SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended November 30, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition period from _________ to __________
Commission file number: 0-25104
CONTINENTAL INFORMATION SYSTEMS CORPORATION
-------------------------------------------
(Exact name of registrant as specified in its charter)
New York 16-0956508
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
One Northern Concourse, P.O. Box 4785, Syracuse, NY 13221-4785
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(315) 455-1900
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of December 31,
1996, the registrant has 7,014,040 shares of common stock, par value $.01 per
share, outstanding.
<PAGE>
CONTINENTAL INFORMATION SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets -
November 30, 1996 and May 31, 1996
Consolidated Statements of Operations and Retained
Earnings (Accumulated Deficit) - for the three months
and six months ended November 30, 1996 and 1995
Consolidated Statements of Cash Flows -
for the six months ended November 30, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except per Share Data)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
November 30, May 31,
1996 1996
---- ----
<S> <C> <C>
Assets:
Cash and cash equivalents .......................................... $11,948 $ 5,382
Accounts receivable, net ........................................... 1,918 2,295
Notes receivable ................................................... 5,319 3,457
Inventory .......................................................... 7,102 2,875
Net investment in direct financing leases (Note 2) ................. 2,321 15,783
Rental equipment, net (Note 2) ..................................... 2,373 11,148
Furniture, fixtures and equipment, net ............................. 434 625
Other assets ....................................................... 957 1,965
Goodwill, net (Note 3) ............................................. 3,706 3,940
Deferred tax assets ................................................ 4,972 6,080
------- --------
Total assets ............................................. $41,050 $ 53,550
======= ========
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and other liabilities ........................ $ 1,471 $ 2,949
Net liabilities of discontinued operations (Note 4) ........... 136 106
Discounted lease rental borrowings (Note 2) ................... 1,849 14,738
Notes payable to former owners of acquired company (Note 3) ... 2,304 2,304
------- --------
Total liabilities ........................................ 5,760 20,097
------- --------
Shareholders' Equity:
Common stock, $.01 par value; authorized 10,000,000 shares, issued
and outstanding 7,014,040 and 6,999,040, excluding 960 treasury
share (Notes 5 and 7) ......................................... 70 70
Additional paid-in capital ......................................... 34,959 34,930
Retained earnings (accumulated deficit) ............................ 261 (1,547)
------- --------
Total shareholders' equity ............................... 35,290 33,453
------- --------
Total liabilities and shareholders' equity ............... $41,050 $ 53,550
======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands (Except per Share Data)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
For the Three For the Six
Months ended Months ended
November 30, November 30,
------------ ------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Equipment sales ...................................... $ 8,412 $ 4,028 $ 13,057 $ 8,886
Gain from sale of equipment subject
to lease (Note 2) ............................... 2,475 -- 2,475 --
Equipment rentals .................................... 1,219 1,809 2,620 3,651
Income from direct financing leases .................. 432 247 889 513
Interest, fees and other income ...................... 441 544 1,031 1,158
-------- -------- -------- --------
12,979 6,628 20,072 14,208
-------- -------- -------- --------
Costs and Expenses:
Cost of sales ........................................ 6,691 2,713 10,129 6,143
Depreciation of rental equipment ..................... 756 980 1,606 1,780
Interest expense ..................................... 370 86 695 186
Other operating expenses ............................. 537 284 903 577
Selling, general and administrative expense .......... 1,835 2,053 3,590 4,377
Amortization of goodwill ............................. 100 -- 233 --
-------- -------- -------- --------
10,289 6,116 17,156 13,063
-------- -------- -------- --------
Income from continuing operations before taxes ....... 2,690 512 2,916 1,145
Provision for income tax ............................. 1,022 195 1,108 435
-------- -------- -------- --------
Income from continuing operations .................... 1,668 317 1,808 710
Loss from discontinued operations,
net of tax (Note 4) ............................. -- (181) -- (108)
-------- -------- -------- --------
Net income ........................................... 1,668 136 1,808 602
Retained earnings (accumulated deficit),
beginning of period ............................. (1,407) (1,147) (1,547) (1,613)
-------- -------- -------- --------
Retained earnings (accumulated deficit), end of period $ 261 $ (1,011) $ 261 $ (1,011)
======== ======== ======== ========
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
(continued)
For the Three For the Six
Months ended Months ended
November 30, November 30,
------------ ------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income per share (Note 5):
Income from continuing operations .............. $ .24 $ .04 $ .26 $ .10
Loss from discontinued operations .............. -- (.02) -- (.01)
-------- -------- -------- --------
Net income ........................ $ .24 $ .02 $ .26 $ .09
======== ======== ======== ========
Weighted average number of shares
of common stock outstanding .................... 7,002 7,000 7,001 7,000
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Continental Information Systems Corporation
and its Subsidiaries
In Thousands
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six
Months ended
November 30,
------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................. $ 1,808 $ 602
Less: Net loss from discontinued operations ............. -- (108)
-------- --------
Income from continuing operations ....................... 1,808 710
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Proceeds from sale of equipment subject to lease ........ 7,367 --
Gain from sale of equipment subject to lease ............ (2,475) --
Proceeds from sale of other leased equipment ............ 3,677 1,692
Amortization of unearned income ......................... (889) (513)
Collections of rentals on direct financing leases ....... 2,736 1,702
Depreciation and amortization expense ................... 2,054 2,017
Other ................................................... 29 --
Effect on cash flows of changes in:
Accounts receivable ................................ 377 (658)
Notes receivable ................................... (1,862) (3,064)
Inventory .......................................... (4,227) 71
Other assets ....................................... 1,008 551
Accounts payable and other liabilities ............. (301) 228
Deferred tax assets ................................ 1,108 368
-------- --------
8,602 2,394
-------- --------
Net cash provided by continuing operations .............. 10,410 3,104
Net cash provided by (used in) discontinued operations .. 30 (505)
-------- --------
Net cash provided by operations ......................... 10,440 2,599
-------- --------
Cash flows from investing activities:
Purchase of rental equipment ............................ (2,432) (13,306)
Purchase of property and equipment ...................... (23) (34)
-------- --------
Net cash used in investing activities .............. (2,455) (13,340)
-------- --------
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
For the Six
Months ended
November 30,
------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from financing activities:
Payments on note payable to Liquidating Estate .......... -- (2,422)
Proceeds from lease, bank and institution financings .... 4,631 7,396
Payments on lease, bank and institution financings ...... (6,050) (772)
-------- --------
Net cash provided by (used in) financing activities (1,419) 4,202
-------- --------
Net increase (decrease) in cash and cash equivalents 6,566 (6,539)
Cash and cash equivalents at beginning of period ........ 5,382 13,015
-------- --------
Cash and cash equivalents at end of period .............. $ 11,948 $ 6,476
======== ========
</TABLE>
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Notes to the Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited financial statements of Continental
Information Systems Corporation and its subsidiaries (the "Company")
contain all adjustments which are, in the opinion of management,
necessary for a fair statement of results for the interim periods
presented. While certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted, the
Company believes that the disclosures herein are adequate to make the
information not misleading. The results of operations for the six months
ended November 30, 1996, are not necessarily indicative of the results
for the full year. These statements should be read in conjunction with
the consolidated financial statements and notes thereto included for the
fiscal year ended May 31, 1996 appearing in the Company's Form 10-K.
2. Sale of Equipment Subject to Lease
On November 30, 1996, the Company, through certain wholly-owned
subsidiaries, sold a substantial portion of its leased equipment to an
institutional investor for a sales price of approximately $20 million,
payable in cash of approximately $7.4 million and the assumption by the
investor of the Company's related outstanding non-recourse lease rental
borrowings of approximately $12.5 million. The gain on the transaction of
approximately $2.5 million, exclusive of income taxes, is included in
results from continuing operations for the fiscal quarter ended November
30, 1996.
