscal year
ended May 31, 1997. The Company expects RIMS.2001 and related revenues to
continue to account for a substantial portion of the Company's revenue for the
foreseeable future. As a result, the Company's future operating results are
significantly dependent upon continued market acceptance of RIMS.2001 and
enhancements thereto. In addition, since a substantial portion of the Company's
revenues in any fiscal period are derived from relatively few sales of
RIMS.2001, both the number of new sales of RIMS.2001 and the timing of orders
for, and installations of, new systems in any fiscal period, has caused and is
expected to continue to cause, significant fluctuations in revenue from period
to period.
The Company's revenues are derived from software license fees, fees for
services, sales of hardware and maintenance fees. Software license fees include
revenue from the licensing of the Company's proprietary RIMS.2001 software and
revenue from the sublicensing of certain third-party software. Software license
fee revenue is recorded when the software has been delivered, the license
agreement with the customer has been executed and collection of the resulting
receivable is deemed probable. Service revenues are derived from project
management, customization and modification of licensed software, training,
on-site support and implementation services. Service revenues are recorded using
the percentage of completion method of accounting. Hardware
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revenues are derived from the Company's resale of a variety of third-party
hardware products on behalf of other manufacturers, including computer hardware,
radio frequency equipment, bar code printers and other peripherals. Such
revenues are recognized when the title to such hardware passes to the customer.
Customers typically enter into one-year maintenance agreements with the Company
upon the completion of the software installation and pay maintenance fees
monthly. The Company recognizes revenue from each maintenance agreement ratably
over the period covered by the agreement, but is only required to perform
maintenance services as and when they are requested by the customer.
Historically, all of the Company's customers have entered into, and
substantially all of the Company's customers have renewed, maintenance
agreements with the Company.
The Company's total revenues in any period are substantially dependent
upon a relatively small number of large sales. Revenues from the Company's five
largest customers in each of fiscal 1995, 1996 and 1997 accounted for
approximately 70%, 56% and 50% of total revenues, respectively. The Company
expects that this downward trend will continue as the Company further penetrates
the market with its RIMS.2001 products.
Costs of revenues represents the cost of software modification, system
implementation and other services, hardware and maintenance support. Costs of
services and costs of maintenance consist primarily of labor costs for customer
support, including personnel costs, and costs relating to subcontracted services
and overhead. Typically, costs of maintenance associated with the Company's
standard maintenance contract decrease over the life of the maintenance
contract. The number of programmers and service and support personnel employed
by the Company was 25, 27 and 34 at May 31, 1995, 1996 and 1997, respectively.
Some programmers also function as engineers in the development of software, as
described below. Cost of hardware consists primarily of the cost of hardware
sold by the Company on behalf of other manufacturers.
Amortization of software development costs consists of the amortization of
costs of engineering personnel and related development expenses, such as the
development of software tools and documentation, capitalized starting at the
point technological feasibility is demonstrated. The Company believes that a
significant level of investment in software development is essential to achieve
and maintain a market leadership position. The Company capitalized $464,477,
$815,908 and $1,518,298 in fiscal 1995, 1996 and 1997, respectively, for
software development costs. Research and developments costs for these periods
were not significant. The Company employed 14, 15 and 18 software development
employees at May 31, 1995, 1996 and 1997, respectively, some of which also
functioned as programmers for the installation or modification of the Company's
software. Amortization of software development costs has increased primarily due
to the commencement of amortization of capitalized software development costs
for RIMS.2001 Versions 3.1 and 3.2 in January and September 1996, respectively,
the month in which such version was first available for sale. RIMS.2001 has been
technologically feasible since 1992 and salable since the beginning of fiscal
1995. The Company's current and planned product development efforts are directed
at enhancing and improving RIMS.2001. Accordingly, the Company anticipates that
the dollar amount of the amortization of software development expenses will
increase. As a percentage of total revenue, however, the Company anticipates
that amortization of software development expenses will decrease as revenues
increase.
Selling, general and administrative expenses consist primarily of salaries
for sales, marketing, administrative, executive and financial personnel,
commissions paid to sales personnel and travel and promotional expenses. The
sales and marketing, general and administrative staff consisted of 15, 15 and 17
employees at May 31, 1995, 1996 and 1997, respectively. The Company believes
that its selling, general and administrative expenses will increase in dollar
amounts in the future as the Company expands its sales and marketing staff and
as the Company experiences higher costs associated with being a public company;
however, the Company anticipates that such expense will decrease as a percentage
of total revenues as revenues increase.
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Results of Operations:
The following table sets forth, for the periods indicated, certain
statement of operations data:
(In thousands)
Year ended May 31,
----------------------------
1995 1996 1997
------ ------ ------
Revenue:
Software license fees ....................... $ 505 $ 970 $1,241
Services .................................... 3,382 3,195 2,741
Hardware .................................... 2,068 1,793 2,352
Maintenance ................................. 858 1,006 1,179
------ ------ ------
Total revenues .............................. 6,813 6,964 7,513
------ ------ ------
Cost of revenue:
Cost of license fees ........................ 34 63 193
Cost of services ............................ 2,622 2,302 1,280
Cost of hardware ............................ 1,534 1,399 1,842
Cost of maintenance ......................... 261 680 707
------ ------ ------
Total cost of revenues ...................... 4,451 4,444 4,022
------ ------ ------
Amortization of software
development costs ........................... 297 311 441
------ ------ ------
Gross margin .................................. 2,065 2,209 3,050
Selling, general & administrative
expenses .................................... 1,275 1,076 1,199
------ ------ ------
Income from operations ........................ 790 1,133 1,851
Interest expense, net ......................... 46 8 34
------ ------ ------
Net income .................................... $ 744 $1,125 $1,817
====== ====== ======
Comparison of Fiscal Years Ended May 31, 1996 and May 31, 1997
Revenue. Total revenue increased by approximately 8% from $6,964,097 in
the year ended May 31, 1996 to $7,513,490 in the year ended May 31, 1997.
Software license fees increased by approximately 28% in fiscal 1997 as compared
to fiscal 1996 primarily due to the increase in RIMS.2001 software licenses from
five during fiscal 1996 to 17 during fiscal 1997. Services revenues decreased by
approximately 14% in fiscal 1997 as compared to fiscal 1996, primarily due to
the decreasing level of services required for the installation of
highly-configured, pre-RIMS.2001 systems originally contracted for prior to
fiscal 1995. Hardware revenues increased by approximately 31% in fiscal 1997 as
compared to fiscal 1996, primarily due to increased sales of hardware by the
Company in connection with its system installations. Maintenance revenues
increased by approximately 17% in fiscal 1997 as compared to fiscal 1996, due
primarily to the larger number of maintenance contracts in operation during such
period.
Cost of Revenues. Total cost of revenues decreased by approximately 10%
from $4,444,119 in fiscal 1996 to $4,021,883 in fiscal 1997. As a percentage of
revenue, total cost of revenues decreased from approximately 64% in fiscal 1996
to approximately 54% in fiscal 1997. The decrease primarily related to higher
license fee revenues discussed above, which have minimal direct related costs,
and higher margin services revenues due to increased modifications and training
services during the 1997 period.
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Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 42% from $311,321 in fiscal 1996 to
$441,291 in fiscal 1997. The increase was due to the commencement of
amortization of capitalized software development costs for RIMS.2001 Versions
3.1 and 3.2 in January 1996 and September 1996, respectively, the date such
versions were first available for sale. As a percentage of revenue, the
amortization of software development costs were approximately 4% in fiscal 1996
and approximately 6% in fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 12% from $1,075,309 in fiscal
1996 to $1,199,515 in fiscal 1997. As a percentage of revenue, selling, general
and administrative expenses increased from approximately 15% in fiscal 1996 to
approximately 16% for the 1997 period. The increase in selling, general and
administrative expenses was primarily due to the amortization of deferred
compensation in fiscal 1997 as compared to none in fiscal 1996, higher
professional and consulting fees offset by lower administrative salaries
resulting from the retirement of one of the Company's executive officers and
decreased selling expenses in fiscal 1997.
Interest Expense, net. Interest expense was $57,473 in fiscal 1997, an
increase of $18,898 or approximately 49% from $38,575 in fiscal 1996. The
increase was primarily due to higher interest rates on balances related to loans
from officers in fiscal 1997 as compared to fiscal 1996 and to interest on
higher average bank borrowings in fiscal 1997.
Comparison of Fiscal Years Ended May 31, 1995 and May 31, 1996
Revenue. Total revenue increased by approximately 2% from $6,813,307 in
the year ended May 31, 1995 to approximately $6,964,097 in the year ended May
31, 1996. Software license fees increased by approximately 92% in fiscal 1996 as
compared to fiscal 1995, primarily due to the payment by one customer in fiscal
1996 of a significant non-refundable license fee. Services revenues decreased by
approximately 6% in fiscal 1996 as compared to fiscal 1995, primarily due to the
completion in fiscal 1995 of installations for two customers requiring
significant modifications. Hardware revenues decreased by approximately 13% in
fiscal 1996 as compared to fiscal 1995, primarily due to the completion in
fiscal 1995 of a large pre-RIMS.2001 system with a significant hardware
component. Maintenance revenues increased by approximately 17% in fiscal 1996 as
compared to fiscal 1995, due primarily to the commencement of additional
maintenance agreements.
Cost of Revenues. Total cost of revenues remained relatively constant at
$4,450,949 in fiscal 1995 and $4,444,119 in fiscal 1996. As a percentage of
revenue, total cost of revenues decreased from approximately 65% in fiscal 1995
to approximately 64% in fiscal 1996 primarily due to the significant
non-refundable license fee referred to above with minimal related costs, offset
by the expiration in late fiscal 1995 of three pre-RIMS.2001 customers'
maintenance contracts, all of which had relatively low related maintenance
costs.
Amortization of Software Development Costs. Amortization of software
development costs increased approximately 5% from $296,997 in fiscal 1995 to
$311,321 in fiscal 1996. The increase was due to the commencement of
amortization of capitalized software development costs for RIMS.2001 (Version
3.1) in January 1996, the date such version was first available for sale. As a
percentage of revenue, the amortization of software development costs remained
constant at approximately 4% in the years ended May 31, 1995 and 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by approximately 16% from $1,275,134 in fiscal
1995 to $1,075,309 in fiscal 1996. As a percentage of revenue, selling, general
and administrative expenses decreased from approximately 19% in fiscal 1995 to
approximately 15% in fiscal 1996. The decrease is due to lower pension costs
reflected in fiscal 1996 as a result of the reduction in personnel and lower
administrative salaries and related expenses.
Interest Expense, net. Interest expense was $38,575 in fiscal 1996, a
decrease of $18,309, or approximately 32%, from $56,884 in fiscal 1995,
primarily because outstanding bank borrowings in fiscal 1995 were entirely
repaid by the end of such period and there were no bank borrowings during fiscal
1996.
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Fluctuations in Operating Results
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future, depending upon a number of factors, such as the length of
the Company's sales cycle, the unanticipated cancellation of significant license
agreements, the timing of new version releases by the Company and its
competitors, budgeting cycles of the Company's customers, demand for the
Company's software, software life cycles, acceptance of new software introduced
by the Company and its competitors, the size and timing of customer orders,
changes in the proportion of revenues attributable to software license fees
versus services, changes in the level of operating expenses and general economic
conditions. In addition, a significant portion of the Company's revenues has
been derived from relatively few sales of licenses for RIMS.2001, and,
consequently, the timing of such sales has caused material fluctuations in the
Company's operating results. Accordingly, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as an indication of future performance.
In addition, the Company completed its initial public offering of 1,500,000
shares of common stock for sale to the public on June 26, 1997 (the "Offering").
The weighted average number of shares in the proforma earnings per share
computation does not include the shares issued by the Company in connection with
the Offering. If such shares had been included in the weighted average shares,
proforma earnings per share for the fiscal year ended May 31, 1997 would have
been $.30 per share.
Because the Company recognizes a significant portion of revenues over the
installation period of the system (which, although designed to be completed in
approximately four months, generally ranges from four to eight months in
duration as a result of the customer's scheduling requirements) and because
installation commences promptly after execution of the related license
agreement, the Company does not maintain a significant backlog. Software license
fees for each quarter depend in part on orders for which implementation has
begun during that quarter and on license agreements under implementation that
were executed in prior quarters. The sales cycle for RIMS.2001 typically ranges
from four to six months, and contract signing may be delayed for a number of
reasons, including customer budgetary constraints and internal authorization
reviews. In addition, delays in the completion of a contract may require that
the revenues associated with such contract be recognized over a longer period.
Consequently, the Company's business, results of operations or financial
condition for a quarter could be materially adversely affected by implementation
delays.
The Company is in the initial stages of developing pre-configured,
industry-specific versions of RIMS.2001 for use in certain vertical markets. The
Company believes that if it is able to successfully introduce and obtain market
acceptance of pre-configured versions of RIMS.2001, such versions would reduce
its quarterly fluctuations in operating results because such products would
enable the Company to sell its systems to a greater number of customers. The
RIMS.Food product, which was introduced in May 1997, was the first of these
industry specific versions. There can be no assurance, however, that these
additional products will be successfully developed or that they will gain market
acceptance. See "Item 1. Business --Product Development."
Liquidity and Capital Resources
Over the last three years, the Company has funded its operations primarily
through cash generated from operations, bank borrowings and loans from officers.
The Company has a bank line of credit (the "Line of Credit"), which expires on
November 30, 1997 and provides for borrowings of up to $2,000,000. Amounts
outstanding under the Line of Credit are payable on demand and are
collateralized by the assets of the Company. Borrowings bear interest at the
prime rate (8.50% at September 19, 1997). The Line of Credit has been used
primarily for S Corporation distributions to the Company's shareholders prior to
the termination of the Company's S Corporation status on June 25, 1997 and for
working capital purposes. Outstanding amounts under the Line of Credit
aggregated $1,300,000 at May 31, 1997. On July 1, 1997, the outstanding
indebtedness under the Line of Credit was repaid with a portion of the proceeds
from the Company's initial public offering of Common Stock (the "Offering"). In
the future, however, the Company may re-borrow against this or a subsequent line
of credit. The amount available under the Line of Credit is reduced by a
$150,000 standby letter of credit with the same
18
<PAGE>
bank, which is being utilized as collateral for a vendor and which expires on
December 31, 1997. Proceeds from the Offering were $8,234,000, net of expenses
of $1,516,000. In addition to the repayment of all amounts outstanding under the
Line of Credit, on July 1, 1997, the Company made distributions to its S
Corporation shareholders in the amount of $1,600,000.
Net cash provided by operating activities was $657,150, $1,278,812 and
$1,417,984 in fiscal 1995, 1996 and 1997, respectively. Cash flows from
operations increased in fiscal year 1996 due primarily to the higher net income
generated over the previous year. Cash generated from operating activities in
the year ended May 31, 1997 was generated primarily from higher net income
offset by the increase in accounts receivable. This increase in accounts
receivable was due to significant deliveries of equipment and related services
to several customers in May 1997.
The Company capitalized $464,477, $815,908,and $1,518,298 in fiscal 1995,
1996 and 1997, respectively, for software development costs. The Company did not
have any material commitments for software development costs as of May 31, 1997.
Any such costs will be financed through working capital and proceeds received by
the Company from the Offering.
As of May 31, 1997, the Company had $49,065 in cash and cash equivalents
and working capital of $324,947.
Management believes that cash flow from operations, existing cash and cash
equivalents, and amounts available under the Line of Credit will be sufficient
to meet the Company's currently anticipated working capital and software
development requirements through fiscal 1999. The Company's working capital
needs in fiscal 1998 include approximately $1,000,000 to establish additional
domestic and international sales and support offices and approximately
$1,000,000 for software development costs.
The Company does not currently pay dividends on its Common Stock. It is
management's intention not to declare or pay dividends on the Common Stock, but
to retain earnings, if any, for the operation and expansion of the Company's
business.
Termination of S Corporation Status
As a result of terminating the Company's S Corporation status as of the
date of the Offering, the Company is required to record a one-time, non-cash
charge against earnings for deferred income taxes. This charge occurred in the
first quarter of fiscal 1998. If this charge had been recorded at May 31, 1997,
the amount would have been approximately $1,431,000. The Company expects that,
following the termination of its S Corporation status on June 25, 1997, its
combined Federal and state income tax rate will be 42%.
Inflation and Seasonality
The Company does not believe its operations have been materially affected
by inflation. The Company's business is not seasonal.
