UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1999
|_| 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 INTERNATIONAL INC.
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(Name of small business issuer as specified in its
charter)
New York 11-2617048
- --------------------------------------- -------------------------------------
(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)
516-795-5100
--------------------------------------------
(Issuer's telephone number)
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 |X| No |_|
As of April 14, 1999, 3,467,984 shares the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (check one); Yes |_| No |X|
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ROBOCOM SYSTEMS INTERNATIONAL INC.
FORM 10-QSB
INDEX
PART I. Financial Information
Item 1. Financial Statements: Page no.
Balance Sheets - February 28, 1999 and May 31, 1998 .......... 3
Statements of Operations - Three months ended February 28,
1999 and 1998 ................................................. 4
Statements of Operations - Nine months ended February 28,
1999 and 1998 ................................................. 5
Statements of Cash Flows - Nine months ended February 28,
1999 and 1998 ................................................. 6
Notes to Financial Statements ................................. 7
Item 2. Management's Discussion and Analysis or Plan of Operation ..... 9
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K .............................. 14
Signatures .............................................................. 14
2
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ROBOCOM SYSTEMS INTERNATIONAL INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, 1999 May 31, 1998
----------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................... $ 201,987 $ 384,034
Short-term investments ...................................... 1,429,893 1,914,852
Accounts receivable, net .................................... 1,542,282 1,904,284
Unbilled revenue ............................................ 323,477 924,298
Deferred taxes .............................................. 152,511 152,577
Other current assets ........................................ 266,702 142,086
------------ ------------
Total current assets ............................................. 3,916,852 5,422,131
Property and equipment, net ...................................... 328,775 389,127
Software development costs, net .................................. 4,464,526 4,407,862
Other assets ..................................................... 16,993 17,922
------------ ------------
Total assets ..................................................... $ 8,727,146 $ 10,237,042
============ ============
Liabilities and Shareholders' Equity Current liabilities:
Accounts payable ............................................ $ 196,207 $ 187,954
Accrued expenses ............................................ 937,147 916,164
Deferred revenue ............................................ 362,078 227,549
------------ ------------
Total current liabilities ........................................ 1,495,432 1,331,667
Noncurrent deferred tax liabilities .............................. 196,649 874,703
------------ ------------
Total liabilities ................................................ 1,692,081 2,206,370
============ ============
Shareholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued .............................................. -- --
Common stock, $.01 par value; 10,000,000 shares
authorized; issued and outstanding: 3,467,984
shares at February 28, 1999 and at May 31, 1998 ........... 34,680 34,680
Additional paid-in capital .................................. 10,571,882 10,571,882
Accumulated deficit ......................................... (3,467,934) (2,415,403)
Deferred compensation ....................................... (103,563) (160,487)
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Total shareholders' equity ....................................... 7,035,065 8,030,672
------------ ------------
Total liabilities and shareholders' equity ....................... $ 8,727,146 $ 10,237,042
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended February 28,
-------------------------------
1999 1998
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Revenues:
Software license fees ..................... $ 413,709 $ 450,965
Services .................................. 687,388 387,440
Hardware .................................. 435,106 609,265
Maintenance ............................... 320,634 255,842
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Total revenues ............................ 1,856,837 1,703,512
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Cost of revenues:
Cost of license fees ...................... 112,832 78,718
Cost of services .......................... 346,906 657,095
Cost of hardware .......................... 452,648 513,853
Cost of maintenance ....................... 295,041 219,514
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Total cost of revenues .................... 1,207,427 1,469,180
Amortization of software development costs ..... 263,829 183,108
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1,471,256 1,652,288
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Gross margin ................................... 385,581 51,224
Selling, general and administrative expenses ... 867,283 733,938
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(481,702) (682,714)
Interest income and other, net ................. 16,876 42,886
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Loss before benefit for income taxes ........... (464,826) (639,828)
Benefit for income taxes ....................... (171,711) (268,728)
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Net loss ....................................... $ (293,115) $ (371,100)
=========== ===========
Net loss per basic and diluted share ........... $ (0.08) $ (0.11)
=========== ===========
Weighted average shares outstanding ............ 3,467,984 3,467,984
=========== ===========
See accompanying notes.
4
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ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended February 28,
------------------------------
1999 1998
-------------- ------------
Revenues:
Software license fees ..................... $ 794,441 $ 1,085,478
Services .................................. 2,145,477 1,622,743
Hardware .................................. 1,703,067 1,590,567
Maintenance ............................... 953,643 760,538
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Total revenues ............................ 5,596,628 5,059,326
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Cost of revenues:
Cost of license fees ...................... 207,989 233,134
Cost of services .......................... 1,081,958 1,782,304
Cost of hardware .......................... 1,484,885 1,467,854
Cost of maintenance ....................... 923,527 441,715
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Total cost of revenues .................... 3,698,359 3,925,007
Amortization of software development costs ....... 791,487 549,324
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4,489,846 4,474,331
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Gross margin ..................................... 1,106,782 584,995
Selling, general and administrative expenses ..... 2,907,187 1,915,250
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(1,800,405) (1,330,255)
Interest income and other, net ................... 69,887 137,073
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Loss before provision (benefit) for income taxes . (1,730,518) (1,193,182)
Provision (benefit) for income taxes ............. (677,987) 1,060,482
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Net loss ......................................... (1,052,531) (2,253,664)
Pro forma benefit for income taxes ............... -- (128,317)
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Pro forma net loss ............................... $(1,052,531) $(2,125,347)
=========== ===========
Pro forma net loss per basic and diluted share ... $ (0.30) $ (0.64)
=========== ===========
Weighted average shares outstanding .............. 3,467,984 3,330,621
=========== ===========
See accompanying notes.
5
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ROBOCOM SYSTEMS INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended February 28,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Operating activities
Net loss ........................................................ $ (1,052,531) $ (2,253,664)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation ............................................. 82,033 21,119
(Benefit) provision for deferred income taxes ............ (677,988) 1,681,317
Amortization of software development costs ............... 791,487 549,324
Amortization of deferred compensation .................... 56,925 56,925
Provision (credit) for bad debts ......................... -- (15,280)
Changes in operating assets and liabilities:
Accounts receivable ...................................... 362,001 (274,490)
Unbilled revenue ......................................... 600,821 (257,585)
Other current assets and other ........................... (123,686) (840,518)
Accounts payable ......................................... 8,253 (97,110)
Accrued expenses ......................................... 20,983 45,456
Deferred revenue ......................................... 134,529 74,341
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Net cash provided by (used in) operating activities ............. 202,827 (1,310,165)
------------ ------------
Investing activities
Software development costs ...................................... (848,153) (1,187,667)
Purchase of short-term investments .............................. (10,061,380) (9,039,612)
Redemption of short-term investments ............................ 10,546,340 6,499,887
Capital expenditures ............................................ (21,681) (196,461)
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Net cash used in investing activities ........................... (384,874) (3,923,853)
------------ ------------
Financing activities
Net payments of bank note payable ............................... -- (1,300,000)
Net proceeds from sale of common stock .......................... -- 8,318,684
Distributions of S corporation retained earnings to S Corporation
Shareholders ................................................. -- (1,600,000)
------------ ------------
Net cash provided by financing activities ....................... -- 5,418,684
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(Decrease) increase in cash and cash equivalents ................ (182,047) 184,666
Cash and cash equivalents at beginning of period ................ 384,034 49,065
------------ ------------
Cash and cash equivalents at end of period ...................... $ 201,987 $ 233,731
============ ============
Supplemental disclosures of cash flow information
Cash paid for income taxes ...................................... $ 17,467 $ --
============ ============
</TABLE>
See accompanying notes.