3. Acquisition
On March 8, 1996, the Company, through its wholly-owned subsidiary, CIS
Corporation, acquired 100% of the capital stock of GMCCCS Corp. (dba
"LaserAccess") for a purchase price of approximately $4,608,000, payable
in cash of approximately $2,304,000 at closing and the balance of
approximately $2,304,000 in the form of notes payable in three equal
annual installments, commencing March 8, 1997, with interest at the rate
of 8.25% on the unpaid principal balance. In addition to the purchase
price to be paid in cash and notes, CIS Corporation is obligated to pay
the sellers an annual earn out payment for each of the first four years
following the March 8, 1996 sale. The earn out payment is based upon the
annual pretax income of LaserAccess. LaserAccess is engaged in the sales
and marketing of remanufactured Xerox High Speed Laser Printing Systems.
The acquisition has been accounted for using the purchase method of
accounting. Allocations of the purchase price have been determined based
upon preliminary estimates of fair market value and, therefore, are
subject to change. The excess of the purchase price, over the net
tangible assets acquired, of approximately $4.0 million, is considered
goodwill and is being amortized on a straight line basis over ten years.
LaserAccess' results of operations are included in the accompanying
consolidated statements of operations of the Company for the six months
ended November 30, 1996.
<PAGE>
Unaudited pro forma data giving effect to the purchase as if it had been
acquired at the beginning of Fiscal 1996, with adjustments, primarily for
imputed interest charges attributable to notes payable to the former
owners and amortization of goodwill follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
For the six
months ended
November 30, 1995
-----------------
<S> <C>
Total revenues .................................. $ 17,006
==========
Income from continuing operations ............... $ 960
==========
Income per share from continuing operations ..... $ .13
==========
Weighted average number of shares outstanding ... 7,000,000
=========
</TABLE>
Note: Reorganization items and income from discontinued operations have
been excluded from the pro forma results.
4. Discontinued Operations
On April 3, 1996, the Company announced its decision to discontinue an
operation, including its wholly-owned subsidiary, Aviron Computer
Technologies, Inc. ("Aviron"), that purchased and sold used computer
equipment and provided related technical services. After that date, the
Company had attempted to locate a buyer for the operation. On June 5,
1996, the Company announced it had abandoned its efforts to sell the
operation and would instead liquidate the assets which consisted
principally of used computer equipment inventories and fixed assets. The
net loss from discontinued operations for the year ended May 31, 1996,
was $1,177,000 (net of $698,000 deferred tax benefit).
Additionally, on May 25, 1995, the Board of Directors approved the
discontinuance of NC3, Inc., the Company's excess inventory business
unit. The Company recorded a provision of $1,137,000 (net of $763,000
deferred tax benefit) in the quarter ended May 31, 1995, relative to the
disposal of NC3 assets and other charges related to the discontinuance of
the business unit. As of May 31, 1996, the Company had exited the
business and liquidated substantially all of the assets. Liabilities of
the discontinued operation decreased from $744,000 at May 31, 1995 to
$125,000 as of November 30, 1996, due to cash payments principally for
severance and facilities costs totaling approximately $289,000 and a net
reduction of $330,000 to adjust the amounts estimated for the loss on the
inventories, receivables, fixed assets and leased facility obligations.
The remaining liability of $125,000 as of November 30, 1996 is expected
<PAGE>
to be liquidated by cash payments extending through approximately May 31,
1997. The adjustment of the liability in the amount of $230,000 was
recorded as a gain from discontinued operations, net of deferred tax
expenses of $87,000 in the quarter ended August 31, 1995. An additional
adjustment of the liability in the amount of $100,000 was recorded as an
offset to the loss on disposal of discontinued operations in the quarter
ended May 31, 1996.
The Consolidated Statements of Operations for all periods presented have
been reclassified to report the results of discontinued operations
separately from continuing operations. A summary of the results of
discontinued operations follows (in thousands):
<TABLE>
<CAPTION>
For the six
months ended
November 30,
-----------------------
1996 1995
------- -------
<S> <C> <C>
Revenues ................................. $ -- $ 3,247
Costs and expenses ....................... -- 3,422
------- -------
Loss from discontinued operations ........ -- (175)
Income tax benefit ....................... -- (67)
------- -------
Net loss from discontinued operations .... $ -- $ (108)
======= =======
</TABLE>
<PAGE>
The Consolidated Balance Sheets as of November 30, 1996 and May 31, 1996,
have been reclassified to report the net assets of discontinued
operations separately from the assets and liabilities of continuing
operations. A summary of the assets and liabilities of discontinued
operations follows (in thousands):
<TABLE>
<CAPTION>
November 30, May 31,
1996 1996
---- ----
<S> <C> <C>
Assets:
Cash and cash equivalents ................................ $ 16 $ 159
Accounts receivable, net ................................. -- 55
Inventory ................................................ 13 115
Furniture, fixtures and equipment, net ................... -- 58
Other assets ............................................. 16 16
----- -----
Total assets ................................... 45 403
----- -----
Liabilities
Accounts payable and accruals ............................ -- 44
Other liabilities ........................................ 181 465
----- -----
Total liabilities .............................. 181 509
----- -----
Net Assets (Liabilities) of Discontinued
Operations ................................ $(136) $(106)
===== =====
</TABLE>
5. Net Income Per Share
Net income per share was computed based on the weighted average number of
shares of common stock outstanding during the periods. As of November 30,
1996, the Company had granted options to purchase 343,000 shares of
common stock (see Note 7). Since the average exercise price of these
options is in excess of the average market price of the common stock for
the three and six months ended November 30, 1996, the options are
considered anti-dilutive and are not included in the computation of net
income per share.
6. Reclassifications
Certain prior period balances in the financial statements have been
reclassified to conform to the current period financial statement
presentation.
<PAGE>
7. Stock Compensation Plan
On July 6, 1995, the Board of Directors adopted the Continental
Information Systems Corporation 1995 Stock Compensation Plan (the "1995
Plan"). The 1995 Plan was approved by stockholders at the annual meeting
held September 27, 1995 in Syracuse, New York. The 1995 Plan provides for
the issuance of options covering up to 1,000,000 shares of common stock
and stock grants of up to 500,000 shares of common stock to non-employee
directors of the Company and, in the discretion of the Compensation
Committee, employees of and independent contractors and consultants to
the Company. As of November 30, 1996, incentive stock options for shares
of common stock had been granted to employees and non-qualified stock
options for shares of common stock had been granted to non-employee
directors as follows:
<TABLE>
<CAPTION>
Number of Exercise Fair Market Value
Description Date Granted Options Price at Date of Grant
----------- ------------ ------- ----- ----------------
<S> <C> <C> <C> <C>
Non-Qualified Stock Options May 16, 1995 15,000 $3.50 $ 52,500
Non-Qualified Stock Options September 27, 1995 9,000 2.50 22,500
Incentive Stock Options July 11, 1996 310,000 1.97 610,700
Non-Qualified Stock Options October 23, 1996 9,000 1.84 16,560
------- -----------
Balance - November 30, 1996 343,000 $ 702,260
======= ==========
</TABLE>
As of November 30, 1996, options for 127,333 shares were exercisable.
<PAGE>
Continental Information Systems Corporation
and its Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and the notes thereto for the fiscal year ended May 31,
1996, appearing in the Company's Form 10-K.
All statements contained herein and in "Item 5 - Other Information" that are not
historical facts, including but not limited to, statements regarding anticipated
future capital requirements and the Company's future business plans, are based
on current expectations. These statements are forward looking in nature and
involve a number of risks and uncertainties. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are those set forth below and in Item 5, and the other risk factors
described from time to time in the Company's reports filed with the SEC. The
Company wishes to caution readers not to place undue reliance on any such
forward looking statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
Results of Operations
Comparison of the Three Months and Six Months
Ended November 30, 1996 and 1995
Continuing Operations
Total revenues increased 95.8% to $12.9 million for the three months ended
November 30, 1996 from $6.6 million for the comparable fiscal quarter in 1995.
For the six months ended November 30, 1996, total revenues increased 41.3% to
$20.1 million from $14.2 million for the comparable fiscal period in 1995.