19
<PAGE>
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Form 10-KSB
Page Numbers
Report of Independent Auditors.................................... 21
Balance Sheets as of May 31, 1996 and 1997........................ 22
Statements of Income for the years ended May 31, 1995, 1996 and
1997............................................................ 23
Statements of Shareholders' Equity for the years ended May 31,
1995, 1996 and 1997............................................. 24
Statements of Cash Flows for the years ended May 31, 1995, 1996
and 1997........................................................ 25
Notes to Financial Statements..................................... 26
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Robocom Systems Inc.
We have audited the accompanying balance sheets of Robocom Systems Inc. as of
May 31, 1997 and 1996, and the related statements of income, shareholders'
equity and cash flows for each of the three years in the period ended May 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Robocom Systems Inc. at May 31,
1997 and 1996, and the results of its operations, and its cash flows for each of
the three years in the period ended May 31, 1997 in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Melville, New York
July 16, 1997
21
<PAGE>
ROBOCOM SYSTEMS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................... $ 603,948 $ 49,065
Accounts receivable, less allowance for doubtful accounts of
$47,064 in 1996 and $18,940 in 1997 ....................... 665,500 1,371,717
Costs incurred and income recognized in excess of billings on
uncompleted contracts ..................................... 823,357 1,303,388
Other current assets ........................................ 1,300 1,361
----------- -----------
Total current assets ............................................. 2,094,105 2,725,531
Property and equipment, net ...................................... 13,818 58,184
Software development costs, net .................................. 2,498,335 3,575,342
Other assets ..................................................... 30,250 157,402
----------- -----------
Total assets ..................................................... $ 4,636,508 $ 6,516,459
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Bank notes payable .......................................... $ -- $ 1,300,000
Accounts payable ............................................ 376,888 545,364
Accrued expenses ............................................ 400,322 482,479
Billings on uncompleted contracts in excess of related costs
and income recognized ..................................... 42,328 72,741
Loans payable to officers ................................... 645,000 --
----------- -----------
Total current liabilities ........................................ 1,464,538 2,400,584
----------- -----------
Shareholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued ............................................... -- --
Common stock, $.01 par value; 10,000,000 shares authorized;
1,936,400 shares issued and outstanding at May 31, 1996,
1,967,984 at May 31, 1997 ................................. 19,364 19,680
Additional paid-in capital .................................. 89,436 262,832
Retained earnings ........................................... 3,153,170 4,069,750
Deferred compensation ....................................... (90,000) (236,387)
----------- -----------
Total shareholders' equity ....................................... 3,171,970 4,115,875
----------- -----------
Total liabilities and shareholders' equity ....................... $ 4,636,508 $ 6,516,459
=========== ===========
</TABLE>
See accompanying notes.
22
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended May 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Software license fees ................... $ 504,929 $ 969,789 $ 1,241,511
Services ................................ 3,382,470 3,194,817 2,741,206
Hardware ................................ 2,068,164 1,793,053 2,351,833
Maintenance ............................. 857,744 1,006,438 1,178,940
----------- ----------- -----------
Total revenues .......................... 6,813,307 6,964,097 7,513,490
----------- ----------- -----------
Cost of revenues:
Cost of license fees .................... 34,073 63,403 192,525
Cost of services ........................ 2,621,836 2,301,954 1,280,379
Cost of hardware ........................ 1,533,585 1,398,786 1,841,628
Cost of maintenance ..................... 261,455 679,976 707,351
----------- ----------- -----------
Total cost of revenues .................. 4,450,949 4,444,119 4,021,883
Amortization of software development costs . 296,997 311,321 441,291
----------- ----------- -----------
4,747,946 4,755,440 4,463,174
----------- ----------- -----------
Gross margin ............................... 2,065,361 2,208,657 3,050,316
Selling, general and administrative expenses 1,275,134 1,075,309 1,199,515
----------- ----------- -----------
790,227 1,133,348 1,850,801
Interest and dividend income ............... 10,905 30,344 23,252
Interest expense ........................... (56,884) (38,575) (57,473)
----------- ----------- -----------
Net income ................................. 744,248 1,125,117 1,816,580
Pro forma unaudited provision for
income taxes ............................. 312,584 472,549 762,964
----------- ----------- -----------
Pro forma unaudited net income ............. $ 431,664 $ 652,568 $ 1,053,616
=========== =========== ===========
Pro forma unaudited net income per share ... $ .19 $ .28 $ .45
=========== =========== ===========
Pro forma unaudited weighted average
shares outstanding ....................... 2,296,199 2,310,299 2,352,599
=========== =========== ===========
</TABLE>
See accompanying notes.
23
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------------
Par Value Additional Retained Deferred Total Shareholders'
Shares $.01 Paid-In Capital Earnings Compensation Equity
----------- ----------- --------------- ----------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1994 .. 1,880,000 $ 18,800 $ -- $ 1,283,805 $ -- $ 1,302,605
Net income ............. -- -- -- 744,248 -- 744,248
----------- ----------- ----------- ----------- ----------- -----------
Balance, May 31, 1995 .. 1,880,000 18,800 -- 2,028,053 -- 2,046,853
Net income ............. -- -- -- 1,125,117 -- 1,125,117
Deferred compensation .. 56,400 564 89,436 -- (90,000) --
----------- ----------- ----------- ----------- ----------- -----------
Balance, May 31, 1996 .. 1,936,400 19,364 89,436 3,153,170 (90,000) 3,171,970
Net income ............. -- -- -- 1,816,580 -- 1,816,580
Distributions .......... -- -- -- (900,000) -- (900,000)
Deferred compensation .. 31,584 316 173,396 -- (173,712) --
Amortization of deferred
compensation ........ -- -- -- -- 27,325 27,325
----------- ----------- ----------- ----------- ----------- -----------
Balance, May 31, 1997 .. 1,967,984 $ 19,680 $ 262,832 $ 4,069,750 $ (236,387) $ 4,115,875
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
24
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended May 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net income ............................................ $ 744,248 $ 1,125,117 $ 1,816,580
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ................................... 20,040 18,400 16,335
Amortization of software development costs ..... 296,997 311,321 441,291
Amortization of deferred compensation .......... -- -- 27,325
Provision (credit) for bad debts ............... 27,000 20,064 (28,124)
Changes in operating assets and liabilities:
Accounts receivable .......................... 143,165 (139,265) (678,093)
Costs incurred and income recognized in excess
of billings on uncompleted contracts ....... (199,929) (270,115) (480,031)
Other current assets ......................... 29,126 4,385 (61)
Accounts payable ............................. (219,041) (13,509) 168,476
Accrued expenses ............................. (65,161) 302,450 82,157
Billings on uncompleted contracts in excess of
related costs and income recognized ....... (119,295) (49,786) 30,413
Other assets ................................. -- (30,250) 21,716
----------- ----------- -----------
Net cash provided by operating activities ............. 657,150 1,278,812 1,417,984
----------- ----------- -----------
Investing activities
Software development costs ............................ (464,477) (815,908) (1,518,298)
Capital expenditures .................................. -- -- (60,701)
----------- ----------- -----------
Net cash used in investing activities ................. (464,477) (815,908) (1,578,999)
----------- ----------- -----------
Financing activities
Net borrowings (payments) of bank note payable ........ (200,000) -- 1,300,000
Net repayments of officer loans ....................... -- (5,000) (645,000)
Distributions to shareholders ......................... -- -- (900,000)
Deferred registration costs ........................... -- -- (148,868)
Net (payment to) proceeds from Robocom Properties ..... 250 (30,250) --
----------- ----------- -----------
Net cash used in financing activities ................. (199,750) (35,250) (393,868)
----------- ----------- -----------
(Decrease) increase in cash and cash equivalents ...... (7,077) 427,654 (554,883)
Cash and cash equivalents at beginning of period ..... 183,371 176,294 603,948
----------- ----------- -----------
Cash and cash equivalents at end of period ............ $ 176,294 $ 603,948 $ 49,065
=========== =========== ===========
Supplemental disclosures of cash flow information
Cash paid for interest ................................ $ 58,134 $ 38,700 $ 66,161
=========== =========== ===========
</TABLE>
See accompanying notes.
25
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
Robocom Systems Inc. (the "Company") was incorporated in June 1982 in the
State of New York. The Company is engaged in the development and marketing of
automated warehouse management systems and related software which is used by
various commercial enterprises primarily located in the United States. Since
June 1994, the Company licenses and installs its proprietary software product
RIMS.2001 which is an "off-the-shelf" inventory management system. The Company
also provides related services, including modification, project management,
training, implementation support, maintenance and the sale of hardware and third
party software.
The Company completed its initial public offering of 1,500,000 shares of
common stock for sale to the public on June 26, 1997 (the "Offering"). Proceeds
from the Offering were $8,234,000, net of expenses of $1,516,000.
1. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company's customer base is comprised of relatively few large customers
in diversified industries. Ongoing credit evaluations of its customers'
financial condition are made and generally no collateral is required. For the
year ended May 31, 1995, the Company had two customers that accounted for 34%
and 13% of total revenues. For the year ended May 31, 1996, the Company had
three customers that accounted for 15%, 14% and 12% of total revenues. For the
year ended May 31, 1997, the Company had two customers that accounted for 21%
and 13% of total revenues. Management does not believe significant credit risk
exists at May 31, 1997.
Carrying Value of Financial Instruments
The carrying value of the Company's financial instruments, such as cash
and cash equivalents and bank notes payable approximate their fair values.
Revenue Recognition
The Company's revenues are derived from software license fees, fees for
services, sales of hardware and maintenance contracts. Software license fees
include revenue from the licensing of the Company's proprietary RIMS.2001
software and revenue from the sublicensing of certain third-party software.
Software license fee revenue is recorded when the software has been delivered,
the license agreement with the customer has been executed, and collection of the
resulting receivable is deemed probable. Service revenues are derived from
project management, customization and modification of licensed software,
training, on-site support and implementation services. Service revenues are
recorded using the percentage of completion method of accounting. Accordingly,
revenue is recognized in the ratio that costs incurred bears to estimated total
costs. Adjustments to cost estimates are made periodically, and losses expected
to be incurred on contracts in progress are charged to operations in the period
such losses are determined. The aggregate of costs incurred and income
recognized on uncompleted contracts in excess of related billings is shown as a
current asset, and the aggregate of billings on uncompleted contracts in excess
of related costs incurred and income recognized is shown as a current liability.
Hardware revenues are derived from the sale of products of other manufacturers,
including computer hardware, radio frequency equipment, bar code printers and
other peripherals. Such revenues are recognized when title to such hardware
passes to the customer. Customers typically enter into one-year maintenance
agreements with the Company upon the completion of the software installation and
pay maintenance fees monthly. The Company recognizes revenue from each
maintenance agreement ratably over the period covered by the agreement, but is
only
26
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
required to perform maintenance services as and when they are requested by the
customer. The Company recognized revenues, in all periods presented, in
accordance with the American Institute of Certified Public Accountants Statement
of Position 91-1, "Software Revenue Recognition."
Software Development Costs
Software development costs have been capitalized in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed". The capitalization
of these costs begins when a product's technological feasibility has been
established, and ends when the product is available for general release to
customers. The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs require
considerable judgment by management with respect to certain external factors,
including, but not limited to, technological feasibility, anticipated future
gross revenues, estimated economic life, and changes in software and hardware
technologies. The Company capitalizes software development costs associated with
each subsequent enhancement of its product upon the achievement of technological
feasibility. Software development costs including enhancements are amortized to
cost of revenue using the straight-line method over five to seven years or the
expected life of the product, whichever is less. Research and development costs
incurred prior to the establishment of technological feasibility are expensed as
incurred. Such amounts for the periods presented are not significant.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives (three to five years).
Pro Forma Net Income Per Share
Pro forma net income per share is based on the weighted average number of
shares of common stock outstanding during the period (see Note 2). For purposes
of such computation, the common stock issuance in May 1997 is treated as
outstanding for all periods presented. In addition, the weighted average number
of shares includes the portion of the shares offered by the Company that would
be necessary to fund the distribution of S Corporation earnings ($2,500,000 at
May 31, 1997) based on the initial public offering price of $6.50 per share.
Stock Options
In October 1995, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for
Stock-Based Compensation". SFAS 123 defines a fair value method of accounting
for the issuance of stock options and other equity instruments. Under the fair
value method, compensation cost is measured at the grant date based on the fair
value of the award and is recognized over the service period, which is usually
the vesting period. Pursuant to SFAS No. 123, companies are encouraged, but are
not required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board No. 25, but are required
to disclose in the financial statement footnotes, pro forma net income and per
share amounts as if the Company had applied the new method of accounting for all
grants made since 1996. SFAS No. 123 also requires increased disclosures for
stock-based compensation arrangements. The Company adopted the disclosure
requirements of SFAS No. 123 concurrent with the Offering.
27
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
Income Taxes
Effective June 1, 1990, the Company elected to operate under Subchapter S
of the Internal Revenue Code and, consequently, was not subject to Federal and
certain state income taxes. The shareholders included their proportionate share
of the Company's taxable income (loss) in their personal tax returns for federal
and certain state income tax purposes. Concurrent with the closing of the
Offering, the Company terminated its status as an S Corporation and became
subject to Federal and state income taxes. The pro forma information presented
on the statements of income reflects a provision for such income taxes at an
effective rate of 42%.
As a result of the termination of the Company's S Corporation status on
June 25, 1997, the Company is required to record a one-time, non-cash charge
against earnings for deferred income taxes. This charge will be recorded in the
first quarter of fiscal 1998. If this charge had been recorded at May 31, 1997,
the amount would have been approximately $1,431,000, which primarily relates to
temporary differences for software development costs.
Advertising Costs
Advertising costs are expensed as incurred and for the years ended May 31,
1995, 1996 and 1997 amounted to approximately $84,000, $146,000 and $63,000,
respectively.
2. Shareholders' Equity
Recapitalization
In fiscal 1995, the Company effected a recapitalization of its common
stock whereby the Company's 200 shares authorized, 100 shares outstanding, no
par value common stock was exchanged for 2,000,000 shares authorized, 1,000,000
shares outstanding, $.01 par value common stock, prior to giving effect to the
stock split described below.
Capital Stock
Effective May 15, 1997, the Company's Board of Directors and shareholders
approved an amendment to the Company's Certificate of Incorporation to increase
the authorized shares from 2,000,000 to 10,000,000 and to authorize 1,000,000
shares of par value $.01 preferred stock. The terms and conditions of the
preferred stock, of which no shares have been issued, will be set by the Board
of Directors of the Company.
Common Stock Split
Effective May 15, 1997, the Board of Directors and shareholders voted to
effect a 1.88-for-1 split of the Company's common stock in the form of a common
stock dividend. All share amounts have been restated to reflect the stock split.
Stock Option Plan
Effective May 15, 1997, the Board of Directors and shareholders approved
the Company's Stock Option and Long-term Incentive Compensation Plan (the
"Plan") for the issuance of up to 325,000 shares of the Company's common stock
at an exercise price equal to the prevailing market price on the grant date.
These options will contain a vesting schedule to be determined at the date of
grant. Incentive stock options are granted to employees and the principal
shareholders. All other options granted are nonqualified options. As of June 26,
1997, stock options were granted as follows:
28
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
Number of Options Exercise Price Vesting Period Grantees
- ----------------- -------------- -------------- --------
110,000 $7.15 four-year Principal shareholders
176,100 $6.50 three to five-year Employee, Consultants
4,475 $6.50 one-year Employees
10,000 $6.50 five-year Directors
In addition, on August 21, 1997, 15,000, five-year options at an exercise price
of $7.00 per share, were granted to a financial consultant. The remaining number
of options available for grant is 9,425. In connection with the Offering,
BlueStone Capital Partners, L.P., which was the managing underwriter, received
five-year warrants to purchase up to 150,000 shares of common stock at an
exercise price of $7.80 per share.
Deferred Compensation
In February 1996, the Company issued 56,400 shares of common stock to
certain employees under a restricted stock agreement. Compensation expense,
representing the fair value ($90,000) of the common shares issued to these
employees, is recognized ratably over the five-year vesting period. In May 1997,
31,584 shares of common stock were issued to an employee of the Company who
performs various accounting and administrative services. These shares have
certain restrictions as to transferability. Compensation expense, representing
the excess of the fair value ($173,712) of the common shares over the amount
paid for such stock is recognized ratably over the three-year vesting period.
Shareholder Distributions
The Company made distributions to its S Corporation shareholders in the
amount of $382,500 and $517,500 on April 11, 1997 and May 16, 1997,
respectively, and, on July 1, 1997, an additional distribution of $1,600,000 was
made to such shareholders.