6
<PAGE>
ROBOCOM SYSTEMS INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
(unaudited)
1. Background and Basis of Financial Statement Presentation
The accompanying unaudited financial statements of Robocom Systems
International Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial reporting and
with the instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
Company's operations consist of 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 and Europe. 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.
Operating results for the nine month period ended February 28, 1999 are
not necessarily indicative of the results that may be expected for the year
ended May 31, 1999. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-KSB for
the year ended May 31, 1998.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. Initial Public Offering
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 approximately $8,160,000, net of expenses of $1,590,000.
Prior to the Offering, 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 benefit for income
taxes reflects income taxes for periods preceding the Offering. In addition,
included in the provision for income taxes for the nine months ended February
28, 1998 is a one-time, non-cash charge for deferred income taxes in the amount
of $1,433,302 resulting from the termination of the Company's S Corporation
status. This charge primarily relates to temporary differences for software
development costs.
Additionally, retained earnings of the Company as of the Offering and the
concurrent termination of the Company's S Corporation status were reclassified
to additional paid-in capital.
3. New Accounting Pronouncements
Beginning in fiscal 1999, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income", which
requires disclosure of all components of comprehensive income. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. The adoption of this pronouncement had no effect on the Company's
financial statements.
During fiscal year 1998, the Company adopted Statement of Position (SOP)
97-2, Software Revenue Recognition. SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions amends paragraphs 11
and 12 of SOP 97-2, to require recognition of revenue using
7
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ROBOCOM SYSTEMS INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
(unaudited)
the residual method under certain circumstances. SOP 98-9 also amends SOP 98-4,
Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition, to the extend the deferral of the application of certain passages
of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before
March 15, 1999. All other provisions of SOP 98-9 are effective for transactions
entered into in fiscal years beginning after March 15, 1999. The Company will
adopt this statement and such adoption is not expected to have a material effect
on the Company's financial statements.
The Company operates in one business segment which is development and
marketing of automated warehouse management systems. In fiscal 1999, the Company
adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of
a Business Enterprise," and requires that a public company report annual and
interim financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting practice.
Operating segments, as defined are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements in this Report 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.
RESULTS OF OPERATIONS
Comparison of Three Months Ended February 28, 1999 and February 28, 1998
Revenues. Total revenues increased by approximately 9% to $1,856,837
in the three months ended February 28, 1999 as compared to $1,703,512 in the
three months ended February 28, 1998. Software license fees decreased by
approximately 8% during the 1999 period as compared to the 1998 period primarily
due to the sale at a discount to an existing customer of four of ten sites sold
in the 1999 period. In addition, the 1998 period included the sale of one
significant multisite license that accounted for half of the software licenses
sold. Services revenues increased by approximately 77% for the 1999 period as
compared to the 1998 period, primarily due to higher revenues from modifications
to standard RIMS software in the 1999 period. Hardware revenues decreased by
approximately 29% during the 1999 period as compared to the 1998 period,
primarily due to the smaller sale of RIMS related hardware to one customer in
the 1999 period as compared to the large sales of RIMS related hardware to two
customers in the 1998 period. Maintenance revenues increased approximately 25%
for the 1999 period as compared to the 1998 period due to a larger number of
maintenance contracts in operation in the 1999 period.
Cost of Revenues. Total cost of revenues decreased by approximately
18% to $1,207,427 in the three months ended February 28, 1999 as compared to
$1,469,180 in the three months ended February 28, 1998. As a percentage of
revenues, total cost of revenues decreased to approximately 65% in the 1999
period as compared to approximately 86% in the 1998 period. As a percentage of
license fee revenues, cost of license fees increased primarily due to higher
fees incurred for third party software in the 1999 period as compared to the
1998 period. As a percentage of services revenues, the cost of services was
significantly lower in the 1999 period as compared to the 1998 period primarily
due to higher billable support services, higher services revenues for
modifications, and the installations of large quantities of computer systems
networks and office software accounted for a larger portion of the cost of
services in the 1999 period. Additionally, during fiscal 1998, the Company
increased its infrastructure, including the hiring of additional personnel
(project management, trainers and programmers) to support the Company's
anticipated future revenue growth. As a percentage of hardware revenues, the
cost of hardware was higher in the 1999 period due to lower hardware revenues,
which covered a smaller portion of the overhead associated with hardware in the
1999 period. As a percentage of maintenance revenues, the cost of maintenance
was higher in the 1999 period as compared to the 1998 period due to the
maintenance of a larger number of RIMS versions and language translations in the
1999 period as compared to the 1998 period. The cost of maintenance is expected
to substantially decline as the Company's customers gain experience using RIMS.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 44% to $263,829 in the three months
ended February 28, 1999 as compared to $183,108 in the three months ended
February 28, 1998. The increase was due to the commencement of amortization of
capitalized software development costs for RIMS.2001 Version 3.5 and several
language translation versions in the fourth quarter of fiscal 1998, during which
time such versions were first
9
<PAGE>
available for sale. As a percentage of revenue, the amortization of software
development costs was approximately 14% in the 1999 period and 11% in the 1998
period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 18% to $867,283 in the three
months ended February 28, 1999 as compared to $733,938 in the three months ended
February 28, 1998. As a percentage of revenue, selling, general and
administrative expenses increased to approximately 47% in the 1999 period as
compared to approximately 43% in the 1998 period. This increase was primarily
due to additional salaries and related expenses incurred in connection with the
establishment of two international offices during the third quarter of fiscal
1998.
Interest Income and Other, net. Interest income decreased by $26,010
to $16,876 in the three months ended February 28, 1999 as compared to the three
months ended February 28, 1998. The decrease is primarily due to the utilization
of the proceeds from the Offering for software development and working capital
requirements.
Benefit for Income Taxes. The benefit for income taxes is reflected
at 37% and 42% of the loss before the benefit for income taxes in the three
month periods ended February 28, 1999 and 1998, respectively. The decrease in
the effective rate is due primarily to the effect of different states' income
taxes in the respective periods and a valuation allowance of $48,000. The
valuation allowance was provided because of uncertainty, based on the Company's
historical operating results, with respect to realization of deferred tax
assets.
Comparison of Nine Months Ended February 28, 1999 and February 28, 1998
Revenues. Total revenues increased by approximately 11% to
$5,596,628 in the nine months ended February 28, 1999 as compared to $5,059,326
in the nine months ended February 28, 1998. Software license fees decreased by
approximately 27% during the 1999 period as compared to the 1998 period
primarily due to significant domestic sales of multisite licenses to two
customers and the sale of one significant international license in the 1998
period. Services revenues increased by approximately 32% for the 1999 period as
compared to the 1998 period, primarily due to a higher number of installations
of large quantities of computer systems networks and office software and higher
revenues derived from modifications to standard RIMS software in the 1999 period
as compared to the 1998 period. Hardware revenues increased by approximately 7%
during the 1999 period as compared to the 1998 period, primarily due to several
deliveries of computer systems network and office hardware to new customers
offset by lower RIMS related hardware sales in the 1999 period. Maintenance
revenues increased approximately 25% for the 1999 period as compared to the 1998
period, primarily due to a larger number of maintenance contracts in operation
in the 1999 period.