Equipment sales for the three and six months ended November 30, 1996, increased
by $4.4 million (108.8%) and $4.2 million (46.9%), respectively, over comparable
periods in 1995. These increases are principally attributable to a significant
increase in sales in the aircraft business unit during the current quarter. On
November 30, 1996, the Company, through certain wholly-owned subsidiaries, sold
a substantial portion of its leased equipment to an institutional investor for a
sales price of approximately $20 million, payable in cash of approximately $7.4
million and the assumption by the investor of the Company's related outstanding
non-recourse lease rental borrowings of approximately $12.5 million. The gain on
the transaction of approximately $2.5 million, exclusive of income taxes, is
included in results from continuing operations for the fiscal quarter ended
November 30, 1996. The Company is acquiring additional equipment, subject to
lease, which it intends to sell on an ongoing basis, as market conditions
permit. However, it is not likely that the magnitude of this sale can be
replicated during the remainder of the current fiscal year, since the leased
<PAGE>
equipment sold took in excess of twelve months to accumulate. The Company's
future revenue and earnings from the sale of leased equipment will be affected
by a number of factors, including the Company's ability to identify and market
equipment leases to equipment lessees, conditions in the secondary market for
equipment leases, which may be affected by such factors as the availability of
institutional investment capital and interest rates, and competition from other
entities seeking to resell equipment leases.
Sales and margins for the Company's laser printing business have been adversely
impacted, and may continue to be impacted, as a result of increased activity in
the used high speed printer market by Xerox Corporation, the manufacturer of the
Company's laser printers, and another large leasing company that has entered the
market. While margins in the Company's telecom equipment buy/sell business
remain stable, the Company to date has not achieved significant increases in
volume from this business. Sales and earnings from the aircraft business are
likely to continue to vary quarter-to-quarter, based on the volume of
transactions.
Equipment rentals for the three and six months ended November 30, 1996,
decreased by $.6 million (32.6%) and $1.0 million (28.2%), respectively, from
comparable periods in 1995. These decreases primarily reflect a "running out" of
the old lease portfolio, developed during the bankruptcy proceeding. Income from
direct financing leases for the three and six months ended November 30, 1996,
increased by $.2 million (74.9%) and $.4 million (73.3%), respectively, over
comparable periods in 1995. These increases chiefly reflect the increase in
lease originations that qualify as "financing leases."
Costs and expenses for the three and six months ended November 30, 1996,
increased by $4.2 million (68.2%) and $4.1 million (31.3%), respectively, over
the comparable periods in 1995. Cost of sales, as a percentage of sales for the
three and six months ended November 30, 1996, were 79.5% and 77.6%,
respectively, as compared to 67.4% and 69.1% for the comparable periods in 1995.
These variances were primarily the result of product mix. Depreciation of rental
equipment for the three and six months ended November 30, 1996, decreased by $.2
million (22.9%) and $.2 million (9.8%), respectively, from comparable periods in
1995. These decreases are directly related to the decline in equipment rentals
on operating leases. Interest expense for the three and six months ended
November 30, 1996, increased by $.3 million and $.5 million, respectively, over
the comparable periods in 1995. These increases are the result of a significant
increase in the average debt outstanding during the periods, prior to the
assumption of approximately $12.5 million in non-recourse lease rental
borrowings by an institutional investor relative to the aforementioned sale of
equipment subject to lease. Other operating expenses increased by $.2 million
and $.3 million, respectively, over the comparable periods in 1995. Selling,
general and administrative expenses for the three and six months ended November
30, 1996, decreased by $.2 million (10.6%) and $.8 million (18.0%),
respectively, from the comparable periods in 1995. These decreases were
principally due to cost containment efforts and staff reductions between the
periods. Amortization of goodwill for the three and six months ended November
30, 1996, was $.1 million and $.2 million, respectively. Goodwill of
approximately $4.0 million, relative to the LaserAccess acquisition, is being
amortized on a straight-line basis over 10 years.
See "Item 5 - Other Information" for a discussion of the Company's consideration
of strategic alternatives.
<PAGE>
Discontinued Operations
On April 3, 1996, the Company announced its decision to discontinue an
operation, including its wholly-owned subsidiary, Aviron Computer Technologies,
Inc. ("Aviron"), that purchased and sold used computer equipment and provided
related technical services. After that date, the Company had attempted to locate
a buyer for the operation. On June 5, 1996, the Company announced it had
abandoned its efforts to sell the operation and would instead liquidate the
assets which consisted principally of used computer equipment inventories and
fixed assets. The net loss from discontinued operations for the year ended May
31, 1996, was $1,177,000 (net of $698,000 deferred tax benefit).
Additionally, on May 25, 1995, the Board of Directors approved the
discontinuance of NC3, Inc., the Company's excess inventory business unit. The
Company recorded a provision of $1,137,000 (net of $763,000 deferred tax
benefit) in the quarter ended May 31, 1995, relative to the disposal of NC3
assets and other charges related to the discontinuance of the business unit. As
of May 31, 1996, the Company had exited the business and liquidated
substantially all of the assets. Liabilities of the discontinued operation
decreased from $744,000 at May 31, 1995 to $125,000 as of November 30, 1996, due
to cash payments principally for severance and facilities costs totaling
approximately $289,000 and a net reduction of $330,000 to adjust the amounts
estimated for the loss on the inventories, receivables, fixed assets and leased
facility obligations. The remaining liability of $125,000 as of November 30,
1996 is expected to be liquidated by cash payments extending through
approximately May 31, 1997. The adjustment of the liability in the amount of
$230,000 was recorded as a gain from discontinued operations, net of deferred
tax expenses of $87,000 in the quarter ended August 31, 1995. An additional
adjustment of the liability in the amount of $100,000 was recorded as an offset
to the loss on disposal of discontinued operations in the quarter ended May 31,
1996.
The Consolidated Statements of Operations for all periods presented have been
reclassified to report the results of discontinued operations separately from
continuing operations. A summary of the results of discontinued operations
follows (in thousands):
<TABLE>
<CAPTION>
For the six
months ended
November 30,
-----------------------
1996 1995
------- -------
<S> <C> <C>
Revenues ..................................... $ -- $ 3,247
Costs and expenses ........................... -- 3,422
------- -------
Loss from discontinued operations ............ -- (175)
Income tax benefit ........................... -- (67)
------- -------
Net loss from discontinued operations ........ $ -- $ (108)
======= =======
</TABLE>
<PAGE>
Income Taxes
For the three and six months ended November 30, 1996, a provision for deferred
income tax expense on income from continuing operations was recorded, at an
effective rate of 38%, in the amounts of $1,022,000 and $1,108,000,
respectively, as compared to $195,000 and $435,000 for the comparable periods in
1995. In addition, for the three and six months ended November 30, 1995, a
provision for deferred income tax benefit on loss from discontinued operations
was recorded, at an effective rate of 38%, in the amounts of $112,000 and
$67,000, respectively.
Liquidity and Capital Resources
Cash provided by operations for the six months ended November 30, 1996 was $10.4
million as compared to $2.6 million for the comparable period in 1995. The
increase was primarily due to the proceeds generated by the sale of equipment
subject to lease of $7.4 million. In addition to this cash payment, the buyer
assumed approximately $12.5 million of the Company's outstanding non-recourse
lease rental borrowings. The sale of this leased equipment accelerated the
earnings and cash flow from the leases, which would have been received over
time, into the current quarter. These funds provide the capital to facilitate
the expansion of the Company's buy/sell businesses and support alternative
strategic directions being considered by the Board of Directors; see "Item 5 -
Other Information." Inventory increased by $4.2 million during the six months
ended November 30, 1996 over the comparable period in 1995. This increase was
primarily attributable to the acquisition of used aircraft equipment and certain
Laser Printing Systems to support increased activity in these business units.
New investment in rental equipment was $2.4 million for the six months ended
November 30, 1996 as compared to $13.3 million for the comparable period in
1995. The significant investment in rental equipment in 1995 initiated the
Company's strategy of originating leases on acquired rental equipment and
subsequently selling them to investors, as was accomplished in the current
quarter.