3. Detail of Certain Balance Sheet Accounts
Property and Equipment, net
Property and equipment, net, consist of the following:
May 31,
------------------------
1996 1997
--------- ---------
Equipment .................................. $ 130,028 $ 182,729
Furniture and fixtures ..................... 81,062 89,062
--------- ---------
211,090 271,791
Less accumulated depreciation .............. (197,272) (213,607)
--------- ---------
$ 13,818 $ 58,184
========= =========
Software Development Costs, net
Software development costs, net, consist of the following:
29
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
May 31,
--------------------------
1996 1997
----------- -----------
Software development costs ..............$ 3,106,653 $ 4,624,951
Less accumulated amortization ........... (608,318) (1,049,609)
----------- -----------
$ 2,498,335 $ 3,575,342
=========== ===========
Accrued Expenses
Accrued expenses consist of the following:
May 31,
--------------------------
1996 1997
----------- -----------
Payroll and related taxes ...............$ 141,197 $ 149,580
Customer deposits and other ............. 259,125 332,899
----------- -----------
$ 400,322 $ 482,479
=========== ===========
4. Employee Benefit Plans
The Company has a noncontributory defined contribution pension plan and a
401(k) defined contribution plan. These plans cover virtually all full-time
employees subject to certain age and service requirements. It is the Company's
policy to fund the noncontributory plan to the extent of the maximum allowable
contribution, in accordance with IRS guidelines and other relevant legal
requirements. Under the terms of the 401(k) plan, the Company will match 50% of
an employee's contribution up to 4% of the participating employee's
compensation. Pension expense for each of the years ended May 31, 1995, 1996 and
1997 amounted to approximately $125,000, $16,000 and $117,000, respectively.
5. Related Party Transactions
The Company leases its principal facilities from Robocom Properties, Inc.
("Properties"). The shareholders of Properties are also shareholders of the
Company. The Company has paid to Properties rent of $168,000 for each of the
three years in the period ended May 31, 1997. In connection with the purchase by
Properties in 1989 of the Company's corporate headquarters building, the Company
guaranteed three mortgage loans in an aggregate original principal amount of
$1,053,000 that mature in 2010 and bear interest at rates ranging from 8.25% to
8.877% per annum. At May 31, 1997, the outstanding aggregate principal amount of
the mortgage loans was approximately $847,000.
6. Lease Commitments
30
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
The Company is obligated, under noncancellable operating leases covering
its facilities (Note 5) and certain equipment and automobiles, to pay minimum
annual rentals of approximately:
Fiscal year ending:
1998 ..................... $ 234,000
1999 ..................... 213,000
2000 ..................... 208,000
2001 ..................... 206,000
2002 ..................... 173,000
2003 and thereafter....... 1,484,000
----------
$2,518,000
==========
Total rental expense for each of the years ended May 31, 1995, 1996 and
1997 amounted to approximately $197,000, $174,000 and $193,000, respectively.
7. Bank Note Payable and Loans Payable to Officers
Bank Note Payable
The Company has a line of credit facility with a bank which provides for
maximum borrowings of $2,000,000 and which expires on November 30, 1997. Amounts
outstanding under the line of credit are due upon demand and are collateralized
by the Company's assets. Interest is payable at the bank's prime interest rate
(8.50% at May 31, 1997). At May 31, 1997, borrowings outstanding under the line
of credit were $1,300,000. The Company made no borrowings under this agreement
during fiscal 1996. The amount available under the line of credit is reduced by
a $150,000 standby letter of credit with the same bank, which is being utilized
as collateral for a vendor and which expires on December 31, 1997.
On June 5, 1997, the Company borrowed an additional $250,000. On July 1,
1997, all amounts outstanding under the line of credit were repaid.
Loans Payable to Officers
During fiscal 1996, the Company repaid $5,000 of amounts borrowed from its
principal stockholders. The remaining loan balance of $645,000 was entirely
repaid in January 1997. Such loans bore interest at 6% in fiscal 1996 and 1995
and 8% in fiscal 1997. Interest expense related to the loans payable to officers
for each of the years presented amounted to approximately $40,000.
31
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Sections 16(a) of the Exchange Act
Directors and Executive Officers
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Irwin Balaban ........ 65 Chairman of the Board, President and Chief
Executive Officer
Lawrence B. Klein .... 63 Executive Vice President - Marketing and Sales,
Secretary and a Director
Steven Kuhl .......... 38 Vice President - Product Development
Robert O'Connor ...... 38 Vice President - Systems Development
Elizabeth A. Burke ... 38 Vice President - Finance, Chief Financial Officer
and Treasurer
Herbert Goldman ...... 66 Director
Barry J. Gordon....... 52 Director
Kamal Mustafa......... 49 Director
Irwin Balaban, a co-founder of the Company, has been Chairman of the
Board, President and Chief Executive Officer of the Company since 1983. Prior to
founding the Company, Mr. Balaban was the Manager of Logistics for the Systems
Management Division of Sperry Corporation.
Lawrence B. Klein, a co-founder of the Company, has been Executive Vice
President - Marketing and Sales and a director of the Company since October
1991. Prior thereto, Mr. Klein served as Vice President - Automated Factory
Systems and Sales of the Company from July 1987 to October 1991. Prior to
founding the Company, Mr. Klein was an Engineering Section Manager of Computer
Applications Equipment and Facilities at Sperry Corporation.
Steven Kuhl has been Vice President - Product Development of the Company
since October 1991. Prior thereto, Mr. Kuhl served as a Programming Manager of
the Company from 1983 to October 1991. Prior to joining the Company, Mr. Kuhl
was employed in various positions by Sperry Corporation, including systems
analyst, programming and programming group leader.
Robert O'Connor has been Vice President - Systems Development of the
Company since October 1991. Prior thereto, Mr. O'Connor served as a Programming
Manager of the Company from 1983 to October 1991. Prior to joining the Company,
Mr. O'Connor was employed as a programming group leader by Sperry Corporation.
32
<PAGE>
Elizabeth A. Burke has been Vice President - Finance, Chief Financial
Officer and Treasurer of the Company since April 1997. From July 1994 to January
1996, Ms. Burke was Vice President of Finance/Controller of Marvel Comics Group,
a division of Marvel Entertainment Group, Inc. ("Marvel"). From November 1991 to
July 1994, Ms. Burke was Corporate Controller of Marvel. From 1981 to November
1991, Ms. Burke was employed at Arthur Andersen LLP.
Herbert Goldman, a co-founder of the Company, has been a director of the
Company since 1983 and a consultant to the Company since his retirement in July
1996. Prior to his retirement, Mr. Goldman had been Executive Vice President -
Operations of the Company since October 1991.
Barry J. Gordon has been a director of the Company since May 1997. Since
1980, Mr. Gordon has been President and a director of American Fund Advisors,
Inc., a money management firm, and has served as Chairman of the Board of that
company since 1987. In addition, Mr. Gordon is a director of Hain Pure Food
Corp., a publicly traded specialty foods product company, a director of Skylands
Park Management, Inc., a publicly traded owner of a minor league baseball
stadium, a director of Winfield Capital Corp., a publicly traded SBIC, and
President of the John Hancock Global Technology Fund, a mutual fund specializing
in telecommunications and technology securities. Mr. Gordon is also the Chairman
and Chief Executive Officer of the general partner of a limited partnership that
owns the New Jersey Cardinals, a Class "A" minor league affiliate of the St.
Louis Cardinals. Mr. Gordon is also Chairman and Chief Executive Officer of the
general partner of the limited partnership that owns the Norwich Navigators, a
Class "AA" minor league affiliate of the New York Yankees.
Kamal Mustafa has been a director of the Company since August 1997. Mr.
Mustafa was the founder, and has, since 1995, been Chairman, of BlueStone
Capital Partners, L.P. In addition, Mr. Mustafa is a director of Shells Seafood
Restaurants Inc., a publicly traded company that manages casual dining seafood
restaurants, First Colony Coffee & Tea Co., Inc., a private manufacturer of high
quality, gourmet coffees, Sistex, Inc., a developer and marketer of advanced
non-intrusive security systems, and Beachport Entertainment Corp., a live
entertainment company. From April 1994 to July 1996, he was the Chief Executive
Officer and Managing Director of the MicroCap Fund, Inc., a publicly traded
Business Development Company that provided bridge loans to small capital and
emerging growth companies. Prior thereto, Mr. Mustafa was the Chief Executive
Officer and Managing Director of Hamilton Capital Partners, Inc., a private
investment consulting firm, since its formation in 1991.
All directors hold office until the next annual meeting of shareholders
and until their successors have been duly elected and qualified. Executive
officers are elected by, and serve at the discretion of, the Board of Directors.
The Company has applied for and intends to obtain key man life insurance
on the life of each of Messrs. Balaban and Klein in the amount of $1,500,000.
Key Employees
Judy Frenkel has been Manager of Systems Analysis of the Company since
September 1992. Prior thereto, Ms. Frenkel was a Senior Systems Analyst at the
Company from October 1988 to September 1992 and a Systems Analyst at the Company
from April 1986 to October 1988.
Chung-Hsin Lee has been the Manager of Software Development of the Company
since November 1994. Prior thereto, Mr. Lee served as the technical leader in
the development of radio frequency (RF) subsystems for the Company's products
from September 1985 to November 1994.
Richard L. Wilkins has been Director of Sales of the Company since January
1994. From 1990 to January 1994, Mr. Wilkins was Director of New Product
Development and Marketing of Fairbanks Scales, Inc., a manufacturer of
commercial scales and weighing systems.
33
<PAGE>
Martin Liebross has been Director of Network Systems Group of the Company
since September 1993. From August 1989 to September 1993, Mr. Liebross was
President of Soma Lan Technologies, Inc., a computer network integrator.
Committees of the Board of Directors
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee recommends to the Board of Directors
the engagement of independent certified public accountants and reviews the audit
engagement, including the scope of services and results of the auditors' review
of the Company's accounting and control procedures and the accuracy of its
system of internal accounting and control procedures. The Compensation Committee
reviews and make recommendations to the Company's Board of Directors relating to
the compensation of executives of the Company and administers the Company's
stock option and incentive plans. All of the members of the Audit Committee and
the Compensation Committee are non-employee directors.
Directors' Compensation
Each non-employee director receives $500 for each Board meeting attended
and is reimbursed for all out-of-pocket expenses incurred in connection with
attendance at meetings of the Board or any committee thereof. On June 26, 1997,
the Board of Directors authorized the grant to each non-employee director on
such date of five-year options to purchase 5,000 shares of Common Stock at the
exercise price of $6.50 per share.
Item 10. Executive Compensation.
The following table sets forth the cash compensation paid by the Company
for services rendered during the fiscal year ended May 31, 1997 to each
executive officer who received total compensation in excess of $100,000 (the
"Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
-------------------- Other ------------
Name and Annual LTIP All Other
Principal Position Salary Bonus Compensation(1) Payouts($) Compensation(2)
------------------ ------ ----- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Irwin Balaban................ $140,625(3) -- $13,188 -- $2,925
President and Chief
Executive Officer
Lawrence B. Klein............ $122,363(4) -- $12,216 -- $2,545
Executive Vice President -
Marketing and Sales
</TABLE>
- ----------
(1) Represents amounts paid for automobile expenses and certain nonaccountable
expenses.
(2) Represents matching contributions made by the Company pursuant to the
Company's 401(k) Plan.
(3) Reflects a continuing voluntary reduction in salary since fiscal 1995 of
$48,750.
(4) Reflects a continuing voluntary reduction in salary since fiscal 1995 of
$42,419.
34
<PAGE>
The Company did not grant any stock options to the Named Executive
Officers during the fiscal year ended May 31, 1997.
Employment and Consulting Agreements
The Company has entered into employment agreements with Messrs. Balaban,
Klein, Kuhl and O'Connor. Each employment agreement is effective as of May 15,
1997, and has a three-year term. Under each employment agreement, the employee
receives an annual base salary and is entitled to participate in all benefit
programs generally available to executive officers of the Company.
Pursuant to their respective employment agreements, Mr. Balaban serves as
President and Chief Executive Officer of the Company and receives an annual base
salary of $230,000; Mr. Klein serves as Vice President - Marketing and Sales of
the Company and receives an annual base salary of $195,000; Mr. Kuhl serves as
Vice President - Product Development of the Company and receives an annual base
salary of $120,000; and Mr. O'Connor serves as Vice President - Systems
Development of the Company and receives an annual base salary of $120,000. On
November 30 of each year, commencing November 30, 1998, each employee's base
salary will automatically increase by 10%.
Under the employment agreements, each employee was granted, on June 26,
1997, incentive stock options under the Option Plan to purchase shares of Common
Stock. Messrs. Balaban and Klein received options to purchase 50,000 and 45,000
shares, respectively, at $7.15 per share, and each of Messrs. Kuhl and O'Connor
received options to purchase 30,000 shares at $6.50 per share. The options
granted to Messrs. Balaban and Klein fully vest over four years and the options
granted to Messrs. Kuhl and O'Connor vest equally over three years. All options
expire on the fifth anniversary of the date of grant.
In their employment agreements, each of Messrs. Balaban, Klein, Kuhl and
O'Connor has agreed that during the term of his employment agreement and for a
period of one year thereafter (in the event of termination of employment for
other than "cause" or "good reason" ) or two years thereafter (in the event of
termination of employment for "cause"), he will not, without the prior written
consent of the Company, compete with the Company by engaging in any capacity in
any business which is competitive with the business of the Company.
On May 15, 1997, Herbert Goldman, a director and principal shareholder of
the Company, entered into a three-year consulting agreement with the Company to
provide consulting services with respect to new product development and related
technical matters. Pursuant to this agreement, Mr. Goldman is paid an annual
retainer of $12,000 plus a per diem of $1,000 for each day Mr. Goldman performs
consulting services at the Company's request. In addition, on June 26, 1997, Mr.
Goldman was granted five-year stock options to purchase up to 15,000 shares of
Common Stock at a purchase price equal to $7.15 per share. During the period
from July 1, 1996 to May 31, 1997, Mr. Goldman received compensation aggregating
approximately $7,415 for providing consulting services under an informal
consulting arrangement with the Company.
35
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of September 19, 1997, certain
information known to the Company concerning the beneficial ownership of the
Common Stock by (i) each person known by the Company to own beneficially more
than 5% of the outstanding Common Stock, (ii) each director of the Company,
(iii) each Named Executive Officer and (iv) all directors and executive officers
of the Company as a group:
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of Outstanding
Beneficial Owner(1) Beneficially Owned(2) Shares Beneficially Owned(2)
------------------- --------------------- ----------------------------
<S> <C> <C>
Irwin Balaban ....................... 564,000 16.3%
Herbert Goldman(3) .................. 564,000 16.3%
Lawrence B. Klein ................... 564,000 16.3%
Barry J. Gordon ..................... -- --
Kamal Mustafa(4) .................... -- --
All executive officers and directors
as a group (8 persons) .... ....... 1,936,400 55.8%
</TABLE>
- ----------
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
Robocom Systems Inc., 511 Ocean Avenue, Massapequa, New York 11758.
(2) Except as indicated in the footnotes to this table, the Company believes
that all persons named in the table have sole voting and investment power
with respect to all Common Stock shown as beneficially owned by them. 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 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 have been exercised. The inclusion herein of
such shares listed as beneficially owned does not constitute an admission
of beneficial ownership.
(3) Represents shares held by the Herbert & Naomi J. Goldman Living Trust,
Herbert and Naomi J. Goldman, trustees.
(4) Excludes shares owned by BlueStone Capital Partners, L.P., of which Mr.
Mustafa is the Chairman and a general partner, as to which shares Mr.
Mustafa disclaims beneficial ownership.
Item 12. Certain Relationships and Related Transactions.
The Company leases approximately 10,000 square feet of office space, which
functions as its corporate headquarters, in Massapequa, New York, pursuant to a
lease between the Company and Robocom Properties Inc. ("Robocom Properties")
that expires on December 31, 2010. The shareholders of Robocom Properties are
Messrs. Balaban, Goldman, Klein, Kuhl and O'Connor. The total rental expense
paid by the Company to Robocom Properties in each of the fiscal years ended May
31, 1995, 1996 and 1997 was $168,000, which amounts were paid in equal monthly
installments of $14,000. Since June 1, 1996, the Company has continued to pay,
and through December 1997 will pay, rent in monthly installments of $14,000 to
Robocom Properties. Commencing January 1, 1998, the annual base rental of
$168,000 payable under the lease will be adjusted each year by the ratio of the
prime rate as published in the Wall Street Journal on January 2 of such year to
the prime rate as published in the Wall Street Journal on January 2, 1997, which
was 8.25%. However, the parties have agreed that rent will not be less than
$14,000 per month. The Company believes that these rental terms are at least as
favorable to the Company as could be obtained from an unaffiliated third party.