Cost of Revenues. Total cost of revenues decreased by approximately
6% to $3,698,359 in the nine months ended February 28, 1999 as compared to
$3,925,007 in the nine months ended February 28, 1998. As a percentage of
revenues, total cost of revenues decreased to approximately 66% in the 1999
period as compared to approximately 78% in the 1998 period. As a percentage of
license fee revenues, cost of license fees increased due to higher fees incurred
for third party software in the 1999 period as compared to the 1998 period. As a
percentage of services revenues, the cost of services was significantly lower in
the 1999 period as compared to the 1998 period primarily due to higher billable
support services, higher services revenues for modifications and the
installations of large quantities of computer systems networks and office
software that covered a larger portion of the cost of services in the 1999
period. Additionally, during fiscal 1998, the Company increased its
infrastructure, including the hiring of additional personnel (project
management, trainers and programmers) for the Company's anticipated future
revenue growth. As a percentage of hardware revenues, the cost of hardware was
lower in the 1999 period due to higher hardware revenues, which covered a
larger portion of the overhead associated with hardware in the 1999 period. As
a percentage of maintenance revenues, the cost of maintenance was higher in the
1999 period as compared to the 1998 period due to the maintenance of a larger
number of RIMS versions and language translations in the 1999 period as compared
to the 1999 period. The cost of maintenance is expected to substantially decline
as the Company's customers gain experience using RIMS.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 44% to $791,487 in the nine months
ended February 28, 1999 as compared to $549,324 in the nine months ended
February 28, 1998. The increase was due to the commencement of amortization of
capitalized software development costs for RIMS.2001 Version 3.5 and several
language translation versions in the fourth quarter of fiscal 1998 and the
amortization of RIMS Versions 3.4 and RIMS.Food in the second quarter of fiscal
1998, during which time such versions were first available for sale. As a
percentage of revenue, the amortization of software development costs was
approximately 14% in the 1999 period and 11% in the 1998 period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 52% to $2,907,187 in the nine
months ended February 28, 1999 as compared to $1,915,250 in the nine months
ended February 28, 1998. As a percentage of revenue, selling, general and
administrative expenses increased to approximately 52% in the 1999 period as
compared to approximately 38% in the 1998 period. The increase in selling,
general and administrative expenses was primarily due to hiring additional
salespersons and marketing personnel and salaries and related expenses incurred
in connection with the establishment of two international offices. These
increases, which commenced in the latter half of fiscal 1998, further
management's plan to build the infrastructure for the Company's anticipated
future revenue growth.
Interest Income and Other, net. Interest income decreased by $84,373
to $69,887 in the nine months ended February 28, 1999 as compared to $154,260 in
the nine months ended February 28, 1998. The decrease is primarily due to the
utilization of the proceeds from the Offering for software development, capital
expenditures and working capital requirements. The Company had no interest
expense in 1999 period as compared to $17,187 in the 1998 period. The decrease
is due to the repayment in July 1998 of the bank note payable with proceeds from
the Offering.
Provision (Benefit) for Income Taxes. The provision (benefit) for
income taxes is reflected at 39% and 42% of the loss before the provision
(benefit) for income taxes in the nine month periods ended February 28, 1999 and
1998, respectively. The decrease in the effective rate is due primarily to the
effect of different states' income taxes in the respective periods and a
valuation allowance of $48,000. The valuation allowance was provided because of
uncertainty, based on the company's historical operating results, with respect
to realization of deferred tax assets. In addition, the provision (benefit) for
income taxes for the nine months ended February 28, 1998 included the one-time,
non-cash provision for deferred income taxes in the amount of $1,433,302 as a
result of the termination of the Company's S Corporation status upon the
Company's initial public offering on June 26, 1997. This amount primarily
relates to temporary differences for software development costs.
Pro Forma Benefit for Income Taxes. The pro forma benefit for income
taxes is reflected at 42% of the loss before the benefit for income taxes for
the period preceding the Offering.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company has a bank line of credit (the "Line of Credit"), which
expires on September 30, 1999 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 (7.75% at April 14, 1999). Since the Offering, the Company had no
borrowings under the Line of Credit. In the future, however, the Company may
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 bank, which is being utilized as collateral for a vendor and which expires
on December 31, 1999.
Net cash provided by operating activities was $202,827 in the nine
months ended February 28, 1999 and net cash used by operating activities was
$1,310,165 in the nine months ended February 28, 1998. Cash flows from
operations decreased in the 1999 period primarily due to decreased unbilled
revenues and accounts receivable offset by a higher loss from operations.
The Company capitalized $848,153 and $1,187,667 in the nine months
ended February 28, 1999 and 1998, respectively, for software development costs.
The capitalized software development costs in process in the 1999 period
included costs of adding, among other things, functionality to provide
internet/intranet accessibility and Windows NT compatibility. The Company
expended $21,681 and $196,461 in the nine months ended February 28, 1999 and
1998, respectively, for purchases of property and equipment.
As of February 28, 1999, the Company had $201,987 in cash and cash
equivalents and working capital of $2,421,420 primarily as a result of the
investment of approximately $1,400,000 in short-term investments in connection
with the Company's initial public offering.
Management believes that cash flow from operations, existing cash
and cash equivalents and short-term investments and amounts available under the
Line of Credit will be sufficient to meet the Company's currently anticipated
working capital and software development requirements for the next twelve
months. The Company's working capital needs for the next twelve months include
approximately $1,000,000 for software development costs.
Year 2000 Readiness Disclosure
The Company has, and continues to investigate, issues that could
affect its operations regarding Year 2000 compliance issues. The Year 2000
compliance issues revolve around the fact that most computer systems do not
recognize a year by its traditional four digit format. Instead, computer systems
recognize the last two digits for a specified year.
The Company has developed and implemented a Year 2000 remediation
plan, which relates to the upgrade and standardization for Year 2000 internal
computer systems and equipment. The Company has completed its inventory,
assessment, and testing phases of the plan and has remediated or replaced the
non-compliant systems.
The Company relies on third parties for hardware, payroll and other
services. The Company reviewed its external interfaces of its critical business
partners to determine their Year 2000 compliance status. The Company anticipates
that it's business partners will have completed the Year 2000 testing phase and
conversion activities by the middle of 1999. The inability of the Company's
business partners to remedy Year 2000 issues could have a significant impact on
the business, financial position and results of operations of the Company. The
Company will make contingency plans for any entity it feels has not made
satisfactory progress towards being Year 2000 compliant. Contingency plans may
include securing alternate supply sources and taking other appropriate measures.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
The Company has analyzed its products to determine if there are any
material issues associated with Year 2000 compliance. The Company's primary
software, RIMS.2001, is Year 2000 compliant which means that it is not adversely
affected by the century change. RIMS.2001 will function properly and as would be
expected for all dates before and beyond the year 2000. The RIMS application
uses a modern fourth generation software language (Progress) that supports Year
2000 and was designed with Year 2000 in mind. For customers with customized
systems or systems that pre-date the Company's standard RIMS.2001 product line,
the Company will make every effort to ensure that the maintained application
operates properly with regard to the century transition. The Company will
recover all costs associated with modifications for Year 2000 for customers with
customized systems or systems that pre-date the standard RIMS.2001 product line.