Because a note payable to the Liquidating Estate was paid in full in March 1996,
there were no additional payments made on the note for the six months ended
November 30, 1996, as compared to the comparable period in 1995 when the Company
made principal payments of $2.4 million. Proceeds from lease, bank and
institution financings were $4.6 million for the six months ended November 30,
1996, as compared to $7.4 million for the comparable period in 1995. The
significant proceeds generated in the 1995 period are directly related to the
increase in rental equipment during that period and the discounting of lease
rentals associated with such equipment. Payments on lease, bank and institution
financings were $6.1 million for the six months ended November 30, 1996 as
compared to $.8 million for the comparable period in 1995. The increase in the
current period represents accelerated payments on certain lines of credit and a
full six month payment stream on discounted lease rental borrowings. In the 1995
period, a majority of the borrowings and repayments occurred in the second
fiscal quarter.
The Company expects that operations will generate sufficient cash to meet its
operating expenses and current obligations. In April 1996, the Company finalized
a revolving loan agreement with an institution to provide interim and
recourse/limited recourse lease financing in the total amount of $5 million.
Additionally, in July 1996, the Company finalized two revolving loan agreements
with institutions to provide (1) warehouse lease financing in the amount of $5
million and (2) inventory financing for LaserAccess and CIS Air in the amount of
$7 million.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders, held on October 23, 1996, the
following directors were elected to the Board of Directors:
<TABLE>
<CAPTION>
Affirmative Votes Votes Withheld
----------------- --------------
<S> <C> <C>
Dr. Leon H. Bloom 5,084,084 21,986
James P. Hassett 5,043,618 62,452
Thomas J. Prinzing 5,068,919 37,151
Michael L. Rosen 5,084,475 21,595
Paul M. Solomon 5,037,600 68,470
</TABLE>
The proposal to increase the number of authorized shares from 10 million to 20
million did not receive the affirmative vote of the holders of at least
two-thirds of the outstanding shares of the Company as required by the Company's
Restated Certificate of Incorporation and therefore was not approved. The votes
were as follows:
<TABLE>
<CAPTION>
Affirmative Votes Negative Votes Abstentions
----------------- -------------- -----------
<S> <C> <C>
4,587,487 299,000 6,713
</TABLE>
The ratification of the selection of Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending May 31, 1997 received the
requisite number of votes as follows:
<TABLE>
<CAPTION>
Affirmative Votes Negative Votes Abstentions
----------------- -------------- -----------
<S> <C> <C>
5,043,985 50,820 5,303
</TABLE>
Item 5. Other Information
The Company's Board of Directors continues to engage in an ongoing evaluation of
the prospects of the Company's existing businesses and how to invest its
available capital resources. Because the Company's current businesses may not be
able to generate sustained growth in sales and earnings, the Board is
considering alternative strategic directions. At a meeting on January 6, 1997,
the Board considered a proposal by Oscar Gruss & Son Incorporated, a stockholder
of the Company, that the Company enter into the area of real estate finance.
Oscar Gruss noted that the demand for real estate acquisition, development and
redevelopment projects continues to grow and recommended that the Company enter
this sector by allying itself with a sophisticated, well-positioned partner
which is already active in this area. The Board established an Executive
<PAGE>
Committee composed of directors James P. Hassett, Michael Rosen (who is
affiliated with Oscar Gruss), and Paul Solomon to evaluate and negotiate a joint
venture with a private real estate finance company. The proposed joint venture
would originate high yield bridge and acquisition loans and finance such loans
in part through senior debt financing. At this stage, the Company has received
only an initial proposal for the venture; whether this transaction or any other
transaction will be completed will depend on a number of factors, including the
results of due diligence, negotiation of acceptable terms and conditions for
such a transaction, and resolution of certain transitional issues. There can be
no assurance that this or any other transaction can be consummated.
The Board believes that the real estate finance business would represent a
logical extension of the Company's historic business focus and skills as a
financial intermediary for asset-based transactions; however, the Company itself
has no direct experience in real estate. Accordingly, if the Company implements
such a proposal, the Company will be dependent on the expertise of its joint
venture partner and will need to employ qualified management to oversee the
investment. The Company will also be subject to the risks attendant to real
estate finance generally, including the risks of leverage, risks of borrower
default, general economic and real estate market conditions, and competition for
attractive real estate finance investments.
The Board expects to consider a final plan for this strategic direction at a
meeting in early April 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Letter Agreement regarding severance with John R.
Campbell dated October 23, 1996.
10.2 Letter Agreement regarding severance with Frank J.
Corcoran dated October 23, 1996.
10.3 Letter Agreement regarding severance with James J.
Mosher dated October 23, 1996.
10.4 Letter Agreement regarding severance with Thomas J.
Prinzing dated October 23, 1996.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K - No reports on Form 8-K were filed by
the Company during the quarter ended November 30, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
CONTINENTAL INFORMATION SYSTEMS
CORPORATION
Date: January 8, 1997 By: /s/Thomas J. Prinzing
----------------------
Thomas J. Prinzing
President and
Chief Executive Officer
Date: January 8, 1997 By: /s/Frank J. Corcoran
--------------------
Frank J. Corcoran
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
October 23, 1996
Mr. John R. Campbell
22 Old Hill Road
Westport, CT 06880
Dear Mr. Campbell:
This letter sets forth the agreement between Continental
Information Systems Corporation (the "Company") and John R. Campbell
("Campbell") with respect to certain severance and compensation matters.
In partial consideration of Campbell's serving in the office of
Executive Vice President, in addition to and aside from whatever salary,
bonuses, participations or other benefits the Board or the Compensation
Committee may decide on, the Company agrees as follows:
1. Severance.
(a) Campbell shall be entitled to receive the following severance
benefits upon the occurrence of a Severance Event (as defined in Exhibit A): (1)
a severance payment equal to twelve (12) months base salary as in effect on the
date of the Severance Event, payable, at Campbell's option in a lump sum or in
twelve (12) equal monthly installments; (2) Continued Benefits (as defined in
Exhibit A) until the earlier of twelve (12) months from the date of the
Severance Event or the commencement by Campbell of full time employment by
another employer;
(b) Campbell shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment, nor, except
as provided in Section 1(a) above, shall the amount or term of any payment or
benefits provided for in this Agreement be reduced by any compensation or
benefits earned by Campbell as the result of employment by another employer
after the Date of Termination (as defined in Exhibit A), or otherwise.
2. General Provisions.
(a) Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto, any successors to or assigns of the
Company and Campbell's heirs and the personal representatives of Campbell's
estate.
(b) Arbitration. Any disputes, controversies, or claims arising
out of or related to this Agreement ("Disputes") shall be resolved by binding
arbitration in accordance with the provisions of Exhibit B.
(c) Amendment; Waiver. This Agreement may not be modified,
amended or waived in any manner except by an instrument in writing signed by
both parties hereto; provided, however, that any such modification, amendment or
waiver on the part of the Company shall have been previously approved by the
Board. The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other provision of this Agreement or of any subsequent breach by such party
of a provision of this Agreement.
<PAGE>
(d) Tax Withholding. Payments to Campbell of all compensation
contemplated under this Agreement shall be subject to all applicable legal
requirements with respect to the withholding of taxes and social security
contributions.
(e) Governing Law. All matters affecting this Agreement,
including the validity thereof, are to be governed by, and interpreted and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State.
(f) Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Campbell, the notice shall be delivered or mailed to
Campbell at the address first set forth above, or if addressed to the Company,
the notice shall be delivered or mailed to Continental Information Systems
Corporation, One Northern Concourse, North Syracuse, New York 13212, Attention:
Secretary, or such other address as the Company or Campbell may designate by
written notice at any time or from time to time to the other party. A notice
shall be deemed given, if by personal delivery, on the date of such delivery or,
if by certified mail, on the date shown on the applicable return receipt.
(g) Effect on Previous Agreements. This agreement supersedes all
prior oral or written employment agreements between Campbell and the Company,
and all prior or contemporaneous negotiations, commitments, agreements, and
writings with respect to the subject matter hereof; all such other negotiations,
commitments, agreements, and writings will have no further force or effect; and
the parties to any such other negotiation, commitment, agreement, or writing
will have no further rights or obligations thereunder.
(h) Counterparts. Either of the parties hereto may execute this
Agreement in counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same instrument.
(i) Headings. The headings of sections herein are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
(j) Term. This agreement will expire one year from the date
hereof, unless extended in writing by both parties hereto.