36
<PAGE>
In connection with the purchase by Robocom Properties in 1989 of the
Company's corporate headquarters building, the Company guaranteed three mortgage
loans in an aggregate original principal amount of $1,053,000 that mature in
2010 and bear interest at rates ranging from 8.25% to 8.877% per annum. At May
31, 1997, the outstanding aggregate principal amount of the mortgage loans was
approximately $847,000.
Herbert Goldman, a director of the Company, has been acting as a
consultant to the Company since his retirement as Executive Vice President
Operations of the Company effective July 1, 1996. During the period from July 1,
1996 to May 31, 1997, Mr. Goldman received compensation aggregating
approximately $7,415 for his consulting services. On May 15, 1997, the Company
and Mr. Goldman entered into a three-year agreement pursuant to which Mr.
Goldman will continue to provide consulting services to the Company on an
as-needed basis. See "Item 10. Executive Compensation -- Employment and
Consulting Agreements".
The Company made distributions to its S Corporation shareholders of
$850,000 in fiscal 1993, did not make any such distributions in fiscal 1994,
1995 or 1996 and made distributions to such shareholders aggregating $900,000 in
the fourth quarter of fiscal 1997. In addition, the Company paid the final S
Corporation distribution of $1,600,000 on July 1, 1997 using a portion of the
net proceeds received by the Company in the Offering. In June 1997, prior to the
consummation of the Offering, the Company entered into an indemnity agreement
with its then-existing shareholders, including Messrs. Balaban, Klein, Goldman,
Kuhl and O'Connor, pursuant to which the Company will indemnify such
shareholders against additional income taxes resulting from adjustments made (as
a result of a final determination made by a competent tax authority) to the
taxable income reported by the Company as an S Corporation for periods prior to
the Offering, but only to the extent those adjustments result in a decrease in
income taxes otherwise payable by the Company.
Between November 1993 and January 1997, Irwin Balaban, Lawrence B. Klein
and Herbert Goldman made demand loans to the Company from time to time in the
aggregate amounts of $265,000, $115,000 and $265,000, respectively. Interest
rates on the loans ranged from 6% per annum to 8% per annum. All of such loans
were paid in full in January 1997.
Kamal Mustafa, a director of the Company, was the founder and is the
Chairman and a general partner of BlueStone Capital Partners, L.P.
("BlueStone"), which was the managing underwriter for the Company's initial
public offering of its Common Stock in June 1997. In connection with such
transaction, BlueStone earned underwriting discounts and commissions of
approximately $424,000, was reimbursed for expenses in the amount of $183,000
and received five-year warrants to purchase up to 150,000 shares of Common Stock
at an exercise price of $7.80 per share. In addition, in connection with such
transaction, the Company agreed to indemnify the underwriters, including
BlueStone, against certain civil liabilities in connection with the Company's
registration statement filed with the Securities and Exchange Commission under
the Securities Act under 1933, as amended.
Future transactions, if any, between the Company and any of its officers,
directors and/or 5% shareholders will be on terms no less favorable to the
Company than would be obtained from independent third parties and will be
approved by a majority of the independent, disinterested directors of the
Company.
37
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1 to the Company's Registration
Statement on Form SB-2 (Registration No. 333-27587)).
3.2 Amended and Restated By-laws of the Company (incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement on
Form SB-2 (Registration No. 333-27587)).
10.1 International Distributor Agreement, dated March 28, 1996, between the
Company and C&C Consultores, Argentina (incorporated herein by
reference to Exhibit 10.1 to the Company's Registration Statement on
Form SB-2 (Registration No. 333-27587)).
10.2 Distributor Agreement, dated April 1, 1996 and revised June 18, 1996,
between the Company and Prophet 21, Inc. (incorporated herein by
reference to Exhibit 10.2 to the Company's Registration Statement on
Form SB-2 (Registration No. 333-27587)).
10.3 Distributor Agreement, dated January 30, 1996, between the Company and
Minerva International Holdings LTD. (incorporated herein by reference
to Exhibit 10.3 to the Company's Registration Statement on Form SB-2
(Registration No. 333-27587)).
10.4 International Distributor's Agreement, dated September 1, 1996, between
the Company and Trendsoft Comercio de Software e Hardware Ltda.
(incorporated herein by reference to Exhibit 10.4 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-27587)).
10.5 International Distribution Agreement, dated November 1996, between the
Company and Sistemos Integrados (incorporated herein by reference to
Exhibit 10.18 to the Company's Registration Statement on Form SB-2
(Registration No. 333-27587)).
10.6 International Distribution Agreement, dated August 5, 1997, between the
Company and Cogita Holdings Ltd.
10.7 Non-Exclusive Agreement, dated July 28, 1996, between QED Information
Systems of San Diego and the Company (incorporated herein by reference
to Exhibit 10.5 to the Company's Registration Statement on Form SB-2
(Registration No. 333-27587)).
10.8 Lease Agreement, dated December 19, 1996, between Carriage IV Office
Center, L.L.C. and the Company (incorporated herein by reference to
Exhibit 10.6 to the Company's Registration Statement on Form SB-2
(Registration No. 333-27587)).
10.9 Lease Agreement, dated December 21, 1989, between Robocom Properties,
Inc. and the Company relating to 511 Ocean Avenue, Massapequa, New York
(incorporated herein by reference to Exhibit 10.7 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-27587)).
10.10 Guaranty dated December 21, 1989 from the Company to New York Job
Development Authority.
10.11 Guaranty dated December 14, 1989 from the Company to Long Island
Development Authority.
10.12 Consulting Agreement, dated May 15, 1997, between the Company and
Herbert Goldman (incorporated herein by reference to Exhibit 10.8 to
the Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
10.13 Employment Agreement, dated May 15, 1997, between the Company and
Lawrence B. Klein (incorporated herein by reference to Exhibit 10.9 to
the Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
10.14 Employment Agreement, dated May 15, 1997, between the Company and Irwin
Balaban (incorporated herein by reference to Exhibit 10.10 to the
Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
38
<PAGE>
10.15 Employment Agreement, dated May 15, 1997, between the Company and
Steven Kuhl (incorporated herein by reference to Exhibit 10.11 to the
Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
10.16 Employment Agreement, dated May 15, 1997, between the Company and
Robert O'Connor (incorporated herein by reference to Exhibit 10.12 to
the Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
10.17 Master Promissory Note, dated May 15, 1997, from the Company to The
Bank of New York (incorporated herein by reference to Exhibit 10.13 to
the Company's Registration Statement on Form SB-2 (Registration No.
333-27587)).
10.18 Letter Agreement dated September 23, 1997 between the Company and The
Bank of New York.
10.19 1997 Stock Option and Long-Term Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10.14 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-27587)).
10.20 General Loan and Security Agreement, dated April 13, 1994, between the
Company and The Bank of New York (incorporated herein by reference to
Exhibit 10.15 to the Company's Registration Statement on Form SB-2
(Registration No. 333-27587)).
10.21 Tax Indemnification Agreement, dated June 6, 1997, between the Company
and certain shareholders of the Company.
27 Financial Data Schedule.
- ----------
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of New
York, New York, on September 23, 1997.
ROBOCOM SYSTEMS INC.
By: /s/ Irwin Balaban
-----------------------------
Irwin Balaban
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates stated:
Signature Title Date
--------- ----- ----
/s/Irwin Balaban Chairman of the Board, President September 23, 1997
- ------------------------- and Chief Executive Officer
Irwin Balaban (Principal Executive Officer)
/s/Elizabeth A. Burke Vice President - Finance and September 23, 1997
- ------------------------- Chief Financial Officer
Elizabeth A. Burke (Principal Accounting Officer)
/s/Herbert Goldman Director September 23, 1997
- -------------------------
Herbert Goldman
/s/Lawrence B. Klein Director September 23, 1997
- -------------------------
Lawrence B. Klein
/s/Barry J. Gordon Director September 23, 1997
- -------------------------
Barry J.Gordon
/s/Kamal Mustafa Director September 23, 1997
- -------------------------
Kamal Mustafa
40
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.6 International Distribution Agreement, dated August 5, 1997, between the
Company and Cogita Holdings Ltd.
10.10 Guaranty dated December 21, 1989 from the Company to New York Job
Development Authority.
10.11 Guaranty dated December 14, 1989 from the Company to Long Island
Development Authority.
10.18 Letter Agreement dated September 23, 1997 between the Company and The
Bank of New York.
10.21 Tax Indemnification Agreement, dated June 6, 1997, between the Company
and certain shareholders of the Company.
27 Financial Data Schedule.
International Distributor Agreement
August 5, 1997
<PAGE>
This Agreement is made this 5 Day of August, l997 between ROBOCOM Systems, Inc.,
a New York State Corporation having an office at 511 Ocean Avenue, Massapequa,
NY 11758 ("ROBOCOM") and COGITA Holdings Ltd., a New Zealand company having an
office at Level 9, 20 Amersham Way, Manukau City, New Zealand, ("Distributor").
Non-Exclusive Territory: New Zealand and Australia
WHEREAS:
ROBOCOM owns the right to license proprietary software products
(consisting of programs and related documentation); and
Distributor desires to market and sublicense software products of this
type; and
ROBOCOM and Distributor wish to enter into an agreement authorizing
Distributor to market directly and make copies of certain software products
available to End Users in the Territory through Distributor, with Distributor
making certain payments to ROBOCOM with respect thereto.
NOW IT IS HEREBY AGREED as follows:
1.0 DEFINITIONS.
1.1 "Programs" mean the actual ROBOCOM computer programs in
machine-readable object code or other form covered by this Agreement, including
all ROBOCOM provided modifications and enhancements thereto.
1.2 "Documentation" means ROBOCOM user manuals and other materials in
printed form which facilitate the use of the Programs by End Users.
1.3 "Software Products" mean any combination of a Program object code and
Documentation licensed by ROBOCOM under the terms of this Agreement. "Product"
means either a Program or documentation, without drawing a distinction.
1.4 "End User" means an entity authorized for productive use of Software
Products. "Productive Use" means any use of any of the Software Products in
their application purposes.
1.5 "Territory" means the Non-Exclusive Territory first identified above.
- --------------------------------------------------------------------------------
Agreement Between: Page 2
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
1.6 "Demonstration License" means a license to Distributor for distributor
use of Software Product object code for marketing demonstrations, copying for
distribution to End Users, maintenance and training, and for use of Software
Product source code solely for use in providing End-User support. Neither the
source code nor the object code shall be otherwise used or copied. The source
code shall be kept only at a single identified Distributor site and shall not be
disclosed to third parties.
1.7 "The Commencement Date" means the effective date of the Agreement
first written above.
2.0 APPOINTMENT OF DISTRIBUTOR.
2.1 License Grant. During the term of this Agreement and subject to all
other conditions herein, ROBOCOM hereby grants to Distributor a nonexclusive
right to relicense Software Products to End Users in the territory in
Distributor's name upon Distributor's own terms and conditions, such terms and
conditions to be approved by ROBOCOM. Certain Exhibit 1 Products may be
identified as requiring or including third party software which, if available
from ROBOCOM, shall be licensed through ROBOCOM and may be required to be
licensed under different or additional terms and conditions.
2.2 Translations. During the term of this Agreement and so long thereafter
as distributor is furnishing maintenance services to End Users in accordance
with this agreement, and subject to all other conditions herein, ROBOCOM grants
to Distributor nonexclusive translation and distribution rights in the Territory
in the documentation and in all ROBOCOM-furnished modifications and updates
thereto. All translations shall be exact translations and shall meet ROBOCOM
appearance standards. Copyright in such translations shall vest in ROBOCOM
immediately at all times and Distributor agrees that all present and future
copyright in every translation is hereby assigned, including, but not limited
to, rights to create derivative work and any renewal rights and Distributor
agrees to execute any documents necessary to vest full copyright ownership in
ROBOCOM including a waiver of any distributor moral rights. Distributor agrees
that it will provide copies of such translations to ROBOCOM at no charge prior
to any distribution, and will provide ROBOCOM with reasonable assistance in
securing and enforcing the copyrights(s). Distributor is not permitted to
translate or attempt to translate the Programs.
2.3 Title in Products and Modifications. Title and all proprietary rights
in the Products, any permitted Distributor modifications in the Products, and
any translations thereof shall at all times remain the properties of ROBOCOM or
ROBOCOM's Licensor.
- --------------------------------------------------------------------------------
Agreement Between: Page 3
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
Inventions. Any modifications, changes, or improvements made by Distributor to
ROBOCOM's software will be the sole and exclusive property of ROBOCOM, and will
promptly be provided to ROBOCOM. ROBOCOM will have the right to review at the
functional design stage, and to review and test code to ensure compatibility
with RIMS. In the event the change is incorporated into RIMS as part of the
standard package, it will then be available for resale through all channels. In
the event it is not incorporated, then for so long as this Agreement is in
effect, Distributor will have the right to use and/or sell, subject to the terms
of this agreement, such modifications, changes, or improvements, without payment
of royalties to ROBOCOM. Maintenance will be the responsibility of Distributor
on all changes not incorporated into the standard RIMS product.
2.4 Trade Secret and Confidential Information. Distributor acknowledges that
ROBOCOM has advised it that the Software and related documentation are valuable
proprietary information and trade secrets of ROBOCOM and that the software
(including, but not limited to, the design, programming techniques, flow charts,
source code and documentation thereof) is confidential information disclosed to
Distributor to be used only as expressly permitted by the terms of this
Agreement, whether or not any portion thereof is or may be validly copyrighted
or patented. Distributor will take all reasonable steps to protect the software
on magnetic tape or disk or in any other form of disclosure by using the same
standard of care Distributor uses to protect its own confidential information of
a similar nature. Distributor agrees that it will require all those individuals
having access to the Software under this Agreement sign a Non-Disclosure
Statement, using Exhibit 2 attached.
Distributor further acknowledges that, in the event of an actual or
threatened violation of the foregoing provision of which Distributor has actual
knowledge, Distributor will take immediate steps to stop such threatened
violation; that ROBOCOM may not have an adequate monetary remedy and will be
entitled to such injunctive relief as may be deemed proper by a court of
competent jurisdiction, in addition to any other available remedies. The
provisions of the Section 8 will survive the termination of this Agreement.
ROBOCOM agrees that Distributor's obligation to keep confidential any data
will not apply to any information or data which: (1) is or becomes publicly
known through no wrongful act of Distributor (2) is known to Distributor at the
time of disclosure; (3) is rightfully received by Distributor from a third party
without breach of this Agreement; (4) is furnished to a third party by ROBOCOM
without a similar restriction on the third party's rights; (5) is approved for
release by authorization from ROBOCOM; or (6) is disclosed pursuant to the
lawful requirement or request of a Governmental Agency or disclosure is
permitted by operation of law, provided that Distributor has given prior notice
to ROBOCOM and has made a reasonable attempt to obtain a protective order
limiting disclosure and use of the information so disclosed.
- --------------------------------------------------------------------------------
Agreement Between: Page 4
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
3.0 CERTAIN ROBOCOM OBLIGATIONS
3.1 Copies of Software Products. ROBOCOM will provide Distributor a single
current production UNIX runtime copy of its Software for demonstration and
training purposes only. ROBOCOM will also provide Distributor with three copies
of all of its User Documentation, for demonstration and training purposes only.
3.2 Maintenance Services. ROBOCOM will provide Distributor the maintenance
services as described in Exhibit 3. If a client company using software products
requires the documentation to be translated, then the Distributor will promptly
translate documentation, as necessary, and distribute maintenance documentation
and unmodified code updates to its End Users.
3.3 Distributor Training. ROBOCOM will provide Distributor training as in
paragraph 4.2.
3.4 Export Licenses. ROBOCOM will promptly apply for any licenses, if
required, from the Office of Export Administration, United States Department of
Commerce or any other United States Agency for shipment of ROBOCOM software.