A Year 2000 project manager has been assigned to manage the computer
system upgrades, and ensure compliance for all external interfaces. Costs
incurred to date were approximately $70,000. Management does not believe that
such costs will have a material effect on the business, financial position and
results of operations of the Company.
13
<PAGE>
PART II. OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.1 Employment Agreement between the Company and David
Dinin dated March 29, 1999.
10.2 Consulting Agreement between the Company and Irwin
Balaban dated April 1, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter of fiscal 1999.
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 Massapequa, New
York, on April 14, 1999.
ROBOCOM SYSTEMS INTERNATIONAL INC.
By: /s/ David Dinin
-----------------------------------------
David Dinin
President and Chief Executive Officer
By: /s Elizabeth A. Burke
-----------------------------------------
Elizabeth A. Burke
Vice President - Finance and Chief
Financial Officer
14
<PAGE>
Exhibit Index
Exhibit
Number Description
- ------ -----------
10.1 Employment Agreement between the Company and David Dinin dated March
29, 1999.
10.2 Consulting Agreement between the Company and Irwin Balaban dated
April 1, 1999.
27 Financial Data Schedule
15
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of March 29, 1999, by and between Robocom
Systems International Inc., a New York corporation (the "Company"), and David
Dinin (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee as President and Chief
Executive Officer and wishes to acquire and be assured of Employee's continued
services on the terms and conditions hereinafter set forth;
WHEREAS, the Employee desires to be employed by the Company as President
and Chief Executive Officer and to perform and to serve the Company on the terms
and conditions hereinafter set forth; and
NOW THEREFORE, in consideration of the mutual terms, covenants, agreements
and conditions hereinafter set forth, the Company and the Employee hereby agree
as follows:
1. Employment. The Company hereby employs the Employee to serve as a full
time employee of the Company, and the Employee hereby accepts such employment
with the Company, for the period set forth in Section 2 hereof. The Employee's
principal place of employment shall be at the Company's offices in Massapequa,
New York, or at such other location as shall be mutually acceptable to the
Employee and the Company.
2. Term.
(a) Unless earlier terminated as provided in this Agreement, the
term of the Employee's employment under this Agreement shall be for a period
beginning on the date hereof and ending on March 31, 2002 (such period or, if
the Employee's employment hereunder is earlier terminated, such shorter period,
or if Employee's employment is extended under paragraph (b) below, such longer
period, being hereinafter called the "Employment Term").
(b) The term of this Agreement shall automatically be extended for
an additional one-year period on April 1, 2002 and on each April 1 thereafter
unless, not later than the October 30 immediately preceding such February 1, the
Company shall have given notice that it does not wish to extend this Agreement
or Employee shall have notified the Company that he wishes to leave the employ
of the Company on the expiration date of the then current term of this
Agreement.
<PAGE>
3. Duties and Authority.
(a) Duties. The Employee shall be employed as President and Chief
Executive Officer of the Company, and shall perform such duties at such times
and places and in such manner as the Board of Directors of the Company may from
time to time reasonably direct or such other duties appropriate to a senior
executive managerial position as the Board of Directors shall from time to time
determine. Except as otherwise may be approved in advance by the Board of
Directors of the Company, and except during vacation periods, disability periods
pursuant to Section 7(a)(iii) and reasonable periods of absence due to sickness,
personal injury or other disability, the Employee shall devote Employee's full
time throughout the Employment Term to the services required of Employee
hereunder. Except as otherwise provided in Section 3(d) below, the Employee
shall render Employee's services exclusively to the Company during the
Employment Term and shall use Employee's best efforts, judgment and energy to
improve and advance the business and interests of the Company in a manner
consistent with the duties of Employee's position.
(b) Authority. The Employee shall have all the usual and necessary
authority, duties and responsibilities of a President and Chief Executive
Officer, in the operation of the Company's business, including but not limited
to responsibility for administrative, operations, marketing, production and
business development matters. The Employee shall report directly to the Board of
Directors of the Company at all times during the Employment Term.
(c) Board Membership. The Company will use its best efforts to cause
the Board of Directors to nominate the Employee for election as a management
nominee of the Board of Directors of the Company as long as Employee is employed
by the Company.
(d) Outside Activities. The Company agrees that the Employee has
various investments and business and not for profit interests which he may
pursue if such pursuits do not materially interfere with his duties hereunder.
Further, provided such activities are not in conflict or in competition with the
Company's interests, and the Company's trade secrets are not jeopardized in any
manner, and the time and energy the Employee devotes to such activities do not
significantly impair his ability to act satisfactorily as Employer's President
and Chief Executive Officer, the Employee shall be permitted to act in such
other capacities outside his employment with the Company as may be agreed from
time to time between the Board of Directors and the Employee.
4. Salary and Stock Options.
(a) Salary. In consideration for the services of the Employee
rendered to the Company hereunder, the Company shall pay the Employee a base
salary at an annual rate of $250,000 during the Employment Term, payable in
regular intervals in accordance with the Company's payroll practices. The
Employee's base salary shall be increased annually by 5% and also in accordance
with Section 4(c) below.
<PAGE>
(b) Stock Options. On April 1, 1999, the Company will grant to the
Employee, pursuant to and subject to the terms of the Company's 1997 Stock
Option and Long-Term Incentive Compensation Plan (the "Option Plan") and an
option grant agreement, incentive stock options to purchase 50,000 of shares
common stock, $.01 par value ("Common Stock"), at an exercise price equal to
100% of the Fair Market Value (as defined in the Option Plan) of the Common
Stock as of the date of grant (the "Exercise Price"). Subject to Section 9 of
this Agreement, such options shall vest over a three year period in equal
increments on each anniversary of the date of grant and shall expire on the
fifth anniversary of the date of grant.
(c) Incentives. In addition to the salary and options referred to in
Section 4(a) and (b), respectively, Employee shall be entitled to (i) annual
salary increases, and (ii) an option to purchase 90,000 shares of Common Stock
at the Exercise Price ("Incentive Options") to be issued on the date hereof and
subject to the three-year vesting schedule below as such options are earned. The
salary increases and option vesting with respect to each of (i) and (ii) above
shall be based upon the Company's net profit before taxes determined in
accordance with generally accepted accounting principles consistent with past
practices ("Net Profit") for the four fiscal quarters ending with the quarter
ending May 31 as set forth below:
4 fiscal quarters 4 fiscal quarters 4 fiscal quarters
ending ending ending
May 31, 2000 May 31, 2001 May 31, 2002
------------ ------------ ------------
Option Salary Option Salary Option Salary
NET PROFIT Vesting Increase Vesting Increase Vesting Increase
---------- ------- -------- ------- -------- ------- --------
$0
to 3,000 0 0 0 0 0
$499,999
$500,000
to 10,000 5% 5,000 0 5,000 0
$999,999
$1,000,000
to 20,000 5% 20,000 0 20,000 0
$1,500,000
Above
$1,500,000 30,000 5% 30,000 5% 30,000 5%
All Incentive Options shall be issued pursuant to the Option Plan and an option
grant agreement and shall expire on the fifth anniversary of the date of grant.
Any portion of the Incentive Options which do not vest in accordance with the
above schedule shall terminate and be null and void. For example, if Net Profit
is $750,000 for the four fiscal quarters ending May 31, 2000, 10,000
<PAGE>
options of the 90,000 granted shall vest and 20,000 options shall terminate.