If you are in agreement with the foregoing, please execute in the
space provided below for your signature, whereupon this Agreement shall
constitute a binding Agreement between Campbell and the Company.
CONTINENTAL INFORMATION SYSTEMS CORPORATION
By: /s/ JAMES P. HASSETT
---------------------
Name: James P. Hassett
Authorized Signatory
ACCEPTED AND AGREED:
/s/ JOHN R. CAMPBELL
----------------
John R. Campbell
Date: 10/30/96
<PAGE>
EXHIBIT A
Definitions of Terms Relating to Severance
1. Severance Event: Termination by the Company of Campbell's
employment other than for Cause, or resignation by Campbell from the Company for
Good Reason.
2. Cause: Termination by the Company of Campbell's employment
upon (a) Campbell's willful and continued failure to substantially perform his
duties with the Company (other than any such failure resulting from his
incapacity due to physical or mental illness), or (b) Campbell's willfully
engaging in misconduct that is materially injurious to the Company, monetarily
or otherwise. For purposes of this paragraph, no act, or failure to act, on
Campbell's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
Campbell shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Campbell a copy of a Notice of Termination
from the Board, after reasonable notice to Campbell and an opportunity for him
and his counsel to be heard before the Board, finding that in the good faith
opinion of the Board he has engaged in conduct warranting termination for cause
under clauses (a) and (b) above.
3. Good Reason: Campbell's resignation of his employment with the
Company within 120 days following the occurrence of any of the following events:
(a) Reduction of Campbell's annual base salary below
$175,000;
(b) Without Campbell's written consent and measured
against his status as of date of appointment as
Executive Vice President, the assignment to him of
any duties at a level below his positions, duties,
responsibilities, and status, or a reduction in his
reporting responsibilities, titles, or offices, or
any removal of him from or any failure to re-elect
him to any such positions, except in connection with
the termination of his employment for Cause,
disability, or retirement or as a result of his
death, or by him other than for Good Reason; or
(c) The Company (i) does not allow Campbell to
participate in any employee benefit plan on the same
terms and conditions made available to other senior
executive personnel, or (ii) unilaterally makes a
materially adverse change in the economic terms of
any incentive or bonus plan in which Campbell is
entitled to participate; provided, that the
foregoing shall not restrict the Board's discretion
to award bonuses, stock options, or other incentive
compensation in such amounts as it determines;
In the event that Campbell does not resign within 120 days of the occurrence of
any of the foregoing events, his rights with respect to such Good Reason shall
be deemed waived by Campbell.
<PAGE>
4. Notice of Termination: A written notice which shall indicate
the specific termination provision in this Agreement that is relied upon by the
party terminating Campbell's employment and which shall summarize the basis for
termination of Campbell's employment. Any purported termination by the Company
for Cause, or Campbell's resignation for Good Reason shall be communicated by
Notice of Termination to the other party hereto.
5. Date of Termination: (a) if Campbell's employment is
terminated for Cause, the date specified by the Company in the Notice of
Termination, and (b) if Campbell's employment is terminated by Campbell for Good
Reason, the date on which the Notice of Termination is given.
6. Continued Benefits: The following benefits, which shall be
maintained in full force and effect by the Company for the benefit of Campbell
and his surviving dependents for the applicable period: all life insurance,
medical, health and accident, and disability plans, programs or arrangements in
which Campbell was entitled to participate immediately prior to the Severance
Event, provided that Campbell's continued participation is possible under the
general terms and provisions of such plans and programs. In the event that
Campbell's participation in any such plan or program is barred, the Company
shall make reasonable efforts to obtain insurance for Campbell that would
provide him with benefits substantially similar to those which Campbell is
entitled to receive under such plans and programs, but the Company shall not
provide those benefits directly if they cannot be obtained through insurance and
shall not be obligated to pay premiums in excess of two (2) times the group rate
previously paid on his behalf. Campbell agrees that any such coverage will
reduce the applicable period for which coverage might have to be offered under
applicable federal or state laws. Nothing in this provision shall provide
eligibility for bonuses, vacation, or pension or profit-sharing programs after
the Severance Event, except as otherwise required by the generally-applicable
terms of those programs.
<PAGE>
EXHIBIT B
Arbitration Provisions
1. Any arbitration required under Section 2(b) of this Agreement
shall be administered by the American Arbitration Association ("AAA"), and shall
be conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"), as such Rules may be amended from time to
time, with the hearing locale to be Syracuse, New York, unless some other
location and/or arbitrator are chosen by mutual consent of the Company and
Campbell.
2. A single neutral arbitrator shall preside over the arbitration
and decide the Dispute (the "Decision"). The AAA shall use its normal procedures
pursuant to the Rules for selection of an arbitrator.
3. The Decision shall be binding, and the prevailing party may
enforce such decision in any court of competent jurisdiction.
4. The parties shall cooperate with each other in causing the
arbitration to be held in as efficient and expeditious a manner as practicable
and in this connection to furnish such documents and make available such persons
as the Arbitrator may request.
5. The parties have selected arbitration in order to expedite the
resolution of Disputes and to reduce the costs and burdens associated with
litigation. The parties agree that the Arbitrator should take these concerns
into account when determining whether to authorize discovery and, if so, the
scope of permissible discovery and other hearing and pre-hearing procedures.
6. Without limiting any other remedies that may be available
under applicable law, the Arbitrator shall have no authority to award punitive
damages.
7. The Arbitrator shall render a Decision within ninety (90) days
after accepting an appointment to serve as Arbitrator unless the parties
otherwise agree or the Arbitrator makes a finding that a party has carried the
burden of showing good cause for a longer period.
8. All proceedings and decisions of the Arbitrator shall be
maintained in confidence, to the extent legally permissible, and shall not be
made public by any party or any Arbitrator without the prior written consent of
all parties to the arbitration, except as may be required by law.
9. Each party shall bear its own costs and attorneys' fees, and
the parties shall equally bear the fees, costs, and expenses of the Arbitrator
and the arbitration proceedings; provided, however, that the Arbitrator may
exercise discretion to award costs, but not attorneys' fees, to the prevailing
party.
October 23, 1996
Mr. Frank Corcoran
1673 Hallmark
Troy, MI 48098
Dear Mr. Corcoran:
This letter sets forth the agreement between Continental
Information Systems Corporation (the "Company") and Frank Corcoran ("Corcoran")
with respect to certain severance and compensation matters.
In partial consideration of Corcoran's serving in the office of
Senior Vice President and CFO, in addition to and aside from whatever salary,
bonuses, participations or other benefits the Board or the Compensation
Committee may decide on, the Company agrees as follows:
1. Severance.
(a) Corcoran shall be entitled to receive the following severance
benefits upon the occurrence of a Severance Event (as defined in Exhibit A): (1)
a severance payment equal to six (6) months base salary as in effect on the date
of the Severance Event, payable at Corcoran's option in a lump sum or in six (6)
equal monthly installments; (2) Continued Benefits (as defined in Exhibit A)
until the earlier of six (6) months from the date of the Severance Event or the
commencement by Corcoran of full time employment by another employer;
(b) Corcoran shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment, nor, except
as provided in Section 1(a) (2) above, shall the amount or term of any payment
or benefits provided for in this Agreement be reduced by any compensation or
benefits earned by Corcoran as the result of employment by another employer
after the Date of Termination (as defined in Exhibit A), or otherwise.
2. General Provisions.
(a) Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto, any successors to or assigns of the
Company and Corcoran's heirs and the personal representatives of Corcoran's
estate.
(b) Arbitration. Any disputes, controversies, or claims arising
out of or related to this Agreement ("Disputes") shall be resolved by binding
arbitration in accordance with the provisions of Exhibit B.
(c) Amendment; Waiver. This Agreement may not be modified,
amended or waived in any manner except by an instrument in writing signed by
both parties hereto; provided, however, that any such modification, amendment or
waiver on the part of the Company shall have been previously approved by the
Board. The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other provision of this Agreement or of any subsequent breach by such party
of a provision of this Agreement.
<PAGE>
(d) Tax Withholding. Payments to Corcoran of all compensation
contemplated under this Agreement shall be subject to all applicable legal
requirements with respect to the withholding of taxes and social security
contributions.