3.5 Copies of RIMS License. ROBOCOM shall provide the then current version
of RIMS to Distributor in fulfillment of a specific relicensing of RIMS to
Distributor's End User upon receipt of a copy of an executed relicense agreement
between Distributor and its End User Copies of the then current version of RIMS
will be provided on tape
3.6 Warranties. ROBOCOM warrants to Distributor that ROBOCOM's proprietary
software products as furnished to distributor (excluding those which are
categorized as third party software) will work substantially as described in the
applicable ROBOCOM published documentation. Distributor acknowledges and accepts
that software is inherently susceptible to error and that ROBOCOM's sole
obligation shall be to use reasonable efforts to remedy substantial malfunctions
of the software by correcting errors or developing a suitable work around. This
warranty is subject to ROBOCOM receiving notification in sufficient detail to
enable ROBOCOM to demonstrate the error and certify its rectification or the
devising of a suitable work around, ROBOCOM does not warrant that all errors are
correctable or avoidable.
- --------------------------------------------------------------------------------
Agreement Between: Page 5
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
This warranty shall not apply to software identified as third party
software or otherwise identified as being furnished in "AS IS" condition and
shall not apply to Distributor or End User modified portions of Software
Products or other portions of Software Products to the extent affected by such
modifications. ROBOCOM may charge Distributor at ROBOCOM's then-standard rates
for ROBOCOM attempts to diagnose and/or remedy problems attributable to
Distributor or Distributor's End User modifications or misuse.
3.7 New Versions, Enhancements. ROBOCOM may, from time-to-time, add to
Exhibit '1' new authorized computer models or configurations or new or modified
ROBOCOM software and enhancements which, in ROBOCOM's judgment, are appropriate
for distribution in the Territory by Distributor.
3.8 Advertising Materials. ROBOCOM will provide Distributor with 500
copies of its existing marketing literature initially, thereafter, copies of
advertising and promotional materials, as available and appropriate, at
ROBOCOM's cost plus twenty percent (20%). At no charge, ROBOCOM will provide
Distributor with a current example proposal for a US End User and the
accompanying general system description.
4.0 CERTAIN Distributor OBLIGATIONS
4.1 Compliance. Distributor agrees to comply fully with all of
Distributor's obligations under this Agreement.
4.2 Re-Licensing Responsibilities. Distributor shall accept responsibility
for Software Products upon receipt from ROBOCOM and ensure Software Products are
of mercantile condition and quality. Distributor shall be responsible for
successfully compiling Software Products with stipulated version of Progress and
deliver the product to its End User, unless End User wishes Software Products to
co-reside on its existing processor. In this case, Distributor shall take
responsibility for installing Software Products onto the selected processor.
Distributor may, at its option, contract ROBOCOM for support services. In no
case shall distributor guarantee performance on the End User's processor without
ROBOCOM's approval. Software Products shall otherwise be installed on a
computing platform that complies with the specifications provided by ROBOCOM.
Distributor shall pay for the Software Products in accordance with the
terms of this Agreement, (paragraph 4.20).
- --------------------------------------------------------------------------------
Agreement Between: Page 6
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
Distributor represents and warrants that it has the expertise, experience,
knowledge of the regional market and financial resources to successfully market,
technically support and license the Software in the Territory and to achieve
significant market penetration in the Territory.
Distributor will designate one or more individuals to act as sales and
application specialist(s) in the area of warehouse and distribution matters, and
to professionally present ROBOCOM's Software to interested parties. At its own
expense, Distributor will have this specialist(s) spend at least two weeks per
year at ROBOCOM's United States office for formal and informal training. The
location may be changed by mutual written agreement. Initial training will take
place within 90 days of the signing of this agreement.
Distributor will devote its best efforts to maximizing profitable sales of
ROBOCOM's Software in the Territory. This will include undertaking of formal
marketing and sales programs, including direct mailing, seminars, and individual
in person presentations to prospective customers. Within 90 days from the
signing of this agreement, Distributor will submit to ROBOCOM a detailed
marketing plan, describing how Distributor intends to market ROBOCOM's Software,
and the resources Distributor will devote to this effort.
Distributor will prepare its own price and technical proposals for
prospective customers. For customers requiring services other than or in
addition to ROBOCOM's standard Software, ROBOCOM will not be bound by the
provisions of Distributor's proposal except by prior written agreement.
Distributor will require that all customers for ROBOCOM's Software sign a
Software License Agreement identical to that shown in Exhibit 5, and that they
comply with other reasonable conditions to protect ROBOCOM's interests.
Distributor will provide first line technical support for its customers
using ROBOCOM software.
In addition, Distributor shall keep executed End User licenses,
maintenance agreements and disclosure agreements on file, and on request from
ROBOCOM, will provide at no charge copies of such licenses or agreements to
ROBOCOM. If any license or agreement is in a language other than English, an
English translation shall be made available by Distributor.
- --------------------------------------------------------------------------------
Agreement Between: Page 7
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
4.3 Examination of Records. Distributor will allow ROBOCOM representatives
to examine Distributor's records to confirm accurate and timely payment of
royalties by Distributor. Any such examination shall be conducted within fifteen
(15) days of Distributor's receipt of ROBOCOM's written request and shall be
performed during normal business hours, at a time mutually agreed upon by
ROBOCOM and Distributor. ROBOCOM's cost of such an examination shall be borne
by ROBOCOM unless a discrepancy in excess of two (2%) in payments of royalties
is discovered for any quarter, in which case 50% ROBOCOM's cost of the
examination shall be born by Distributor. Any confidential information belonging
to Distributor will be kept confidential by ROBOCOM.
Distributor will maintain proper accounting records, and allow reasonable
inspection by ROBOCOM, to verify amounts payable to ROBOCOM. ROBOCOM will have
the right, at any time, and at ROBOCOM's expense, to appoint an independent
auditor to verify the Distributor has not violated any portions of this
agreement. If an independent auditor is appointed by ROBOCOM for this purpose,
Distributor will provide said auditors with access to its records during normal
business hours.
4.4 Proprietary Notices. Distributor agrees to reproduce on all permitted
copies ROBOOCOM and/or ROBOCOM's licensor's copyright and other proprietary
notices and, according to ROBOCOM instruction, any trademark notices as included
in the Software Products and in any ROBOCOM-furnished marketing materials,
training aids and other ROBOCOM-furnished materials and on any permitted
translations thereof. Distributor recognizes and agrees that Distributor obtains
no rights in the Software Products and other ROBOCOM materials except for the
limited rights specifically granted under this Agreement.
4.5 Modifications; License Enforcement. Distributor agrees that it will
not modify software Products except for End User support, not duplicate software
Products otherwise than as expressly authorized herein and use its best efforts
to ensure that its End Users do not use Software Products in violation of the
agreement and the End User license agreement, including, but not limited to,
productive use on more than the authorized number of computers or on a model of
computer bearing a higher sublicense fee than paid by Distributor to ROBOCOM, or
use the software Products for the benefit of entities other than the End User.
Distributor shall promptly notify ROBOCOM and provide reasonable assistance to
ROBOCOM without charge to assist ROBOCOM in prosecution of any trade secret,
copyright or trademark infringements which come to Distributor's attention, and
shall be undertaken by ROBOCOM and at its expense.
- --------------------------------------------------------------------------------
Agreement Between: Page 8
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
4.6 Technical Support. Distributor agrees to provide all direct technical
support for the software Products to Distributor's End User licensees. Direct
technical support is defined as:
A. Providing all End User training and application support and
answering all End User operational and use questions;
B. Reproducing reported problems and reporting them in writing to
ROBOCOM's technical support center;
C. Endeavoring to answer technical End User questions prior to
requesting assistance from the ROBOCOM support center, and
documenting the answers furnished to End Users;
D. Using the Development License source code at Distributor's site
solely to understand and fix or develop a work around for reported
software problems. In each instance of modification of the source
code for this purpose or development of a work around, Distributor
will coordinate the change with ROBOCOM and will promptly provide
ROBOCOM with a copy of the commented source code modifications and
identification of the End User(s) to which the change relates; and
E. Providing weekly written reports to ROBOCOM support center of all
support activity and any new problems reported and solutions to
problems, if known.
4.7 Technical Staffing. Distributor agrees to establish and maintain at
all times a capable trained technical support staff sufficient to provide
technical support as defined in item 4.6 above, including, but not limited to,
having two senior systems analysts trained on the Software Products at all
times.
4.8 End User Communications. Distributor agrees to ensure that each
supported End User CPU includes a 2400 baud modem available for support purposes
and communications adequate for the provision of support functions.
4.9 Distributor communications. Distributor agrees to provide ROBOCOM with
the telephone numbers on which Distributor provides voice and modem technical
support and with the End User telephone numbers on which each End User receives
voice and modem technical support.
- --------------------------------------------------------------------------------
Agreement Between: Page 9
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
4.10 Support Services. Distributor agrees that it will provide support
services only to End Users for whom all required royalties and maintenance fee
payments to ROBOCOM are current.
4.11 Warranties Solely on Behalf of Distributor. Distributor agrees that
it will make any warranties or other representations and maintenance commitments
to End Users solely for Distributor and not on behalf of ROBOCOM and will
indemnify and save ROBOCOM harmless from any claims by Distributor End Users for
maintenance services, breach of warranty, performance failure or failure of any
Product to meet a description.
4.12 Translations. At its sole expense, Distributor will provide
translations to the littorals in RIMS, and ROBOCOM shall enter those
translations into RIMS current version to provide screens in the language(s)
provided by Distributor. Distributor may translate all documentation and updates
thereto and package and produce sufficient copies for itself and End Users in
accordance with this Agreement. Such translations shall be subject to the
provisions of Paragraphs 2.2 and 2.4 above. Any services requested by
Distributor and furnished by ROBOCOM will be furnished at ROBOCOM's then
standard rates and reasonable expenses. All packaging, printing, binding and
other expenses will be born by Distributor.
4.13 Source Code. Distributor agrees to hold all Program source code in
strict confidence and as valuable confidential information belonging to ROBOCOM
and not to disclose such code to any person except Distributor's employees on a
need to know basis.
4.14 Return of Materials upon Termination. Upon any termination of this
Agreement, Distributor will immediately return or certify destruction of the
Programs and documentation, including any copies, information or notes relating
thereto except to the extent temporary retention is reasonably necessary for not
more than one year from termination to fulfill End User maintenance commitments
made by Distributor in good faith and in accordance with this Agreement. ROBOCOM
agrees that it will offer software Product maintenance services to such End
Users following the termination of this Agreement for ROBOCOM supported
then-current versions of Software Products.
- --------------------------------------------------------------------------------
Agreement Between: Page 10
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
4.15 Payments. Distributor will make all payments in United States
currency at ROBOCOM's offices, first stated above, or as otherwise directed by
ROBOCOM and without deductions based on any currency control restrictions,
import duties, or sales, use, value-added or other taxes or withholdings.
Distributor will bear all taxes, however designated, imposed as a result of the
existence or operation of this Agreement, including, but not limited to, any tax
which Distributor is required to withhold or deduct from payment to ROBOCOM,
except, (a) any such tax imposed upon ROBOCOM by any governmental entity in the
United States and (b) any such tax imposed upon ROBOCOM in the country in which
the office of Distributor is located or in which the End User is located if such
tax is allowable as a credit against United States income taxes of ROBOCOM. To
assist ROBOCOM in obtaining such credit, Distributor shall furnish ROBOCOM with
such evidence as may be required by United States taxing authorities to
establish that such tax has been paid. Currency conversion shall be made as of
the exchange rate on the last business day before the day payment is due. All
monetary amounts in this Agreement are in US dollars.
4.16 Import and Export Controls. At Distributor expense, Distributor will
obtain any necessary import certificates or permissions and provide all
necessary assistance to ROBOCOM in obtaining any required export or other
licenses from United States governmental agencies, including, but not limited
to, certifications as to use and ultimate destination and/or written agreement
not to knowingly transmit directly or indirectly software Products to certain
named countries. Any such licenses or other documents shall become attachments
to this Agreement and part of Distributor's obligations hereunder. Concurrent
with signing this agreement Distributor will sign an Export Controls letter.
4.17 Competitive Products. Distributor agrees to permit termination of
this Agreement by ROBOCOM if Distributor sells and promotes products competitive
with ROBOCOM products permitted to be marketed under this Agreement. Prior to
any action being taken by ROBOCOM, a discussion would take place to allow
Distributor to explain the method of marketing and sale and demonstrate that
these products were not competitive to ROBOCOM's products.
4.18 Product Names; Trademarks. Distributor agrees to use ROBOCOM Product
names in association with the products and use any ROBOCOM trademarks as
instructed by ROBOCOM so as to protect ROBOCOM rights and continue
identification of the Products with ROBOCOM in the Territory.
4.19 Sales Projections. Provide ROBOCOM the distributors annual sales
projections, revised by quarter, covering at least the next six quarters.
- --------------------------------------------------------------------------------
Agreement Between: Page 11
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
4.20 Fees and Payment; Maintenance Payments. Beginning with the first
system installed, for ROBOCOM Standard Software sold to Distributor customers
headquartered in the Territory, or elsewhere (as long as the right to distribute
ROBOCOM's Software has not been revoked), for which Distributor takes primary
installation and support responsibility, Distributor will charge customers the
list prices and pay ROBOCOM an amount equal to 60% of the current list prices
(shown on the attached price list, Exhibit 4) or 60% of a mutually agreed
discounted price which is commercially satisfactory to both ROBOCOM and
Distributor, for their modules purchased and installed. Should Distributor for
any reason decline to take primary installation and/or support responsibility
for any systems installed, Distributor and ROBOCOM will negotiate in advance an
equitable increase in the amount due ROBOCOM.
Ongoing Annual Maintenance Plan fees, computed at * % of the first site
list price for Standard Application Software and all custom Software provided by
ROBOCOM, will be split equally between the two parties, as long as Distributor
continues to support the customer directly. If ROBOCOM provides direct customer
support, it will receive 75% of the maintenance fee.
Amounts to ROBOCOM, except for annual maintenance fees, will be paid by
Distributor at the end of the month following the month in which the Software
was installed. Annual maintenance fees will be to ROBOCOM at the end of the
second month following the month in which the Software was installed.
All transactions between Distributor and ROBOCOM will be in U.S. dollars.
All invoices are due within thirty days of the date of the invoice.
The attached price list may be modified by ROBOCOM at any time, with 90
days advance notice to Distributor. ROBOCOM agrees that, for the initial
three-year term of this agreement, the prices for its standard application
software in the Territory will be adjusted prorata to U.S. pricing.
By mutual written agreement, ROBOCOM and Distributor may modify the
pricing conditions on a case-by-case basis.
ROBOCOM agrees that, for the initial three year term of this Agreement,
customer maintenance charges will be contained with RPI +5% of the maintenance
costs in the country of installation.
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. FILED
SEPARATELY WITH THE COMMISSION.
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Agreement Between: Page 12
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
5.0 PATENT AND COPYRIGHT INDEMNIFICATION
5.1 ROBOCOM will defend any action brought against Distributor [for
Distributor's End Users] based on a claim that a software Product infringes any
copyright, trade secret or United States patent (including patents in Territory
countries based on the relevant United States patents.). ROBOCOM will hold
Distributor harmless from and pay any award against Distributor or Distributor's
End Users based on such infringement provided that Distributor and/or End Users
notify ROBOCOM promptly in writing of the claim and Distributor and/or End Users
provide ROBOCOM reasonable assistance and permit ROBOCOM to control the defense
and any settlement. ROBOCOM shall have no liability if the alleged infringement
arises from (1) the licensing of other than a current unaltered release of a
Program as provided under this Agreement, or (2) the combination of a Program
with non ROBOCOM programs or data from external sources. ROBOCOM makes no
representations or warranties and provides no indemnities regarding patent or
copyright infringement by any portion of a software Product not developed by
ROBOCOM.
5.2 In the event of claimed infringement, ROBOCOM reserves the right to
replace the Software Product with a non-infringing product of equivalent
functionality, modify the Software Product to make it non-infringing or, if
neither alternative is reasonably available, remove the Software Product and
refund to Distributor license fees paid to ROBOCOM with respect to the
infringing copies of the Software Product on a five-year End User use
amortization schedule.
6.0 TERM AND TERMINATION
6.1 This Agreement shall enter into force on the Commencement Date and
shall continue for a period of two (2) years from the Commencement Date and
subject as herein provided shall thereupon automatically renew for an additional
one (1) year period and until terminated by one of the parties hereto giving
written notice thereof to the other at least one hundred eighty (180) days prior
to the end of the initial term or any following anniversary date of the
Agreement.