Notwithstanding the above, if the full 90,000 options granted to Employee have
not vested by May 31, 2002, Employee shall be entitled, and such options shall
immediately vest, to (i) 60,000 options less the number previously vested if Net
Profit is between $3,000,000 and $4,500,000 for the 12 fiscal quarters ended May
31, 2002, or (ii) 90,000 options less the number previously vested if Net Profit
is in excess of $4,500,000 for the 12 fiscal quarters ended May 31, 2002.
(d) Withholding, Etc. The payment of any amounts hereunder shall be
subject to income tax, social security and other applicable withholdings, as
well as such deductions as may be required under the Company's employee benefit
plans.
5. Benefits.
(a) During the Employment Term, the Employee shall be:
(i) eligible to participate in all employee fringe benefits
and any pension and/or profit sharing plans that may be provided by the
Company for its key executive employees in accordance with the provisions
of any such plans, as the same may be in effect on and after the date
hereof;
(ii) eligible to participate in any medical and health plans
or other employee welfare benefit plans that may be provided by the
Company for its key executive employees in accordance with the provisions
of any such plans, as the same may be in effect on and after the date
hereof;
(iii) entitled to annual paid vacation in accordance with the
Company policy that may be applicable on and after the date hereof to key
executive employees;
(iv) entitled to sick leave, sick pay and disability benefits
in accordance with any Company policy that may be applicable on and after
the date hereof to key executive employees; and
(v) entitled to reimbursement for all reasonable and necessary
out-of-pocket business expenses incurred by the Employee in the
performance of Employee's duties hereunder in accordance with the
Company's policies applicable (on and after the date hereof) thereto.
(b) The Company acknowledges and agrees that, to fulfill his duties
hereunder, the Employee will need, and the Company will provide the Employee
with, the use of an automobile of Employee's choice for business use at the
headquarters of the Company in Massapequa, New York. The Employee will be given
a monthly automobile allowance of $1,200 which shall be used to pay all costs
attributable to that automobile, including leasing fees and the costs of repair,
servicing and insurance. The Company will pay for fuel and oil for the
automobile.
<PAGE>
6. Inventions and Confidential Information. The Employee hereby covenants,
agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of research,
design, development, production, marketing and servicing with respect to its
business.
(b) The Employee's employment hereunder creates a relationship of
confidence and trust between the Employee and the Company with respect to
certain information pertaining to the business of the Company and its Affiliates
(as hereinafter defined) or pertaining to the business of any client or customer
of the Company or its Affiliates which may be made known to the Employee by the
Company or any of its Affiliates or by any client or customer of the Company or
any of its Affiliates or learned by the Employee during the period of Employee's
employment by the Company.
(c) The Company possesses and will continue to possess information
that has been created, discovered or developed by, or otherwise become known to
it (including, without limitation, information created, discovered or developed
by, or made known to, the Employee during the period of Employee's employment or
arising out of Employee's employment) or in which property rights have been or
may be assigned or otherwise conveyed to the Company, which information has
commercial value in the business in which the Company is engaged and is treated
by the Company as confidential.
(d) Any and all inventions, products, discoveries, improvements,
processes, manufacturing, marketing and services methods or techniques,
formulae, designs, styles, specifications, data bases, computer programs
(whether in source code or object code), know-how, strategies and data, whether
or not patentable or registrable under copyright or similar statutes, made,
developed or created by the Employee (whether at the request or suggestion of
the Company, any of its Affiliates, or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or otherwise)
during the period of Employee's employment by the Company which may pertain to
the business, products, or processes of the Company or any of its Affiliates
(collectively hereinafter referred to as "Inventions"), will be promptly and
fully disclosed by the Employee to an appropriate executive officer of the
Company (other than the Employee) without any additional compensation therefor,
all papers, drawings, models, data, documents and other material pertaining to
or in any way relating to any Inventions made, developed or created by Employee
as aforesaid. For the purposes of this Agreement, the term "Affiliate" or
"Affiliates" shall mean any person, corporation or other entity directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company. For the purposes of this definition, "control" when
used with respect to any person, corporation or other entity means the power to
direct the management and policies of such person or entity, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
<PAGE>
(e) The Employee will keep confidential and will hold for the
Company's sole benefit any Invention which is to be the exclusive property of
the Company under this Section 6 for which no patent, copyright, trademark or
other right or protection is issued.
(f) The Employee also agrees that the Employee will not without the
prior approval of the Board of Directors of the Company (i) use for Employee's
benefit or disclose at any time during Employee's employment by the Company, or
thereafter, except to the extent required by the performance by Employee of
Employee's duties as an employee of the Company, any information obtained or
developed by Employee while in the employ of the Company with respect to any
Inventions or with respect to any customers, clients, suppliers, products,
employees, financial affairs, or methods of design, distribution, marketing,
service, procurement or manufacture of the Company or any of its Affiliates, or
any confidential matter, except information which at the time is generally known
to the public other than as a result of disclosure by Employee not permitted
hereunder, or (ii) take with Employee upon leaving the employ of the Company any
document or paper relating to any of the foregoing or any physical property of
the Company or any of its Affiliates.
(g) The Employee acknowledges and agrees that a remedy at law for
any breach or threatened breach of the provisions of this Section 6 would be
inadequate and, therefore, agrees that the Company and its Affiliates shall be
entitled to injunctive relief in addition to any other available rights and
remedies in case of any such breach or threatened breach; provided, however,
that nothing contained herein shall be construed as prohibiting the Company or
any of its Affiliates from pursuing any other rights and remedies available for
any such breach or threatened breach.
(h) The Employee agrees that upon termination of Employee's
employment by the Company for any reason, the Employee shall forthwith return to
the Company all documents and other property in Employee's possession belonging
to the Company or any of its Affiliates.
(i) Without limiting the generality of Section 9 hereof, the
Employee hereby expressly agrees that the foregoing provisions of this Section 6
shall be binding upon the Employee's heirs, successors and legal
representatives.
7. Termination. (a) The Employee's employment hereunder shall be
terminated upon the occurrence of any of the following:
(i) death of the Employee;
(ii) termination of the Employee's employment hereunder by the
Employee at any time for any reason whatsoever (including, without
limitation, resignation or retirement) other than for "good reason" as
contemplated by clause (v)(B) below;
(iii) termination of the Employee's employment hereunder by
the Company because of the Employee's inability to perform Employee's
duties on
<PAGE>
account of disability or incapacity for a period of one hundred eighty
(180) or more days, whether or not consecutive, occurring within any
period of twelve (12) consecutive months;
(iv) termination of the Employee's employment hereunder by the
Company at any time for "cause" (as hereinafter defined), such termination
to take effect immediately upon written notice from the Company to the
Employee; and
(v) termination of the Employee's employment hereunder (A) by
the Company at any time, other than termination by reason of disability or
incapacity as contemplated by clause (iii) above or termination by the
Company for "cause" as contemplated by clause (iv) above and (B) by the
Employee for "good reason" (as hereinafter defined).