(e) Governing Law. All matters affecting this Agreement,
including the validity thereof, are to be governed by, and interpreted and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State.
(f) Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Corcoran, the notice shall be delivered or mailed to
Corcoran at the address first set forth above, or if addressed to the Company,
the notice shall be delivered or mailed to Continental Information Systems
Corporation, One Northern Concourse, North Syracuse, New York 13212, Attention:
Secretary, or such other address as the Company or Corcoran may designate by
written notice at any time or from time to time to the other party. A notice
shall be deemed given, if by personal delivery, on the date of such delivery or,
if by certified mail, on the date shown on the applicable return receipt.
(g) Effect on Previous Agreements. This agreement supersedes the
"change-in-control" agreement dated January 4, 1995, between Corcoran and the
Company, all prior oral or written employment agreements between Corcoran and
the Company, and all prior or contemporaneous negotiations, commitments,
agreements, and writings with respect to the subject matter hereof; all such
other negotiations, commitments, agreements, and writings will have no further
force or effect; and the parties to any such other negotiation, commitment,
agreement, or writing will have no further rights or obligations thereunder.
(h) Counterparts. Either of the parties hereto may execute this
Agreement in counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same instrument.
(i) Headings. The headings of sections herein are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
(j) Term: This agreement will expire one year from the date
hereof, unless extended in writing by both parties hereto.
If you are in agreement with the foregoing, please execute in the
space provided below for your signature, whereupon this Agreement shall
constitute a binding Agreement between Corcoran and the Company.
CONTINENTAL INFORMATION SYSTEMS CORPORATION
By: /s/ JAMES P. HASSETT
---------------------
Name: James P. Hassett
Authorized Signatory
ACCEPTED AND AGREED:
/s/ FRANK CORCORAN
--------------
Frank Corcoran
Date: 11/6/96
<PAGE>
EXHIBIT A
Definitions of Terms Relating to Severance
1. Severance Event: Termination by the Company of Corcoran's
employment other than for Cause, or resignation by Corcoran from the Company for
Good Reason.
2. Cause: Termination by the Company of Corcoran's employment
upon (a) Corcoran's willful and continued failure to substantially perform his
duties with the Company (other than any such failure resulting from his
incapacity due to physical or mental illness), or (b) Corcoran's willfully
engaging in misconduct that is materially injurious to the Company, monetarily
or otherwise. For purposes of this paragraph, no act, or failure to act, on
Corcoran's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
Corcoran shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Corcoran a copy of a Notice of Termination
from the Board, after reasonable notice to Corcoran and an opportunity for him
and his counsel to be heard before the Board, finding that in the good faith
opinion of the Board he has engaged in conduct warranting termination for cause
under clauses (a) and (b) above.
3. Good Reason: Corcoran's resignation of his employment with the
Company within 120 days following the occurrence of any of the following events:
(a) Reduction of Corcoran's annual base salary below
$150,000;
(b) Without Corcoran's written consent and measured
against his status as of July 11, 1996, the
assignment to him of any duties at a level below his
positions, duties, responsibilities, and status, or
a reduction in his reporting responsibilities,
titles, or offices, or any removal of him from or
any failure to re-elect him to any such positions,
except in connection with the termination of his
employment for Cause, disability, or retirement or
as a result of his death, or by him other than for
Good Reason; or
(c) The Company (i) does not allow Corcoran to
participate in any employee benefit plan on the same
terms and conditions made available to other senior
executive personnel, or (ii) unilaterally makes a
materially adverse change in the economic terms of
any incentive or bonus plan in which Corcoran is
entitled to participate; provided, that the
foregoing shall not restrict the Board's discretion
to award bonuses, stock options, or other incentive
compensation in such amounts as it determines;
In the event that Corcoran does not resign within 120 days of the occurrence of
any of the foregoing events, his rights with respect to such Good Reason shall
be deemed waived by Corcoran.
<PAGE>
4. Notice of Termination: A written notice which shall indicate
the specific termination provision in this Agreement that is relied upon by the
party terminating Corcoran's employment and which shall summarize the basis for
termination of Corcoran's employment. Any purported termination by the Company
for Cause, or Corcoran's resignation for Good Reason shall be communicated by
Notice of Termination to the other party hereto.
5. Date of Termination: (a) if Corcoran's employment is
terminated for Cause, the date specified by the Company in the Notice of
Termination, and (b) if Corcoran's employment is terminated by Corcoran for Good
Reason, the date on which the Notice of Termination is given.
6. Continued Benefits: The following benefits, which shall be
maintained in full force and effect by the Company for the benefit of Corcoran
and his surviving dependents for the applicable period: all life insurance,
medical, health and accident, and disability plans, programs or arrangements in
which Corcoran was entitled to participate immediately prior to the Severance
Event, provided that Corcoran's continued participation is possible under the
general terms and provisions of such plans and programs. In the event that
Corcoran's participation in any such plan or program is barred, the Company
shall make reasonable efforts to obtain insurance for Corcoran that would
provide him with benefits substantially similar to those which Corcoran is
entitled to receive under such plans and programs, but the Company shall not
provide those benefits directly if they cannot be obtained through insurance and
shall not be obligated to pay premiums in excess of two (2) times the group rate
previously paid on his behalf. Corcoran agrees that any such coverage will
reduce the applicable period for which coverage might have to be offered under
applicable federal or state laws. Nothing in this provision shall provide
eligibility for bonuses, vacation, or pension or profit-sharing programs after
the Severance Event, except as otherwise required by the generally-applicable
terms of those programs.
<PAGE>
EXHIBIT B
Arbitration Provisions
1. Any arbitration required under Section 2(b) of this Agreement
shall be administered by the American Arbitration Association ("AAA"), and shall
be conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"), as such Rules may be amended from time to
time, with the hearing locale to be Syracuse, New York, unless some other
location and/or arbitrator are chosen by mutual consent of the Company and
Corcoran.
2. A single neutral arbitrator shall preside over the arbitration
and decide the Dispute (the "Decision"). The AAA shall use its normal procedures
pursuant to the Rules for selection of an arbitrator.
3. The Decision shall be binding, and the prevailing party may
enforce such decision in any court of competent jurisdiction.
4. The parties shall cooperate with each other in causing the
arbitration to be held in as efficient and expeditious a manner as practicable
and in this connection to furnish such documents and make available such persons
as the Arbitrator may request.
5. The parties have selected arbitration in order to expedite the
resolution of Disputes and to reduce the costs and burdens associated with
litigation. The parties agree that the Arbitrator should take these concerns
into account when determining whether to authorize discovery and, if so, the
scope of permissible discovery and other hearing and pre-hearing procedures.
6. Without limiting any other remedies that may be available
under applicable law, the Arbitrator shall have no authority to award punitive
damages.
7. The Arbitrator shall render a Decision within ninety (90) days
after accepting an appointment to serve as Arbitrator unless the parties
otherwise agree or the Arbitrator makes a finding that a party has carried the
burden of showing good cause for a longer period.
8. All proceedings and decisions of the Arbitrator shall be
maintained in confidence, to the extent legally permissible, and shall not be
made public by any party or any Arbitrator without the prior written consent of
all parties to the arbitration, except as may be required by law.
9. Each party shall bear its own costs and attorneys' fees, and
the parties shall equally bear the fees, costs, and expenses of the Arbitrator
and the arbitration proceedings; provided, however, that the Arbitrator may
exercise discretion to award costs, but not attorneys' fees, to the prevailing
party.
October 23, 1996
Mr. James J. Mosher
112 Watson Road
North Syracuse, NY 13212
Dear Mr. Mosher:
This letter sets forth the agreement between Continental
Information Systems Corporation (the "Company") and James J. Mosher ("Mosher")
with respect to certain severance and compensation matters.