6.2 Notwithstanding Clause 6.1 of this Agreement, each party shall have
the right to terminate this Agreement at any time upon giving Distributor at
least ninety (90) days written notification if: (a) Distributor's performance
under this Agreement is unsatisfactory in ROBOCOM's reasonable judgment (see
paragraph 6.3); (b) Distributor promotes or markets a product competitive with
the Software Products in violation of Section 4.17; or (c) if Distributor shall
undergo a change in ownership or control with ROBOCOM's written consent, but
approval of such change shall not be reasonably withheld by ROBOCOM.
- --------------------------------------------------------------------------------
Agreement Between: Page 13
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
6.3 Distributor and ROBOCOM agree that Distributor shall sell at least one
(1) site during calendar year, 1997 and at least five (5) sites during calendar
year 1998.
7.0 EVENTS OF DEFAULT
7.1 The occurrence of any of the following events shall constitute an
event of default entitling ROBOCOM to terminate this Agreement
forthwith:
A. Nonpayment by Distributor of any payment to ROBOCOM for a period of
fifteen (15) working days after sending of written notice to the
Distributor specifying such default in payment.
B. If a petition or action shall be filed or taken by or against
Distributor under any law dealing with insolvency, bankruptcy or
suspension of payment and such petitions or action is not dismissed
within thirty (30) days.
C. If a Receiver is appointed over the assets or undertakings of
Distributor (or any part thereof).
D. If Distributor enters into a deed of arrangement or makes an
assignment for the benefit of creditors.
E. If Distributor ceases to function as a going concern or an order is
made or a resolution passed for the winding up of Distributor
(otherwise than for the purposes of amalgamation or reconstitution).
F. If Distributor fails to promptly furnish ROBOCOM, upon request, with
the names and addresses of End Users with a full copy of the signed
End User agreement and, if such agreement is not in English, with an
English translation of the agreement.
This Agreement will terminate immediately if Distributor sells,
attempts to sell, agrees to sell, or attempts to develop any
products meaning Inventory and Warehouse Control Systems Software
competing with those provided by ROBOCOM.
G. If Distributor knowingly misrepresents the capabilities, functions
or functionalities of Software Products.
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Agreement Between: Page 14
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
7.2 If either party fails to perform any other term, covenant or condition
of this Agreement and has not performed such term covenants or conditions within
thirty (30) days after a notice of default has been received, the non-defaulting
party has the right to forthwith terminate this Agreement by means of a written
notice without judicial intervention being required.
8.0 REMEDIES
8.1 Upon any termination of this Agreement, Distributor shall immediately
return or certify destruction of all Programs in accordance with paragraph 4.14
and ROBOCOM shall be entitled to recover from Distributor all accrued and unpaid
payments and other amounts then due and owing under the terms hereof and/or all
future payments and other amounts as and when becoming due hereunder.
No termination under this Paragraph 8.1 or otherwise under this Agreement
shall invalidate then existing Distributor End User licenses granted by
Distributor in accordance with this Agreement for which required fees and
charges have been credited or paid to ROBOCOM.
8.2 The rights of ROBOCOM pursuant to Paragraph 8.1 hereof are without
prejudice to any other rights or remedies which ROBOCOM may have. ROBOCOM
pursuit and enforcement of any one or more remedies shall not be deemed an
election waiver by ROBOCOM of any other remedy.
8.3 EXCEPT AS SET FORTH IN PARAGRAPH 3.5 AND PARAGRAPHS 5.1 AND 5.2,
ROBOCOM DISCLAIMS ALL WARRANTIES WITH REGARD TO THE ROBOCOM SERVICES AND
PRODUCTS SOLD OR LICENSED HEREUNDER INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND ALL OBLIGATIONS OR
LIABILITIES ON THE PART OF ROBOCOM FOR DAMAGES, INCLUDING BUT NOT LIMITED TO,
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THE DELIVERY, USE, OR PERFORMANCE OF THE SOFTWARE.
9.0 NOTICES
Service of all notices under this Agreement by either party to the
other shall be sufficient only if posted by certified or registered post, return
receipt requested or personally delivered and receipted for. Either party may
change its address for service of notice by written notice to the other.
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Agreement Between: Page 15
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
10.0 UNFORESEEN EVENTS
Neither party shall be responsible for any delay nor failure to
perform due to causes beyond reasonable control of the party, including, but not
limited to, cause such as strikes, lockouts, or other labor disputes, riots,
civil disturbances, actions or inactions of governmental authorities or
suppliers, epidemics, war, embargoes, sever weather, fire, earthquakes, acts of
God or the public enemy, nuclear disasters, or default of a common carrier.
11.0 SEVERABILITY
In the event that any one or more of the provisions of this
Agreement shall for any reasons be held to be unenforceable in any respect under
the laws of any jurisdiction, such unenforceability shall not affect any other
provision and this Agreement shall then be construed as if such unenforceable
provision or provisions had never been contained herein.
12.0 GENERAL CONDITIONS
12.1 Applicable law; Dispute Resolution. The Agreement shall be construed
in accordance with and governed by the laws of the State of New York without
regard to that body of law known as conflict of laws and without reference to
the 1980 United Nations Convention on Contracts for the Sale of Goods and any
amendments thereto.
12.2 Headings. Headings and subheadings in this Agreement are for
convenience only and do not form part of this Agreement.
12.3 Assignment. Upon advance written notice, Distributor may assign this
Agreement to a parent, subsidiary, or successors in interest to the business of
Distributor provided that such assignees are located in the same country as
Distributor and is able to and does fulfill Distributor's obligations under this
Agreement. Distributor shall not otherwise assign this Agreement without the
written consent of ROBOCOM.
12.4 Non-Waiver. The failure of either party to enforce at any time any of
the provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce any such provisions.
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Agreement Between: Page 16
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
12.5 Independent Businesses. The Distributor and ROBOCOM are independent
businesses and will in no way claim otherwise or incur liabilities except on
their own account. It is understood and agreed that ROBOCOM and the Distributor
will not in any event be liable for any obligations, expenses, or damages of any
nature whatsoever incurred by the other party or for any claim made against the
other party on account of any services performed by it or by those for whom the
other party may be in law responsible and that this Agreement supersedes all
previous Agreements and arrangements between ROBOCOM and the Distributor.
12.6 Indemnity Clause. ROBOCOM will protect and save harmless and defend
at its own expense the Distributor from and against any and all claims of
infringements of patents, trade marks or industrial designs copyrights or other
property rights affecting the Products. The Distributor agrees to give ROBOCOM
prompt notice of any such claim that is made against the Distributor and will
give ROBOCOM such assistance and information as ROBOCOM may reasonably require.
In the event that any such infringement occurs or may occur, ROBOCOM may:
A. Procure for the Distributor the right to continue to use the
Software or infringing part thereof; or
B. Modify or amend the Software or infringing part thereof so that it
becomes noninfringing; or
C. Replace the Software or infringing part thereof by other software of
similar acceptable capability; or
D. Pay the Distributor compensation relating to the whole or infringing
part of the Software as appropriate so that it may reimburse and
settle any corresponding claims put upon it by third parties.
E. The conditions of the indemnity clause identified herein apply only
to ROBOCOM's supplied RIMS applications code.
12.7 Notices. All notices hereunder will be in writing and will be deemed
to have been given and received when delivered in person or by registered or
certified mail, return receipt requested, postage prepaid, as follows:
ENTIRE AGREEMENT
This Agreement and Exhibits constitute the entire Agreement governing the
relationship between the parties and supersede all proposals, oral or written,
and all negotiations, conversations, or discussions between the parties relating
to this Agreement. Distributor acknowledges that it has not been induced to
enter into this Agreement by representations or
- --------------------------------------------------------------------------------
Agreement Between: Page 17
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
statements, oral or written, not expressly contained herein. The terms and
conditions of the Agreement shall prevail, notwithstanding any variance from the
terms and conditions of any order or other instrument submitted by Distributor.
This Agreement may be modified only in writing signed by duly authorized
representative of each party.
If to Distributor:
COGITA Holdings Ltd.
Level 9
20 Amersham Way
Manukau City, New Zealand
Attn: Uluomatootua S. Aiono
If to ROBOCOM:
ROBOCOM Systems, Inc.
511 Ocean Avenue
Massapequa
New York
11758
USA
Attn.: Richard Wilkins
Forum for Dispute. The parties agree to seek to resolve any dispute arising
under this Agreement pursuant to good faith business negotiations. In the event
of a dispute, the aggrieved party will promptly identify in writing the nature
of the outstanding dispute in sufficient detail as to allow the other party to
respond to the dispute. Each party agrees to set times and places to meet and
communicate their concerns and to propose resolutions to their dispute. These
meetings may take place by telephone, by video conference, or face-to-face. The
parties agree to hold not fewer than two meetings, and to meet for at least a
total of four hours to discuss their respective positions and to explore a
business resolution of their dispute. The parties agree to exchange offers in
writing upon conclusion of their meetings. Such good-faith procedures will be a
condition precedent to any litigation of the dispute.
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Agreement Between: Page 18
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
13.5 The following are part of this Agreement:
Exhibit 1
Exhibit 2
Exhibit 3
Exhibit 4
Exhibit 5
EXECUTED BY BOTH PARTIES AS PROVIDED BELOW:
ROBOCOM Systems, Inc. COGITA Holdings Ltd.
By: Larry Klein By: Ulu. S. Aiono
Title: Exec. V.P. Title: Founder
Date: 5 August 1997 Date: 5 August 1997
/s/ Larry Klein *** /s/ Ulu S. Aiono
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Agreement Between: Page 19
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
EXHIBITS TO
DISTRIBUTION AGREEMENT
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Agreement Between: Page 20
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
EXHIBIT 1
Robocom Products:
RIMS(R). 2001 v3.4
MFG/PRO INTERFACE
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Agreement Between: Page 21
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
EXHIBIT 2
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Agreement Between: Page 22
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
CONFIDENTIALITY AGREEMENT
BETWEEN FIRMS
AGREEMENT and acknowledgment between ROBOCOM Systems Inc. (Company), and COGITA
Holdings Ltd. (Distributor)
Whereas, the Company agrees to furnish the Distributor certain confidential
information relating to the affairs of the Company for purposes of: The
marketing of RIMS(R) .2001 v3.4 in New Zealand and Australia.
Whereas, the Distributor agrees to review, examine, inspect or obtain such
information only for the purposes described above, and to otherwise hold such
information confidential pursuant to the terms of this agreement,
BE IT KNOWN that the Company has or shall furnish to the Distributor certain
confidential information, as set forth on an attached list, and may further
allow the Distributor the right to inspect the business of the Company and/or
interview employees or representatives of the Company, all on the following
conditions:
1. The Distributor agrees to hold all confidential or proprietary information
or trade secrets ("information") in trust and confidence and agrees that
it shall be used only for the contemplated purpose, and shall not be used
for any other purpose or disclosed to any third party.
2. No copies will be made or retained of any written information supplied.
3. At the conclusion of our joint discussions, or upon demand by the Company,
all information, including written notes, photographs, memoranda, or notes
taken by the Distributor shall be returned to the company.
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Agreement Between: Page 23
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
4. This information shall not be disclosed to any employee or consultant
unless they agree to execute and be bound by the terms of this agreement.
5. It is understood that the Distributor shall have no obligation with
respect to any information known by the Distributor or generally known
within the industry prior to dates of this agreement, or becomes common
knowledge within the industry thereafter.
Agreed and Accepted: Agreed and Accepted:
ROBOCOM Systems Inc. COGITA Holdings Ltd.
/s/ Larry Klein /s/ Ulu. S. Aiono
------------------------- --------------------------------
Signature Signature
By: Larry Klein By: Ulu. S. Aiono
Title: Exec. V.P. Title: Founder
Date: 5 August 1997 Date: 5 August 1997
***********
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Agreement Between: Page 24
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
EXHIBIT 3
Sample Maintenance Contract Terms and Conditions
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Agreement Between: Page 25
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
Sample Maintenance Contract Terms and Conditions
1. (I) ROBOCOM will provide periodic MAINTENANCE releases to RIMS products.
These releases will be made available to authorized Distributors and
subsequently to all customers covered by Software Maintenance
Agreements.
Problem Correction. ROBOCOM shall use commercially reasonable
efforts to correct verified software problems on a timely basis. The
response to a problem may be any of the following:
- Avoidance Procedure. Provides a temporary measure to
operationally avoid an identified software problem.
- Documentation Correction. Resolves errors or ambiguities in
the supporting documentation for software.
- Product Release. Incorporates problem resolutions,
enhancements, and functional changes in both the software and
documentation.
Remote Support. ROBOCOM shall maintain telephone hotline services to
provide telephone consultation on software problems. Such support
shall be available to Distributors, Monday through Friday, excluding
ROBOCOM holidays, between 9:00 A.M. and 5:00 P.M. Australian Eastern
Time.
Standard RIMS: In the case where a customer has purchased a standard
version of a RIMS product (without customization), maintenance
releases will be provided as they become available. Software bugs
corrected in the standard product line are automatically included in
future releases.
Customized RIMS: In the case where a customer has purchased a
customized version of a RIMS product, releases will be generated on
a periodic basis depending upon the bugs reported by the customer
and the priorities assigned by the customer. Where RIMS is
customized by the Distributor, bugs reported in standard versions of
RIMS will be applied to customized versions of RIMS only if they can
be localized to standard modules within the customized version (e.g.
modules that have not been customized).
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Agreement Between: Page 26
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
(II) ROBOCOM will provide periodic UPGRADE releases to RIMS products for
customers who have purchased a standard RIMS product. Upgrade
releases are defined as releases which add new features, improve
existing features, or improve performance/useability.
(III) ROBOCOM has no obligation to support the following:
- Altered, mishandled, abused, or modified software
- Software that has been superseded by a major or enhancement
release for more than two (2) years.
- Software problems resulting from hardware malfunction,
third-party software, and/or causes beyond the control of
ROBOCOM.
ROBOCOM may refuse to provide or may suspend support services on any
software for which a valid license or sublicense is not in effect or
for which such licenses have been breached.
2. RESPONSIBILITIES OF PURCHASER
Purchaser shall provide, free of charge and with ready access, adequate
working space, adequate light, heat, ventilation, electrical current, and
outlets for the use of RSI maintenance personnel.
Purchaser shall not misuse, neglect or attempt any software modification,
repairs or maintenance of the equipment covered hereby. Any added costs to
RSI for maintaining the system or equipment because of violation of this
provision shall be charged to the Purchaser. Likewise, all costs of
maintenance not attributable to normal wear and tear, normal malfunction,
or RSI negligence, shall be charged to the Purchaser at the RSI published
hourly rate and published list price for parts.
Purchaser shall always allow RSI full and free access to the equipment
subject to Purchaser's industrial security rules.
Unless otherwise specified in the agreement, the client is responsible for
all day to day maintenance and administration tasks as required by a
typical computer system furnished by ROBOCOM with the RIMS application.
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Agreement Between: Page 27
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
Customer Administrative tasks include but are not limited to:
User and Group Administration
Kernel Tuning
User Accounting
Monitor disk usage
Install/configure Peripherals
Printer Scheduler Administration
File System Administration
Network File System Administration
Progress Database Administration
Periodic BI File Truncation
Periodic Dump and Reload
Develop Backup Strategy
Perform Daily Backups
Perform Quarterly Backups
UUCP Administration
CRON Administration
EMAIL Administration
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Agreement Between: Page 28
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
3. GENERAL PROVISIONS
This agreement constitutes the entire agreement for maintenance services
between the Purchaser and Robocom Systems Inc. THE FOREGOING TERMS AND
CONDITIONS WILL PREVAIL NOTWITHSTANDING ANY VARIANCE WITH THE TERMS AND
CONDITIONS OF ANY ORDER SUBMITTED BY THE PURCHASER.
AGREED TO By: /s/ Ulu. S. Aiono
-------------------------------
(Signature)
Customer: Ulu. S. Aiono
-------------------------------
(Print Name)
5 August 1997
-------------------------------
(Date)
Founder
-------------------------------
(Title
ACCEPTED By: /s/ Larry Klein
-------------------------------
(Signature)
ROBOCOM
Systems Inc. Larry Klein
-------------------------------
(Print Name)
5 August 1997
-------------------------------
(Date)
Exec. V.P.
-------------------------------
(Title)
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Agreement Between: Page 29
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
EXHIBIT 4
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Agreement Between: Page 30
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
International RIMS(R) Pricing, 1996
RIMS.2001(R) V3.4
USERS SITE ONE(1) SITE TWO(2) and up
8 $ * *
Additional User $ * $ *
MFG/PRO Interface $ * per site.
RIMS.food(R)
USERS SITE ONE (1) SITE TWO(2) and up
8 $ * $ *
Additional User $ * $ *
MFG/PRO Interface $ * per site.