The following actions, failures or events shall constitute "cause"
for termination for purposes of this Agreement: (1) conviction of having
committed a felony, (2) acts of dishonesty or moral turpitude which are
materially detrimental to the Company and/or its Affiliates, (3) failure by the
Employee to obey the reasonable and lawful orders of the Board of Directors of
the Company or (4) negligence by the Employee in the performance of, or willful
disregard by the Employee of, Employee's obligations hereunder; provided,
however, that the occurrence of any action, failure or event referred to in
clause (3) or (4) above shall not constitute "cause" until Employee shall have
been furnished notice of such action, failure or event and failed to cure such
action, failure or event within 30 days of his receipt of such notice.
The following actions, failures or events shall constitute "good
reason" for purposes of this Agreement: (1) a material breach by the Company of
its obligations under this Agreement, (2) a material diminution of the
Employee's responsibilities or authority hereunder, (3) the failure of the
Company or the Board of Directors to nominate the Employee for election at the
Company's Annual Meeting to serve as a director of the Company, or (4) the
Company relocates its principal office outside the New York metropolitan area
without Employee's consent.
(b) In the event that the Company has terminated the Employee's
employment without cause or the Employee has terminated his employment for "good
reason", then this Agreement shall nonetheless be deemed terminated, and (i) the
Employee shall not be entitled to any benefits under this Agreement other than
those which have accrued as of the termination date, except that the Company
shall pay the Employee his base salary under Section 4(a); provided, however, if
Employee terminates for "good reason" with less than six (6) months left under
his Employment Term, Employee shall receive his base salary for a six (6) month
period after termination, and (ii) the Employee shall be entitled to the
continuation of medical and health benefits through the term of this Agreement
comparable to those benefits furnished by the Company to the Employee on the
date of termination. The Company and the Employee agree that the payments made
pursuant to this Section 6(b) shall be paid to the Employee as consideration for
the non-competition provisions set forth in Section 8(a)(x) hereof and that if
the
<PAGE>
Employee is no longer employed by the Company and the non-competition provisions
set forth in Section 8(a)(x) extend beyond the term of this Agreement, the
payments made pursuant to this Section 6(b) shall be paid to the Employee
through the date of termination of his agreement not to compete.
(c) Notwithstanding anything to the contrary expressed or implied
herein, except as required by applicable law and except as set forth in Section
6(b) above, the Company (and its Affiliates) shall not be obligated to make any
payments to the Employee or on Employee's behalf of whatever kind or nature by
reason of the Employee's cessation of employment (including, without limitation,
by reason of termination of the Employee's employment by the Company for
"cause"), other than (i) such amounts, if any, of Employee's salary and bonus as
shall have accrued and remained unpaid as of the date of said cessation and (ii)
such other amounts which may be then otherwise payable to the Employee from the
Company's benefits plans or reimbursement policies, if any.
(d) No interest shall accrue on or be paid with respect to any
portion of any payments hereunder.
8. Non-Competition.
(a) The term "Non-Compete Term" shall mean the period during which
Employee is employed hereunder and, in the event Employee's employment is
terminated for any reason, the one-year period following such termination.
During the Non-Compete Term:
(i) the Employee will not make any statement or perform any
act intended to advance an interest of any existing or prospective
competitor of the Company or any of its Affiliates in any way that will or
may injure an interest of the Company or any of its Affiliates in its
relationship and dealings with existing or potential customers or clients,
or solicit or encourage any other employee of the Company or any of its
Affiliates to do any act that is disloyal to the Company or any of its
Affiliates or inconsistent with the interest of the Company or any of its
Affiliate's interests or in violation of any provision of this Agreement;
(ii) the Employee will not discuss with any existing or
potential customers or clients of the Company or any of its Affiliates the
present or future availability of services or products of a business, if
the Employee has or expects to acquire a proprietary interest in such
business or is or expects to be an employee, officer or director of such
business, where such services or products are competitive with services or
products which the Company or any of its Affiliates provides;
(iii) the Employee will not directly or indirectly (as a
director, stockholder, officer, employee, manager, consultant, independent
contractor, advisor or otherwise) engage in competition with, or own any
interest in, perform any services for, participate in or be connected with
(i) any business or
<PAGE>
organization which engages in competition with the Company or any of its
Affiliates in any geographical area where any business is presently
carried on by the Company or any of its Affiliates, or (ii) any business
or organization which engages in competition with the Company or any of
its Affiliates in any geographical area where any business shall be
hereafter, during the period of the Employee's employment by the Company,
carried on by the Company or any of its Affiliates, if such business is
then being carried on by the Company or any of its Affiliates in such
geographical area; and
(iv) the Employee will not directly or indirectly solicit for
employment, or advise or recommend to any other person that they employ or
solicit for employment, any employee of the Company or any of its
Affiliates; and
provided, however, that the provisions of this Section 8(a) shall not be deemed
to prohibit the Employee's ownership of not more than five percent (5%) of the
total shares of all classes of stock outstanding of any publicly held company.
(b) (i) For purposes of this Section 8, a person or entity
(including, without limitation, the Employee) shall be deemed to be a
competitor of the Company or any of its Affiliates, or a person or entity
(including, without limitation, the Employee) shall be deemed to be
engaging in competition with the Company or any of its Affiliates, only if
such person or entity in any way conducts, operates, carries out or
engages in the design, development, marketing, installation or support of
warehouse management systems or other computer integrated or turnkey
warehouse management systems in the United States or such other business
or businesses as the Company may in the future conduct in such
geographical area or areas as such business or businesses are conducted by
the Company.
(ii) The Employee further agrees that the limitations set
forth in this Section 8 (including, without limitation, any time or
territorial limitations) are reasonable and properly required for the
adequate protection of the businesses of the Company and its Affiliates.
It is understood and agreed that the covenants made by the Employee in
this Section 8 (and in Section 6 hereof) shall survive the expiration or
termination of this Agreement.
(iii) The Employee acknowledges and agrees that a remedy at
law for any breach or threatened breach of the provisions of this Section
8 would be inadequate and, therefore, agrees that the Company and any of
its Affiliates shall be entitled to injunctive relief in addition to any
other available rights and remedies in cases of any such breach or
threatened breach; provided, however, that nothing contained herein shall
be construed as prohibiting the Company or any of its Affiliates from
pursuing any other rights and remedies available for any such breach or
threatened breach.
<PAGE>
9. Change in Control.
(a) In the event Employee's employment under this Agreement is
terminated on or following a Change in Control (as defined in Section 9(c)), the
Company shall pay to Employee and Employee shall be entitled to all the payments
and rights he would have had if Employee had terminated his employment for "good
reason" as set forth in Section 7(b). The aforesaid amount shall be paid to
Employee within thirty (30) days of the date of termination. In addition, the
maximum number of options granted pursuant to Section 4(b) hereof that have not
previously vested shall immediately vest as of the date of the Change of Control
regardless of the Company's Net Profit or the vesting schedule set forth in
Section 4(c). Neither the occurrence of a Change in Control, nor the vesting in
any options as a result thereof shall require Executive to exercise any options.
In the event of a conflict between any option grant agreement or plan and this
Agreement, the terms of this Agreement shall control.
(b) Excise Tax Gross Up. In addition, if it is determined by an
independent accountant mutually acceptable to the Company and Employee that as a
result of any payment in the nature of compensation made by the Company to (or
for the benefit of) Employee pursuant to this Agreement or otherwise, an excise
tax may be imposed on Employee pursuant to Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), the Company shall pay Employee in cash an
amount to provide Employee with a full tax gross-up under the provisions of this
Section, so that on a net after-tax basis, the result to Employee shall be the
same as if the excise tax under Section 4999 of the Code (or any successor
provisions) had not been imposed.