In partial consideration of Mosher's serving in the office of
Vice President and Controller in addition to and aside from whatever salary,
bonuses, participations or other benefits the Board or the Compensation
Committee may decide on, the Company agrees as follows:
1. Severance.
(a) Mosher shall be entitled to receive the following severance
benefits upon the occurrence of a Severance Event (as defined in Exhibit A): (1)
a severance payment equal to six (6) months base salary as in effect on the date
of the Severance Event, payable, at Mosher's option in a lump sum or in twelve
(6) equal monthly installments; (2) Continued Benefits (as defined in Exhibit A)
until the earlier of six (6) months from the date of the Severance Event or the
commencement by Mosher of full time employment by another employer;
(b) Mosher shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment, nor, except
as provided in Section 1(a)(2) above, shall the amount or term of any payment or
benefits provided for in this Agreement be reduced by any compensation or
benefits earned by Mosher as the result of employment by another employer after
the Date of Termination (as defined in Exhibit A), or otherwise.
2. General Provisions.
(a) Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto, any successors to or assigns of the
Company and Mosher's heirs and the personal representatives of Mosher's estate.
(b) Arbitration. Any disputes, controversies, or claims arising
out of or related to this Agreement ("Disputes") shall be resolved by binding
arbitration in accordance with the provisions of Exhibit B.
(c) Amendment; Waiver. This Agreement may not be modified,
amended or waived in any manner except by an instrument in writing signed by
both parties hereto; provided, however, that any such modification, amendment or
waiver on the part of the Company shall have been previously approved by the
Board. The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other provision of this Agreement or of any subsequent breach by such party
of a provision of this Agreement.
<PAGE>
(d) Tax Withholding. Payments to Mosher of all compensation
contemplated under this Agreement shall be subject to all applicable legal
requirements with respect to the withholding of taxes and social security
contributions.
(e) Governing Law. All matters affecting this Agreement,
including the validity thereof, are to be governed by, and interpreted and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State.
(f) Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Mosher, the notice shall be delivered or mailed to
Mosher at the address first set forth above, or if addressed to the Company, the
notice shall be delivered or mailed to Continental Information Systems
Corporation, One Northern Concourse, North Syracuse, New York 13212, Attention:
Secretary, or such other address as the Company or Mosher may designate by
written notice at any time or from time to time to the other party. A notice
shall be deemed given, if by personal delivery, on the date of such delivery or,
if by certified mail, on the date shown on the applicable return receipt.
(g) Effect on Previous Agreements. This agreement supersedes the
"change-in-control" agreement dated January 4, 1995, between Mosher and the
Company, all prior oral or written employment agreements between Mosher and the
Company, and all prior or contemporaneous negotiations, commitments, agreements,
and writings with respect to the subject matter hereof; all such other
negotiations, commitments, agreements, and writings will have no further force
or effect; and the parties to any such other negotiation, commitment, agreement,
or writing will have no further rights or obligations thereunder.
(h) Counterparts. Either of the parties hereto may execute this
Agreement in counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same instrument.
(i) Headings. The headings of sections herein are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
(j) Term. This agreement will expire one year from the date
hereto, unless extended in writing by both parties hereto.
If you are in agreement with the foregoing, please execute in the
space provided below for your signature, whereupon this Agreement shall
constitute a binding Agreement between Mosher and the Company.
CONTINENTAL INFORMATION SYSTEMS CORPORATION
By: /s/ JAMES P. HASSETT
---------------------
Name: James P. Hassett
Authorized Signatory
ACCEPTED AND AGREED:
/s/ JAMES J. MOSHER
---------------
James J. Mosher
Date: 11/4/96
<PAGE>
EXHIBIT A
Definitions of Terms Relating to Severance
1. Severance Event: Termination by the Company of Mosher's
employment other than for Cause, or resignation by Mosher from the Company for
Good Reason.
2. Cause: Termination by the Company of Mosher's employment upon
(a) Mosher's willful and continued failure to substantially perform his duties
with the Company (other than any such failure resulting from his incapacity due
to physical or mental illness), or (b) Mosher's willfully engaging in misconduct
that is materially injurious to the Company, monetarily or otherwise. For
purposes of this paragraph, no act, or failure to act, on Mosher's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding the foregoing, Mosher shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to Mosher a copy of a Notice of Termination from the Board, after
reasonable notice to Mosher and an opportunity for him and his counsel to be
heard before the Board, finding that in the good faith opinion of the Board he
has engaged in conduct warranting termination for cause under clauses (a) and
(b) above.
3. Good Reason: Mosher's resignation of his employment with the
Company within 120 days following the occurrence of any of the following events:
(a) Reduction of Mosher's annual base salary below
$95,000;
(b) Without Mosher's written consent and measured
against his status as of July 11, 1996, the
assignment to him of any duties at a level below his
positions, duties, responsibilities, and status, or
a reduction in his reporting responsibilities,
titles, or offices, or any removal of him from or
any failure to re-elect him to any such positions,
except in connection with the termination of his
employment for Cause, disability, or retirement or
as a result of his death, or by him other than for
Good Reason; or
(c) The Company (i) does not allow Mosher to participate
in any employee benefit plan on the same terms and
conditions made available to other senior executive
personnel, or (ii) unilaterally makes a materially
adverse change in the economic terms of any
incentive or bonus plan in which Mosher is entitled
to participate; provided, that the foregoing shall
not restrict the Board's discretion to award
bonuses, stock options, or other incentive
compensation in such amounts as it determines;
In the event that Mosher does not resign within 120 days of the occurrence of
any of the foregoing events, his rights with respect to such Good Reason shall
be deemed waived by Mosher.
<PAGE>
4. Notice of Termination: A written notice which shall indicate
the specific termination provision in this Agreement that is relied upon by the
party terminating Mosher's employment and which shall summarize the basis for
termination of Mosher's employment. Any purported termination by the Company for
Cause, or Mosher's resignation for Good Reason shall be communicated by Notice
of Termination to the other party hereto.
5. Date of Termination: (a) if Mosher's employment is terminated
for Cause, the date specified by the Company in the Notice of Termination, and
(b) if Mosher's employment is terminated by Mosher for Good Reason, the date on
which the Notice of Termination is given.
6. Continued Benefits: The following benefits, which shall be
maintained in full force and effect by the Company for the benefit of Mosher and
his surviving dependents for the applicable period: all life insurance, medical,
health and accident, and disability plans, programs or arrangements in which
Mosher was entitled to participate immediately prior to the Severance Event,
provided that Mosher's continued participation is possible under the general
terms and provisions of such plans and programs. In the event that Mosher's
participation in any such plan or program is barred, the Company shall make
reasonable efforts to obtain insurance for Mosher that would provide him with
benefits substantially similar to those which Mosher is entitled to receive
under such plans and programs, but the Company shall not provide those benefits
directly if they cannot be obtained through insurance and shall not be obligated
to pay premiums in excess of two (2) times the group rate previously paid on his
behalf. Mosher agrees that any such coverage will reduce the applicable period
for which coverage might have to be offered under applicable federal or state
laws. Nothing in this provision shall provide eligibility for bonuses, vacation,
or pension or profit-sharing programs after the Severance Event, except as
otherwise required by the generally-applicable terms of those programs.
<PAGE>
EXHIBIT B
Arbitration Provisions
1. Any arbitration required under Section 2(b) of this Agreement
shall be administered by the American Arbitration Association ("AAA"), and shall
be conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"), as such Rules may be amended from time to
time, with the hearing locale to be Syracuse, New York, unless some other
location and/or arbitrator are chosen by mutual consent of the Company and
Mosher.
2. A single neutral arbitrator shall preside over the arbitration
and decide the Dispute (the "Decision"). The AAA shall use its normal procedures
pursuant to the Rules for selection of an arbitrator.
3. The Decision shall be binding, and the prevailing party may
enforce such decision in any court of competent jurisdiction.
4. The parties shall cooperate with each other in causing the
arbitration to be held in as efficient and expeditious a manner as practicable
and in this connection to furnish such documents and make available such persons
as the Arbitrator may request.
5. The parties have selected arbitration in order to expedite the
resolution of Disputes and to reduce the costs and burdens associated with
litigation. The parties agree that the Arbitrator should take these concerns
into account when determining whether to authorize discovery and, if so, the
scope of permissible discovery and other hearing and pre-hearing procedures.
6. Without limiting any other remedies that may be available
under applicable law, the Arbitrator shall have no authority to award punitive
damages.