Users defined as the total number of Fixed Terminals, RF Terminals and Host
Interface.
Client Server to be announced.
*
* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. FILED
SEPARATELY WITH THE COMMISSION.
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Agreement Between: Page 31
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
EXHIBIT 5
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Agreement Between: Page 32
COGITA Holdings Ltd and ROBOCOM Systems, Inc.
Dated: 5 August 1997
<PAGE>
RIMS.200l COMPUTER PROGRAM END-USER
LICENSE
(Nonexclusive; Object Code Only)
between
ROBOCOM SYSTEMS INC. (Licensor) or 511 Ocean Avenue, Massapequa, NY 11758, and
_______________, of _____________________________________________
LICENSOR'S PROGRAM IS COPYRIGHTED AND LICENSED (NOT SOLD). LICENSOR DOES NOT
SELL OR TRANSFER TITLE TO THE LICENSED PROGRAM TO YOU. YOUR LICENSE OF THE
LICENSED PROGRAM WILL COMMENCE UPON EXECUTION OF THIS AGREEMENT BY BOTH PARTIES
AS EVIDENCED BY AUTHORIZED SIGNATURES BEING AFFIXED.
1. License.
In consideration of the payment of the license fees set forth, Licensor
grants you a nonexclusive license to use the RIMS.2001 computer program
and data in machine-readable form.
2. Scope or Rights. You may:
1. Install the Single Site Licensed Program in your own facility for
the number of users specified in the License and Purchase Agreement
2. Use and execute the Licensed Program for purposes of serving the
internal needs of your business at the single site;
3. In support of your authorized use of the Licensed Program, store the
Licensed Program's machine-readable instructions or data in,
transmit it through, and display it on machines associated with the
specified computer; and
4. Make copies of the Program in machine-readable, object code form,
for nonproductive backup purposes only, provided that Licensor's
proprietary legend is included.
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RIMS.2001 Computer End User License Page 33
<PAGE>
4. Support.
Licensor will support the Licensed Program for a one year Limited
Warranty. Additional software maintenance is as specified in Maintenance
Agreement if purchased. However, Licensor offers support only for the two
most current versions of the Licensed Program issued by Licensor from time
to time, so you must make sure to obtain and substitute or incorporate all
new releases or fixes issued by Licensor pursuant to its warranty and
support programs.
5. Your Responsibilities.
You are responsible for selecting an operator who is qualified to operate
the Licensed Program on your own equipment and is familiar with the
information, calculations, and reports that serve as input and output of
the Licensed Program. Licensor reserves the right to refuse assistance or
to charge additional fees if an operator seeks assistance with respect to
such basic background information or any other matters not directly
relating to the operation of the Licensed Program.
The Licensed Program is designed for use with the peripheral equipment and
accessories. You are also responsible for ensuring a proper environment
and proper utilities for the computer system on which the Licensed Program
will operate, including an uninterrupted power supply.
6. Proprietary Protection and Restrictions.
Licensor will have sole and exclusive ownership of all right, title, and
interest in and to the Licensed Program and all modifications and
enhancements thereof (including ownership of all trade secrets and
copyrights pertaining thereto), subject only to the rights and privileges
expressly granted to you herein by Licensor. This Agreement does not
provide you with title or ownership of the Licensed Program, but only a
right of limited use. You must keep the Licensed Program free and clear of
all claims, liens, and encumbrances.
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RIMS.2001 Computer End User License Page 34
<PAGE>
You may not use, copy, modify, or distribute the Licensed Program
(electronically or otherwise), or any copy, adaptation, transcription, or
merged portion thereof, except as expressly authorized by Licensor. You
may not reverse assemble, reverse compile, or otherwise translate the
Licensed Program. Your rights may not be transferred, leased, assigned, or
sublicensed except for a transfer of the Licensed Program in its entirety
to (1) a successor in interest of your entire business who assumes the
obligations of this Agreement or (2) any other party who is reasonably
acceptable to Licensor, enters into a substitute version of this
Agreement, and pays an administrative fee intended to cover attendant
costs. No service bureau work, multiple-user license, or timesharing
arrangement is permitted, except as expressly authorized by Licensor. You
may not install the Licensed Program in any other computer system or use
it at any other location without Licensor's express authorization obtained
in advance (which will not be unreasonably withheld); provided that you
may transfer the Licensed Program to another computer temporarily if the
computer specified is inoperable.
If you use, copy, or modify the Licensed Program or if you transfer
possession of any copy, adaptation, transcription, or merged portion of
the Licensed Program to any other party in any way not expressly
authorized by Licensor, your license is automatically terminated.
You hereby authorize Licensor to enter your premises in order to inspect
the Licensed Program in any reasonable manner during regular business
hours to verify your compliance with the terms hereof.
You acknowledge that, in the event of your breach of any of the foregoing
provisions, Licensor will not have an adequate remedy in money or damages.
Licensor will therefore be entitled to obtain an injunction against such
breach from any court of competent jurisdiction immediately upon request.
Licensor's right to obtain injunctive relief will not limit its right to
seek further remedies.
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RIMS.2001 Computer End User License Page 35
<PAGE>
if some third party claims that the Licensed Program infringes its patent,
copyright, or trade secret, or any similar intellectual property right,
Licensor will defend you against that claim at Licensor's expense and pay
all damages that a court finally awards, provided that you promptly notify
Licensor in writing of the claim, and allow Licensor to control, and
cooperate with Licensor in, the defense or any related settlement
negotiations. If such a claim is made or appears possible, you agree to
permit Licensor to enable you to continue to use the Licensed Programs, or
to modify or replace them. If Licensor determines that none of these
alternatives is reasonably available, you agree to return the Licensed
Program on Licensor's written request, and you will then receive a credit
equal to your net book value for the Licensed Program determined in
accordance with generally accepted accounting principles. However,
Licensor has no obligation for any claim based on your modification of the
Licensed Program or its combination, operation, or use with any product,
data, or apparatus not specified or provided by Licensor, provided that
such claim solely and necessarily is based on such combination, operation,
or use and such claim would be avoided by combination, operation, or use
with products, data, or apparatus specified or provided by Licensor. THIS
PARAGRAPH STATES LICENSOR'S ENTIRE OBLIGATION TO YOU WITH RESPECT TO ANY
CLAIM OF INFRINGEMENT.
7. Limited Warranty and Limitation of Liability.
Licensor warrants, for your benefit alone, that the Licensed Program
conforms in all material respects to the USER MANUALS for the current
version of the Licensed Program set forth. This warranty is expressly
conditioned on your observance of the operating, security, and
data-control procedures set forth in the User's Manual included with the
Licensed Program. This warrantee is granted by the Licensor to the
Licensee for a period of One Year (1) after acceptance by the Licensee.
Licensor is not responsible for obsolescence of the Licensed Program that
may result from changes in your requirements. The foregoing warranty will
apply only to the most current version of the Licensed Program issued by
Licensor from time to time. Licensor assumes no responsibility for the use
of superseded, outdated, or uncorrected versions of the Licensed Program.
As your exclusive remedy for any material defect in the Licensed Program
for which Licensor is responsible, Licensor will attempt through
reasonable effort to correct or cure any reproducible defect by issuing
corrected instructions, a restriction, or a bypass. Licensor will not be
obligated to correct, cure, or otherwise remedy any nonconformity or
defect in the Licensed Program if you have made any changes whatsoever to
the Licensed Program, if the Licensed Program has been misused or damaged
in any respect, or if you have not reported to Licensor the existence and
nature of such nonconformity or defect promptly upon discovery thereof.
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RIMS.2001 Computer End User License Page 36
<PAGE>
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR DISCLAIMS ANY
AND ALL PROMISES, REPRESENTATIONS, AND WARRANTIES WITH RESPECT TO THE
LICENSED PROGRAM, INCLUDING ITS CONDITION, ITS CONFORMITY TO ANY
REPRESENTATION OR DESCRIPTION, THE EXISTENCE OF ANY LATENT OR PATENT
DEFECTS, ANY NEGLIGENCE, AND ITS MERCHANTABILITY OR FITNESS FOR A
PARTICULAR USE.
The cumulative liability of Licensor to you for all claims relating to the
Licensed Program and this Agreement, including any cause of action
sounding in contract, tort, or strict liability, will not exceed the total
amount of all license fees paid to Licensor hereunder. This limitation of
liability is intended to apply without regard to whether other provisions
of this Agreement have been breached or have proven ineffective. This
limitation of liability will not apply to the indemnification provided in
Section 6 hereof. Licensor will have no liability for loss of data or
documentation, it being understood that you are responsible for reasonable
backup precautions.
In no event will Licensor be liable for any loss of profits; any
incidental, special, exemplary, or consequential damages; or any claims or
demands brought against you, even if Licensor has been advised of the
possibility of such claims or demands. This limitation upon damages and
claims is intended to apply without regard to whether other provisions of
this Agreement have been breached or have proven ineffective.
8. Term of Agreement; Termination.
Your license of the Licensed Program will become effective upon delivery
of the Licensed Program to you and will continue indefinitely, unless
sooner terminated as provided herein.
Upon termination of this Agreement, all rights granted to you will
terminate and revert to Licensor. Promptly upon termination of this
Agreement for any reason or upon discontinuance or abandonment of your
possession or use of the Licensed Program, you must return or destroy, as
requested by Licensor, all copies of the Licensed Program in your
possession (whether modified or unmodified), and all other materials
pertaining to the Licensed Program (including all copies thereof). You
agree to certify your compliance with such restriction upon Licensor's
request.
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RIMS.2001 Computer End User License Page 37
<PAGE>
9. Miscellaneous.
This Agreement will be governed by and construed in accordance with the
laws of the State of New York.
No modification of this Agreement will be binding unless it is in writing
and is signed by an authorized representative of the party against whom
enforcement of the modification is sought.
Any notices required or permitted under this Agreement will be in writing
and delivered in person or sent by registered or certified mail, return
receipt requested, with proper postage affixed.
In the event that any of the terms of this Agreement is or becomes or is
declared to be invalid or void by any court or tribunal of competent
jurisdiction, such term or terms will be null and void and will be deemed
severed from this Agreement and all the remaining terms of this Agreement
will remain in full force and effect.
THIS AGREEMENT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF LICENSOR'S OBLIGATIONS
AND RESPONSIBILITIES TO YOU AND SUPERSEDES ANY OTHER PROPOSAL, REPRESENTATION,
OR OTHER COMMUNICATION BY OR ON BEHALF OF LICENSOR RELATING TO THE SUBJECT
MATTER HEREOF.
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RIMS.2001 Computer End User License Page 38
GUARANTY
of a promissory note dated December 21, 1989 in the principal sum of Four
Hundred Sixty Thousand and 00/100 ($460,000) Dollars (the "Note") made by
Robocom Properties Inc. (the "Maker") to Nassau County Local Development
Corporation and endorsed to NEW YORK JOB DEVELOPMENT AUTHORITY ("JDA").
FOR VALUE RECEIVED, the Undersigned guarantees hereby the prompt and
punctual payment of the Note when due, by acceleration or otherwise, and, in the
case of extension of time for payment or renewal thereof, the payment of all
such extensions and renewals. The Undersigned hereby waives presentment, demand,
protest and notice of non-payment.
This Guaranty is absolute and unconditional. This Guaranty shall not be
released by the assignment of the Note or by any amendment, change or consent
with respect to any of the provisions of said Note; or by any extension or
indulgence or surrender, substitution, alteration or discharge of any security;
or by any other circumstance whereby the Undersigned might otherwise be released
as surety or guarantor or might claim a defense other than that of payment.
The Undersigned agrees that it shall maintain its corporate existence and
not liquidate, wind-up or dissolve or otherwise dispose of all or substantially
all of its property, business or assets remaining after the execution and
delivery of this Guaranty and shall not consolidate with or merge into another
corporation or permit one or more corporations to consolidate with or merge
into it.
If a suit is brought hereon or an attorney is employed or expenses are
incurred to compel payment of the Note or any portion of the indebtedness
evidenced thereby, or this Guaranty, the Holder of the Note shall be entitled to
its reasonable court costs, attorney fees, disbursements and expenses which the
Undersigned hereby agrees to pay.
This Guaranty shall be construed in accordance with and governed by the
laws of the State of New York.
The provisions of this Guaranty may not be changed orally.
IN WITNESS WHEREOF, the Undersigned, by its duly authorized officer, has
executed and delivered this instrument this 21st day of December, 1989.
ROBOCOM SYSTEMS INC.
By: /s/ Irwin Balaban
-------------------------------
Irwin Balaban
President
ROBO11-1
SEAL OF SMALL BUSINESS SBA LOAN NO.
ADMINISTRATION CDCL 297210 3009 NY
SMALL BUSINESS ADMINISTRATION (SBA)
GUARANTY
December 14, 1989
In order to induce Long Island Development Corporation (hereinafter called
"Lender") to make a loan or loans, or renewal or extension thereof, to Robocom
Properties, Inc. (hereinafter called the "Debtor"), the Undersigned hereby
unconditionally guarantees to Lender, its successors and assigns, the due and
punctual payment when due, whether by acceleration or otherwise, in accordance
with the terms thereof, of the principal of and interest on and all other sums
payable, or stated to be payable, with respect to the note of the Debtor, made
by the Debtor to Lender, dated 12/14/89 in the principal amount of $ 478,000,
with interest at the rate of see note per cent per annum. Such note, and the
interest thereon and all other sums payable with respect thereto are hereinafter
collectively called "Liabilities". As security for the performance of this
guaranty the Undersigned hereby mortgages, pledges, assigns, transfers and
delivers to Lender certain collateral (if any), listed in the schedule on the
reverse side hereof. The term "collateral" as used herein shall mean any funds,
guaranties; agreements or other property or rights or interests of any nature
whatsoever, or the proceeds thereof, which may have been, are, or hereafter may
be, mortgaged, pledged, assigned, transferred or delivered directly or
indirectly by or on behalf of the Debtor or the Undersigned or any other party
to Lender or to the holder of the aforesaid note of the Debtor, or which may
have been, are, or hereafter may be held by any party as trustee or otherwise,
as security, whether immediate or underlying, for the performance of this
guaranty or the payment of the Liabilities or any of them or any security
therefor.
The Undersigned waives any notice of the incurring by the Debtor at any
time of any of the Liabilities, and waives any and all presentment, demand,
protest or notice of dishonor, nonpayment, or other default with respect to any
of the Liabilities and any obligation of any party at any time comprised in the
collateral. The undersigned hereby grants to Lender full power, in its
uncontrolled discretion and without notice to the undersigned, but subject to
the provisions of any agreement between the Debtor or any other party and Lender
at the time in force, to deal in any manner with the Liabilities and the
collateral, including, but without limiting the generality of the foregoing, the
following powers:
(a) To modify or otherwise change any terms of all or any part of the
Liabilities or the rate of interest thereon (but not to increase the
principal amount of the note of the Debtor to Lender), to grant any
extension or renewal thereof and any other indulgence with respect
thereto, and to effect any release, compromise or settlement with respect
thereto;
(b) To enter into any agreement of forbearance with respect to all or any part
of the Liabilities, or with respect to all or any part of the collateral,
and to change the terms of any such agreement;
(c) To forbear from calling for additional collateral to secure any of the
Liabilities, or to secure any obligation comprised in the collateral;
(d) To consent to the substitution, exchange, or release of all or any part of
the collateral, whether or not the collateral, if any, received by Lender
upon any such substitution, exchange, or release shall be of the same or
of a different character or value than the collateral surrendered by
Lender;
(e) In the event of the nonpayment when due, whether by acceleration or
otherwise, of any of the Liabilities, or in the event of default in the
performance of any obligation comprised in the collateral, to realize on
the collateral or any part thereof, as a whole or in such parcels or
subdivided interests as Lender may elect, at any public or private sale or
sales, for cash or on credit or for future delivery, without demand,
advertisement or notice of the time or place of sale or any adjournment
thereof (the Undersigned hereby waiving any such demand, advertisement and
notice to the extent permitted by law), or by foreclosure or otherwise, or
to forbear from realizing thereon, all as Lender in its uncontrolled
discretion may deem proper, and to purchase all or any part of the
collateral for its own account at any such sale or foreclosure, such
powers to be exercised only to the extent permitted by law.
The obligations of the Undersigned hereunder shall not be released,
discharged or in any way affected, nor shall the Undersigned have any rights or
recourse against Lender, by reason of any action Lender may take or omit to take
under the foregoing powers.