(c) Change in Control. For purposes of this Agreement "Change in
Control" shall mean that any of the following events has occurred: (A) any
"person" or "group" of persons, as such terms are used in Sections 13 and 14 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than
any employee benefit plan sponsored by the Company, becomes the "beneficial
owner", as such term is used in Section 13 of the Exchange Act, (irrespective of
any vesting or waiting periods) of Common Stock or any class of stock
convertible into Common Stock in an amount equal to forty (40%) percent or more
of the Common Stock (treating all classes of outstanding stock, units or other
securities convertible into stock units as if they were converted into Common
Stock) issued and outstanding immediately prior to such acquisition and
disregarding any equity raise in connection with the financing of such
transaction; (B) Common Stock in excess of forty (40%) percent is purchased
pursuant to a tender or exchange offer other than an offer by the Company; or
(C) the dissolution or liquidation of the Company or the consummation of any
merger or consolidation of the Company or any sale or other disposition of all
or substantially all of its assets, if the shareholders of the Company own
immediately after consummation of such transaction, equity securities possessing
less than fifty (50%) percent of the surviving or acquiring company.
(d) Except for any rights which Employee may have pursuant to this
Section 9, the Company shall have no further obligations hereunder following
such termination after a Change of Control.
<PAGE>
10. Non-Assignability. Neither this Agreement nor any right or interest
hereunder shall be assignable by the Employee, Employee's beneficiaries, or
legal representatives without the Company's prior written consent; provided,
however, that nothing in this Section 10 shall preclude the Employee from
designating a beneficiary to receive any benefit payable hereunder upon
Employee's death or incapacity.
11. Binding Effect. Without limiting or diminishing the effect of Section
10 hereof, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, legal representatives and
assigns.
12. Notice. Any notice required 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 the Employee,
at Employee's home address set forth on the signature page hereto, or to such
other address or addresses as either party shall have designated in writing to
the other party hereto.
13. Severability. The Employee agrees that in the event that any court of
competent jurisdiction shall finally hold that any provision of Section 6 or 8
hereof is void or constitutes an unreasonable restriction against the Employee,
such provision shall not be rendered void but shall apply with respect to such
extent as such court may judicially determine constitutes a reasonable
restriction under the circumstances. If any part of this Agreement other than
Section 6 or 8 is held by a court of competent jurisdiction to be invalid,
illegible or incapable of being enforced in whole or in part by reason of any
rule of law or public policy, such part shall be deemed to be severed from the
remainder of this Agreement for the purpose only of the particular legal
proceedings in question and all other covenants and provisions of this Agreement
shall in every other respect continue in full force and effect and no covenant
or provision shall be deemed dependent upon any other covenant or provision.
14. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
15. Entire Agreement; Modifications. This Agreement constitutes the entire
and final expression of the agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements, oral and written, between the
parties hereto with respect to the subject matter hereof. This Agreement may be
modified or amended only by an instrument in writing signed by both parties
hereto.
16. Relevant Law. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of New York without regard to the
conflicts of law principles thereof.
<PAGE>
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Page to Follow]
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have duly executed and
delivered this Agreement as of the day and year first above written.
ROBOCOM SYSTEMS INTERNATIONAL INC.
By: /s/ Irwin Balaban
------------------------------------
Name: Irwin Balaban
Title: President
EMPLOYEE:
/s/ David Dinin
----------------------------------------
DAVID DININ
Address: 117 Sterling Court
Muttontown, NY 11791
CONSULTING AGREEMENT
CONSULTING AGREEMENT, dated as of April 1, l999 by and between ROBOCOM
SYSTEMS INTERNATIONAL INC., a New York corporation (the "Company"), and IRWIN
BALABAN, an individual residing at 17 Fairbanks Blvd., Woodbury, New York 11797
("Consultant").
W I T N E S S E T H:
WHEREAS, Consultant has previously served as President and Chief Executive
Officer of the Company and is currently Chairman of the Board of Directors of
the Company; and
WHEREAS, the Company desires to obtain the consulting services of
Consultant for a three-year period of time on the terms and conditions
hereinafter stated, and Consultant is willing to furnish his consulting services
on such terms and conditions;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained, the parties hereto agree as follows:
Section 1. Consultancy.
(a) The Company hereby engages Consultant to perform consulting
services and Consultant hereby accepts such engagement on the terms provided
herein. Consultant agrees that he will use his skills and abilities faithfully
to promote the interests of the Company and to provide management of the Company
such consulting services on an as needed basis as requested by the Company
subject to the reasonable availability of Consultant as determined by the
Consultant in his sole discretion. Such consulting services may, from time to
time, be rendered by telephone and shall be performed in such manner and at such
times as shall be convenient to Consultant in light of Consultant's other
commitments and activities. Notwithstanding the foregoing, it is expressly
understood and agreed that nothing herein shall constitute Consultant an
employee or agent of the Company, except to the extent as might hereafter be
agreed upon for a particular purpose, and that without the prior written consent
of the Board of Directors or the President of the Company, Consultant shall not
have the authority to obligate or commit the Company nor shall Consultant enter
into any negotiations, contract or agreement with any third party which shall in
any way bind, obligate or commit the Company.
<PAGE>
(b) It is understood and agreed that Consultant shall not be
required to provide any specified number of hours or days of service to the
Company and the amount and timing of services Consultant provides, if any, is
subject to Consultant's sole discretion.
Section 2. Term. The term of Consultant's engagement hereunder shall be
three (3) -years commencing on the date hereof and ending on March 1, 2002 (the
"Term").
Section 3. Compensation. For the agreements contained herein and for all
services to be rendered by Consultant under this Agreement, the Company shall
pay Consultant a consultancy fee at the annual rate of $12,000, payable
semi-monthly. In addition to the above, the Company shall pay Consultant a per
diem payment of $1,000 for each day the Consultant performs services for the
Company at the request of the Company.
Section 4. Reimbursement of Expenses. In addition to the fees payable
under Section 3, the Company shall reimburse Consultant for all of his expenses
incurred in connection with services rendered hereunder including, without
limitation, expenses for travel, meals, entertainment and other miscellaneous
business expenses. Consultant shall submit to the Company written, itemized
expense accounts.
Section 5. Benefits.
(a) The Company agrees that for the term of this Agreement,
Consultant shall be entitled to receive all perquisites he was entitled to
receive as a full-time employee of the Company in his capacity as President and
Chief Executive Officer.
(b) Consultant is entitled to participate in any retirement plan
maintained by the Company for its employees (including, without limitation,
pension, annuity, profit-sharing and deferred compensation plans), on the terms
enjoyed by him as a full-time employee of the Company in his capacity as
President and Chief Executive Officer.
(c) The Company will provide Consultant with the use of a full-size
automobile comparable to the automobile the Company provides for Consultant as
of the date hereof at no expense to Consultant, and to pay all costs
attributable to that automobile, including leasing fees and the costs of repair,
servicing, insurance, fuel and oil.
(d) The Company will provide supplemental medical insurance at the
maximum available plan approved by the State of New York.
<PAGE>
Section 6. Noncompetition.