In case the Debtor shall fail to pay all or any part of the Liabilities
when due, whether by acceleration or otherwise, according to the terms of said
note, the Undersigned, immediately upon the written demand of Lender, will pay
to Lender the amount due and unpaid by the Debtor as aforesaid, in like manner
as if such amount constituted the direct and primary obligation of the
Undersigned. Lender shall not be required, prior to any such demand on, or
payment by, the Undersigned, to make any demand upon or pursue or exhaust any of
its rights or remedies against the Debtor or others with respect to the payment
of any of the Liabilities, or to pursue or exhaust any of its right or remedies
with respect to any part of the collateral. The Undersigned shall have no rights
of subrogation whatsoever with respect to the Liabilities or the collateral
unless and until Lender shall have received full payment of all the Liabilities.
The obligations of the Undersigned hereunder, and the rights of Lender in
the collateral, shall not be released, discharged or in any way affected, nor
shall the Undersigned have any rights against Lender; by reason of the fact that
any of the collateral may be in default at the time of acceptance thereof by
Lender or later; nor by reason of the fact that a valid lien in any of the
collateral may not be conveyed to, or created in favor of, Lender; nor by reason
of the fact that any of the collateral may be subject to equities or defenses or
claims in favor of others or may be invalid or defective in any way; nor by
reason of the fact that any of the Liabilities may be invalid for any reason
whatsoever; nor by reason of the fact that the value of any of the collateral,
or the financial condition of the Debtor or of any obligor under or guarantor of
any of the collateral, may not have been correctly estimated or may have changed
or may hereafter change; nor by reason of any deterioration, waste, or loss by
fire, theft, or otherwise of any of the collateral, unless such deterioration,
waste, or loss be caused by the willful act or willful failure to act of Lender.
The Undersigned agrees to furnish Lender, or the holder of the aforesaid
note of the Debtor, upon demand, but not more often than semiannually, so long
as any part of the indebtedness under such note remain unpaid, a financial
statement setting forth, in reasonable detail, the assets, liabilities, and net
worth of the Undersigned.
The Undersigned acknowledges and understands that if the Small Business
Administration (SBA) enters into, has entered into, or will enter into, a
Guaranty Agreement, with Lender or any other lending institution, guaranteeing a
portion of Debtor's Liabilities, the Undersigned agrees that it is not a
coguarantor with SBA and shall have no right of contribution against SBA. The
Undersigned further agrees that all liability shall continue notwithstanding
payment by SBA under its Guaranty Agreement to the other lending institution.
The term "Undersigned" as used in this agreement shall mean the signer or
signers of this agreement, and such signers, if more than one, shall be jointly
and severally liable hereunder. The Undersigned further agrees that all
liability hereunder shall continue notwithstanding the incapacity, lack of
authority, death, or disability of any one or more of the Undersigned, and that
any failure by Lender or its assigns to file or enforce a claim against the
estate of any of the Undersigned shall not operate to release any other of the
Undersigned from liability hereunder. The failure of any other person to sign
this guaranty shall not release or affect the liability of any signer hereof.
See rider attached and made part hereof
Robocom Systems, Inc.
Witness: /s/ Norman Feldherr By: /s/ Irwin Balaban
--------------------- ---------------------------
Norman Feldherr Irwin Balaban, President
Attest: /s/ Lawrence B. Klein
--------------------------
Lawrence B. Klein, Secretary
- ----------
NOTE.- Corporate guarantors must execute guaranty in corporate name, by
duly authorized officer, and seal must be affixed and duly attested; partnership
guarantors must execute guaranty in full name, together with signature of a
general partner. Formally executed guaranty is to be delivered at the time of
disbursement of loan.
(LIST ON REVERSE SIDE COLLATERAL SECURING THE GUARANTY)
SBA FORM 148 (2-85) REF SOP 70 50 USE 8-76 EDITION UNTIL EXHAUSTED
GPO 913-300
<PAGE>
RIDER To GUARANTY--GUARANTOR Robocom Systems, Inc.
Loan Number: CDCL 297 210 3009 NY
Borrower: Robocom Properties, Inc.
1. The undersigned, in consideration of the loan by LONG ISLAND DEVELOPMENT
CORPORATION (Lender) to Robocom Properties, Inc. (Borrower) for the
benefit of Robocom Systems, Inc. (guarantor and Operating Company)
pursuant to the AUTHORIZATION and LOAN AGREEMENT (Authorization) issued by
the U.S. Small Business Administration (SBA) on August 31, 1987 under the
above-cited loan number and all amendments thereto, and in further
consideration of the SBA guaranteeing a portion of said loan, represent
and agree as follows:
a. performance of each and every term and condition set forth in the
Authorization is hereby personally guaranteed by the undersigned who
take full responsibility therefore;
b. performance of each and every term and condition set forth in the
closing documents executed in connection with the above-cited loan
are hereby personally guaranteed by the undersigned who take full
responsibility therefore;
c. The undersigned agrees to submit to Lender (and SBA as required) the
following:
1. An Annual Balance Sheet and Profit and Loss Statement within
ninety (9O) days of the end of each fiscal year, commencing with the
year ending l2/31/89, such report and all other financial statements
as Lender or SBA may require to be prepared by an independent
Certified Public Accountant satisfactory to Lender and SBA, the
scope of whose engagement shall be such as will permit him to render
an unqualified opinion and shall otherwise be satisfactory to Lender
and SBA;
2. Federal Income Tax returns during each year of loan term within
thirty (30) days of submission thereof to IRS beginning with tax
return for year ended 12/31/89;
2. Guarantor(s) agree that any and all outstanding obligations including
rents for the entire term of the loan may be accelerated and payments
called for by Lender and BRA if the Borrower or Operating Company during
the term of this loan effects a change of ownership or control of the
business
1
<PAGE>
without prior written consent of Lender and/or SBA;
3. The undersigned agrees to assure the performance of the terms and
conditions above-mentioned by, among other acts, voting his or her stock
in borrower and operating company to assure said performance;
4. The undersigned agrees to maintain hazard and flood insurance as
required by Lender on the tangible assets of borrower and operating
company and the undersigned;
5. The undersigned agrees not to transfer his or her ownership interest in
fixtures attached to premises at 511 Ocean Ave., Massapequa NY or interest
in leases at 511 Ocean Ave., Massapequa NY as held this date after the
date below except with the prior written permission of Lender and SBA
during the term of the within-cited loan.
6. The undersigned shall cause to be paid the realty taxes, loans & insurance
on premises at 511 Ocean Ave., Massapequa NY.
DATE: December 14, 1989 Robocom Systems, Inc.
/s/ Irwin Balaban
-----------------------------
By: Irwin Balaban, President
/s/ Lawrence B. Klein
-----------------------------
Attest: Lawrence B. Klein, Secretary
seal
Witness
/s/ Norman Feldherr
- ----------------------
Norman Feldherr
For value received the undersigned hereby transfers, sets over and assigns unto
the U.S. Small Business Administration, an agency of the United States
Government, all of its right title and interest in this Guaranty, this
assignment being made without warranty, representation, or recourse against the
undersigned.
LONG ISLAND DEVELOPMENT CORPORATION
BY: /s/ Stephen G. Latham
-------------------------------
Stephen G. Latham, Pres.
SEAL ATTEST: /s/ Joyce E. Lai
----------------------------
Joyce E. Lai, Asst. Secy.
2
[LETTERHEAD OF THE BANK OF NEW YORK]
September 23, 1997
Robocom Systems Inc.
511 Ocean Avenue
Massapequa, New York 11758
Attention: Irwin Balaban, President
Gentlemen/Ladies:
The Bank of New York (the "Bank") is pleased to confirm that it has
extended to Robocom Systems Inc. (the "Company"), the $2,000,000 secured line of
credit currently available by the Bank to the Company.
Each advance under this line of credit shall be evidenced by, shall be
payable as provided in, and shall bear interest at the rate specified in the
master promissory note dated 5/15/97 made by the Company to the order of the
Bank in the principal amount of $2,000,000.
All obligations of the Company to the Bank with respect to this line of
credit shall be secured, pursuant to the General Loan and Security Agreement
dated April 13, 1994 executed by the Company in favor of the Bank, by a first
priority security interest in all personal property of the Company.
As you know lines of credit are cancellable at any time by any party and,
in addition, any extension of credit under this line of credit is subject to
the Bank's satisfaction, at the time of such extension of credit, with the
condition (financial and otherwise), business, prospects and operations of the
Company. Unless cancelled earlier as provided in the first sentence of this
paragraph, this line of credit shall be held available until November 30, 1997.
In addition, the outstanding principal amount of all advances under this line of
credit shall be reduced to zero for a period of thirty consecutive days during
the period this line of credit is held available.
Very truly yours,
THE BANK OF NEW YORK
By: /s/ Thomas P. Powderly
------------------------------
Thomas P. Powderly
Assistant Vice President
Exhibit 10.21
TAX INDEMNIFICATION AGREEMENT
AGREEMENT made this 6th day of June, 1997, by and between Robocom Systems
Inc., a New York corporation (the "Company"), and the shareholders of the
Company named on the signature page hereto (each, a "Shareholder" and
collectively, the "Shareholders").
W I T N E S S E T H
WHEREAS, since June 1990, the Company has elected to be taxed as an "S"
corporation under subchapter S of the Internal Revenue Code of 1986, as amended
(the "Code"), and under similar provisions of state and local tax laws;
WHEREAS, the Company's election will be terminated on the date (the
"Termination Date") of its execution and delivery of an underwriting agreement
for the public offering and sale of its common stock;
WHEREAS, for periods prior to the Termination Date (the "S Corporation
Period"), the Company's items of income, gain, loss, deduction and credit were
passed through to and reported on the individual tax returns of the Company's
shareholders;
WHEREAS, in contemplation of the public offering and sale of the Company's
stock, the parties to this Agreement desire to set forth their rights and
obligations with respect to certain taxes and related liabilities that may be
imposed upon the Shareholders as a result of the conduct of the Company's
business during the S Corporation Period;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties hereto
agree as follows:
1. Indemnification. The Company agrees to indemnify, defend and hold
harmless each Shareholder from and against any and all losses, liabilities,
obligations, damages, impositions, assessments, fines, deficiencies, costs and
expenses, including without limitation reasonable attorneys' and accountants'
fees and expenses (a "Loss") with respect to any and all Federal, state or local
taxes of any kind whatsoever, including interest, penalties and additions to
taxes ("Taxes") imposed upon a Shareholder as a result of (i) any change which
results in an increase in an item of the Company's income or gain with respect
to one of the taxable years in the S Corporation Period and a corresponding
decrease in an item of the Company's income or gain with respect to another
taxable year that is not in the S
<PAGE>
Corporation Period, or (ii) any change which results in a decrease in an item of
the Company's loss, deduction or credit with respect to one of the taxable years
in the S Corporation Period and a corresponding increase in an item of or loss,
deduction or credit with respect to another taxable year that is not in the S
Corporation Period.
2. Notification of Proposed Adjustment. Each Shareholder shall notify the
Company within fifteen (15) days after receiving any notice of an intention of a
taxing authority to audit any return of such Shareholder that includes any item
of income, gain, loss, deduction or credit reported by the Company with respect
to the S Corporation Period. Each Shareholder shall notify the Company within
fifteen (15) days after receiving any notice from a taxing authority of any
proposed adjustment for which the Company may be required to indemnify such
Shareholder under this Agreement (a "Proposed Adjustment").
3. Contest of Proposed Adjustment. Upon receipt of a notice of a Proposed
Adjustment, the Company may (i) decide not to contest the Proposed Adjustment,
(ii) require the affected Shareholder(s) to contest the Proposed Adjustment at
the Company's expense, or (iii) require the affected Shareholder(s) to permit
the Company and its representatives to contest the Proposed Adjustment at the
Company's expense. All costs of contesting the Proposed Adjustment in any forum,
including all administrative and judicial appeals, shall be borne by the
Company. If the Company requires any Shareholder to contest a Proposed
Adjustment, the Company shall pay to such Shareholder on demand all costs and
expenses (including attorneys' and accounting fees) that such Shareholder may
incur in contesting the Proposed Adjustment. No Shareholder shall make, accept
or enter into a settlement or other compromise with respect to any Proposed
Adjustment without the written consent of the Company, which consent shall not
be unreasonably withheld.
4. Payment; Refund. Upon the final resolution of any proceeding to contest
a Proposed Adjustment, or if the Company decides not to contest or decides to
abandon its contest of a Proposed Adjustment, the Company shall pay to each
affected Shareholder, in cash, the amount of the Loss for Taxes with respect to
the Proposed Adjustment no later than 10 days prior to the due date of any
payment required to be made by such Shareholder with respect thereto. If any
portion of any Loss for Taxes paid to any Shareholder by the Company is
thereafter refunded or repaid to such Shareholder by any taxing authority, such
Shareholder shall repay to the Company the amount of such refund or repayment,
less any unreimbursed costs incurred by such Shareholder with respect to the
refund or repayment.
5. Gross-up. If any Shareholder notifies the Company that such Shareholder
is required to include any payment received pursuant to this Agreement in
computing such Shareholder's gross income in a tax return, other than (i) any
payment received prior
2
<PAGE>
to the expiration of the "post-termination transition period" defined in section
1377(b) of the Code, or (ii) any payment for which such Shareholder failed to
give the Company timely notice to allow the Company to make such payment prior
to the expiration of the post-termination transition period, then, in addition
to all other payments made under this Agreement, the Company shall also pay to
such Shareholder an amount which, when added to the payment so included, will
place such Shareholder in the same net after-tax position that such Shareholder
would have been in if the payment had not been so included.
6. Tax Matters. Each Shareholder agrees to prepare all tax returns
consistent with the manner in which each item of income, gain, loss, deduction
and credit of the Company is reported to such Shareholder. Irwin Balaban is the
"tax matters person" of the Company for the S Corporation Period.
7. Notices. Any notice requested or permitted to be given under this
Agreement shall be sufficient if in writing and either delivered in person or
sent by first class certified or registered mail, postage prepaid, if to the
Company, at the Company's principal place of business, and if to a Shareholder,
at such Shareholder's address set forth on the signature page hereto, or to such
other address or addresses as any party shall have designated in writing to the
other parties hereto.
8. Survivability. The covenants and agreements of the parties set forth in
this Agreement shall survive indefinitely, and shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns.
9. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral or written, between the parties with respect
to the subject matter hereof.
10. Modification. No provision of this Agreement may be amended, waived,
or otherwise modified without the written consent of the parties.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
ROBOCOM SYSTEMS INC.
By: /s/ Irwin Balaban
--------------------------
Irwin Balaban
President and Chief
Executive Officer
3
<PAGE>
SHAREHOLDERS:
/s/ Irwin Balaban
------------------------------
Irwin Balaban
Address: 511 Ocean Avenue
Massapequa,NY
/s/ Herbert Goldman
------------------------------
Herbert Goldman
Address: 511 Ocean Avenue
Massapequa, NY
/s/ Lawrence Klein
------------------------------
Lawrence Klein
Address: 511 Ocean Avenue
Massapequa, NY
/s/ Steven Kuhl
------------------------------
Steven Kuhl
Address: 511 Ocean Avenue
Massapequa, NY
/s/ Robert O'Connor
------------------------------
Robert O'Connor
Address: 511 Ocean Avenue
Massapequa, NY
/s/ Chung-Hsin Lee
------------------------------
Chung-Hsin Lee
Address: 511 Ocean Avenue
Massapequa, NY
4
<PAGE>
/s/ Judy Frenkel
------------------------------
Judy Frenkel
Address: 511 Ocean Avenue
Massapequa, NY
/s/ Max Kurland
------------------------------
Max Kurland
Address: 511 Ocean Avenue
Massapequa, NY
5
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 49,065
<SECURITIES> 0
<RECEIVABLES> 1,390,657
<ALLOWANCES> (18,940)
<INVENTORY> 0
<CURRENT-ASSETS> 2,725,531
<PP&E> 271,791
<DEPRECIATION> 213,607
<TOTAL-ASSETS> 6,516,459
<CURRENT-LIABILITIES> 2,400,584
<BONDS> 0
0
0
<COMMON> 19,680
<OTHER-SE> 4,096,195
<TOTAL-LIABILITY-AND-EQUITY> 6,516,459
<SALES> 7,513,490
<TOTAL-REVENUES> 7,513,490
<CGS> 4,463,174
<TOTAL-COSTS> 5,662,689
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,473
<INCOME-PRETAX> 1,816,580
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,816,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,816,580
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