(a) Consultant expressly covenants and agrees that Consultant will
not, during the Term and for a period of one (1) year thereafter, directly or
indirectly, as owner, partner, joint venturer, stockholder, employee, broker,
agent, principal, trustee, corporate officer or director, licensor or in any
capacity whatsoever engage in, become financially interested in, be employed by,
render consulting services to, or have any connection with, any business engaged
in the design, development, marketing, installation or support of warehouse
management systems or other computer integrated or turnkey systems or any
business which provides products or services which are directly competitive with
the Company's products or services as they exist on the date of this Agreement
in the United States; provided, however, that Consultant may own any securities
of any corporation which is engaged in such business and is publicly owned and
traded but in an amount not to exceed at any one time three percent (3%) of any
class of stock or securities of such company.
(b) If any portion of the restrictions set forth in paragraph (a)
should, for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
(c) Consultant declares that the foregoing time limitations are
reasonable and properly required for the adequate protection of the business of
the Company. In the event any such territorial or time limitation is deemed to
be unreasonable by a court of competent jurisdiction, Consultant agrees to the
reduction of either said territorial or time limitation to such area or period
which said court shall have deemed reasonable.
(d) The existence of any claim or cause of action by Consultant
against the Company or any subsidiary of the Company other than under this
Agreement shall not constitute a defense to the enforcement by the Company or
any such subsidiary of the foregoing restrictive covenants, but such claim or
cause of action shall be litigated separately.
(e) Subject to the foregoing, nothing in this Agreement shall
prevent Consultant from accepting any employment or consulting engagements of
any kind or from otherwise accepting any business opportunity.
Section 7. Death of Consultant. In the event of the death of Consultant
during the term of this Agreement, the Company shall pay to Consultant's estate
in lieu of any other amounts due and owing to Consultant pursuant to Section 3a
<PAGE>
benefit to be paid within sixty (60) days of the death of Consultant equal the
entire amount payable by the Company pursuant to Section 3 for the remaining
term of this Agreement.
Section 8. Termination
(a) Consultant's consultancy may be terminated for Cause at any time
by the Company effective immediately upon written notice of such termination to
Consultant (which notice shall contain the reason for such termination);
provided that, with respect to (iii) below, written notice of termination shall
be given only after advance written warning by the Company and a ten (10) day
period to cease the event constituting Cause and such Cause continues after the
end of such ten (10) day period. "Cause" for termination of consultancy shall
mean only the occurrence of any of the following events:
(i) Willful misfeasance or nonfeasance of duty by
Consultant; or
(ii) Conviction of a crime of Consultant by a court of
competent jurisdiction, punishable by imprisonment; or
(iii) Consultant's failure to perform consulting services as
reasonably requested in writing by the Company with
respect to material matters or failure of Consultant to
comply with any material term of this Agreement.
(b) In the event the Company terminates Consultant's engagement as
set forth in this Section 8, all compensation hereunder shall terminate, except
for the payment to Consultant of such portion of Consultant's compensation
payable under Section 3 as is accrued and unpaid during the period prior to
termination.
Section 9. Confidentiality. Except as may be required by law, Consultant
will not, during the term of this Agreement, use directly or indirectly, for his
own account or for the account of any person, or disclose to any person, the
Company's proprietary information disclosed or entrusted to him or developed or
generated by him in the performance of his duties hereunder, including but not
limited to information relating to the Company's organizational structure,
operations, business plans, technical projects, pricing data, production costs,
research data or results, inventions, trade secrets, customer lists or other
work product developed by or for the Company whether on the premises of the
Company or elsewhere. The provisions of this Section 9 shall not apply to any
proprietary, confidential or secret information which is, at the commencement of
the term of
<PAGE>
this Agreement or at some later date, publicly known under circumstances
involving no breach of this Agreement or is lawfully and in good faith made
available to Consultant without restrictions as to disclosure by a third party.
Section 10. Indemnification. The Company agrees to defend and shall
indemnify and hold Consultant harmless from any and all liability, costs and
expenses which may be assessed against Consultant by reason of the performance
of his responsibilities and duties under the terms of this Agreement.
Section 11. Representations and Warranties of Consultant. Consultant
represents and warrants that the entering into by Consultant of this Agreement
and the performance by Consultant hereunder will not conflict with, violate or
constitute a breach of, or require any consent or approval under, any agreement,
license, arrangement or understanding, whether written or oral, or any law,
judgment, decree, order, rule or regulation to which Consultant is a party or by
which he is bound.
Section 12. Representations and Warranties of the Company. The Company
represents and warrants that:
(a) The Company has all necessary power and authority to execute and
deliver, and to perform all of its obligations under, this Agreement. This
Agreement has been duly authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms.
(b) The entering into by the Company of this Agreement and the
performance by the Company hereunder will not conflict with, violate or
constitute a breach of, or require any consent or approval under, the terms of
its certificate of incorporation or by-laws, or any agreement, license,
arrangement or understanding, whether written or oral, or any law, judgment,
decree, order, rule or regulation to which the Company is a party or by which it
is bound.
Section 13. Severability. If any provision of this Agreement is invalid
and unenforceable in any jurisdiction, then, to the fullest extent permitted by
law: (i) the other provisions hereof shall remain in full force and effect in
such jurisdiction; and (ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.
Section 14. Entire Agreement. This Agreement contains the entire
understanding and agreement between the Company (and its subsidiaries and
affiliates) and Consultant with respect to the subject matter hereof and cannot
be amended, modified or
<PAGE>
supplemented in any respect, except by subsequent written agreement entered into
by both parties.
Section 15. Successors. This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, including any person,
partnership or corporation which may acquire all or substantially all of the
Company's assets and business, or with or into which the Company may be
consolidated or merged, and this provision shall apply in the event of any
subsequent merger, consolidation or transfer. In every respect, this Agreement
shall inure to the benefit of and be binding upon Consultant and his heirs,
executors and personal representatives and, being personal in nature, shall not
be assignable by Consultant.
Section 16. Effect of Waiver. The waiver by either party of a breach of
any provision of this Agreement shall not operate as or be construed as a waiver
of any subsequent breach.
Section 17. Notices. Any notice, request, demand or other communication in
connection with this Agreement must be in writing and shall be deemed to have
been given and received five (5) days after a certified or registered letter
containing such notice, properly addressed with postage prepaid, is deposited in
the United States mail; and if given otherwise than by registered or by
certified mail, it shall not be deemed to have been given until actually
delivered to and received by the party to whom it is addressed.
A. Notice to the Company shall be given at its principal mailing
address, which at the time of execution of this Agreement is 511 Ocean Avenue,
Massapequa, New York 11758, Attention: Secretary, or at such other address as it
may designate, with a copy to Pryor, Cashman, Sherman & Flynn, 410 Park Avenue,
New York, New York 10022, Attention: Eric M. Hellige, Esq.
B. Notice to Consultant shall be given at his home address, which at
the time of execution of this Agreement is 17 Fairbanks Blvd., Woodbury, New
York 11797, or at such other address as he may designate.
Section 18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
Section 19. Survival. Each of the terms and provisions of this Agreement
which are expressly or impliedly so intended shall survive the termination of
this Agreement.
<PAGE>
Section 20. Applicable Law. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in such state.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first stated above.
ROBOCOM SYSTEMS INTERNATIONAL INC.
By: /s/ Lawrence Klein
------------------------------------
LAWRENCE KLEIN
Secretary
/s/ Irwin Balaban
----------------------------------------
IRWIN BALABAN
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