7. The Arbitrator shall render a Decision within ninety (90) days
after accepting an appointment to serve as Arbitrator unless the parties
otherwise agree or the Arbitrator makes a finding that a party has carried the
burden of showing good cause for a longer period.
8. All proceedings and decisions of the Arbitrator shall be
maintained in confidence, to the extent legally permissible, and shall not be
made public by any party or any Arbitrator without the prior written consent of
all parties to the arbitration, except as may be required by law.
9. Each party shall bear its own costs and attorneys' fees, and
the parties shall equally bear the fees, costs, and expenses of the Arbitrator
and the arbitration proceedings; provided, however, that the Arbitrator may
exercise discretion to award costs, but not attorneys' fees, to the prevailing
party.
October 23, 1996
Mr. Thomas J. Prinzing
8237 Penstock Way
Manlius, NY 13104
Dear Mr. Prinzing:
This letter updates, revises, and supersedes the letter agreement
between Continental Information Systems Corporation (the "Company") and Thomas
J. Prinzing ("Prinzing") dated December 6, 1995, and sets forth the current
agreement between the same parties with respect to certain severance and
compensation matters.
In consideration of Prinzing's serving in the office of President
and Chief Executive Officer ("CEO"), the Company agrees as follows:
1. Base Salary.
Effective December 14, 1995, and for so long as Prinzing serves
as CEO, Prinzing shall receive a base salary of $225,000 per year, or such
greater amount as is approved by the Board of Directors.
2. Severance.
(a) Prinzing shall be entitled to receive the following severance
benefits upon the occurrence of a Severance Event (as defined in Exhibit A): (1)
a severance payment equal to eighteen (18) months base salary as in effect on
the date of the Severance Event, payable, at Prinzing's option in a lump sum or
in 18 equal monthly installments; (2) Continued Benefits (as defined in Exhibit
A) until the earlier of eighteen (18) months from the date of the Severance
Event or the commencement by Prinzing of full time employment by another
employer;
(b) Prinzing shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment, nor, except
as provided in Section 2(a) above, shall the amount or term of any payment or
benefits provided for in this Agreement be reduced by any compensation or
benefits earned by Prinzing as the result of employment by another employer
after the Date of Termination (as defined in Exhibit A), or otherwise.
3. General Provisions.
(a) Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto, any successors to or assigns of the
Company and Prinzing's heirs and the personal representatives of Prinzing's
estate.
(b) Arbitration. Any disputes, controversies, or claims arising
out of or related to this Agreement ("Disputes") shall be resolved by binding
arbitration in accordance with the provisions of Exhibit B.
<PAGE>
(c) Amendment; Waiver. This Agreement may not be modified,
amended or waived in any manner except by an instrument in writing signed by
both parties hereto; provided, however, that any such modification, amendment or
waiver on the part of the Company shall have been previously approved by the
Board. The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other provision of this Agreement or of any subsequent breach by such party
of a provision of this Agreement.
(d) Tax Withholding. Payments to Prinzing of all compensation
contemplated under this Agreement shall be subject to all applicable legal
requirements with respect to the withholding of taxes and social security
contributions.
(e) Governing Law. All matters affecting this Agreement,
including the validity thereof, are to be governed by, and interpreted and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State.
(f) Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Prinzing, the notice shall be delivered or mailed to
Prinzing at the address first set forth above, or if addressed to the Company,
the notice shall be delivered or mailed to Continental Information Systems
Corporation, One Northern Concourse, North Syracuse, New York 13212, Attention:
Secretary, or such other address as the Company or Prinzing may designate by
written notice at any time or from time to time to the other party. A notice
shall be deemed given, if by personal delivery, on the date of such delivery or,
if by certified mail, on the date shown on the applicable return receipt.
(g) Effect on Previous Agreements. This agreement supersedes the
"change-in-control" agreement dated January 4, 1995, between Prinzing and the
Company, all prior oral or written employment agreements between Prinzing and
the Company, and all prior or contemporaneous negotiations, commitments,
agreements, and writings with respect to the subject matter hereof; all such
other negotiations, commitments, agreements, and writings will have no further
force or effect; and the parties to any such other negotiation, commitment,
agreement, or writing will have no further rights or obligations thereunder.
(h) Counterparts. Either of the parties hereto may execute this
Agreement in counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same instrument.
(i) Headings. The headings of sections herein are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
(j) Term. This agreement will expire one year from the date
hereof, unless extended in writing by both parties hereto.
<PAGE>
If you are in agreement with the foregoing, please execute in the
space provided below for your signature, whereupon this Agreement shall
constitute a binding Agreement between Prinzing and the Company.
CONTINENTAL INFORMATION SYSTEMS CORPORATION
By: /s/ JAMES P. HASSETT
---------------------
Name: James P. Hassett
Authorized Signatory
ACCEPTED AND AGREED:
/s/ THOMAS J. PRINZING
------------------
Thomas J. Prinzing
Date: November 1, 1996
<PAGE>
EXHIBIT A
Definitions of Terms Relating to Severance
1. Severance Event: Termination by the Company of Prinzing's
employment other than for Cause, or resignation by Prinzing from the Company for
Good Reason.
2. Cause: Termination by the Company of Prinzing's employment
upon (a) Prinzing's willful and continued failure to substantially perform his
duties with the Company (other than any such failure resulting from his
incapacity due to physical or mental illness), or (b) Prinzing's willfully
engaging in misconduct that is materially injurious to the Company, monetarily
or otherwise. For purposes of this paragraph, no act, or failure to act, on
Prinzing's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
Prinzing shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Prinzing a copy of a Notice of Termination
from the Board, after reasonable notice to Prinzing and an opportunity for him
and his counsel to be heard before the Board, finding that in the good faith
opinion of the Board he has engaged in conduct warranting termination for cause
under clauses (a) and (b) above.
3. Good Reason: Prinzing's resignation of his employment with the
Company within 120 days following the occurrence of any of the following events:
(a) Reduction of Prinzing's annual base salary below
$225,000;
(b) Without Prinzing's written consent and measured
against his status as of December 14, 1995, the
assignment to him of any duties at a level below his
positions, duties, responsibilities, and status, or
a reduction in his reporting responsibilities,
titles, or offices, or any removal of him from or
any failure to re-elect him to any such positions,
except in connection with the termination of his
employment for Cause, disability, or retirement or
as a result of his death, or by him other than for
Good Reason; or
(c) The Company (i) does not allow Prinzing to
participate in any employee benefit plan on the same
terms and conditions made available to other senior
executive personnel, or (ii) unilaterally makes a
materially adverse change in the economic terms of
any incentive or bonus plan in which Prinzing is
entitled to participate; provided, that the
foregoing shall not restrict the Board's discretion
to award bonuses, stock options, or other incentive
compensation in such amounts as it determines;
In the event that Prinzing does not resign within 120 days of the occurrence of
any of the foregoing events, his rights with respect to such Good Reason shall
be deemed waived by Prinzing.
<PAGE>
4. Notice of Termination: A written notice which shall indicate
the specific termination provision in this Agreement that is relied upon by the
party terminating Prinzing's employment and which shall summarize the basis for
termination of Prinzing's employment. Any purported termination by the Company
for Cause, or Prinzing's resignation for Good Reason shall be communicated by
Notice of Termination to the other party hereto.
5. Date of Termination: (a) if Prinzing's employment is
terminated for Cause, the date specified by the Company in the Notice of
Termination, and (b) if Prinzing's employment is terminated by Prinzing for Good
Reason, the date on which the Notice of Termination is given.
6. Continued Benefits: The following benefits, which shall be
maintained in full force and effect by the Company for the benefit of Prinzing
and his surviving dependents for the applicable period: all life insurance,
medical, health and accident, and disability plans, programs or arrangements in
which Prinzing was entitled to participate immediately prior to the Severance
Event, provided that Prinzing's continued participation is possible under the
general terms and provisions of such plans and programs. In the event that
Prinzing's participation in any such plan or program is barred, the Company
shall make reasonable efforts to obtain insurance for Prinzing that would
provide him with benefits substantially similar to those which Prinzing is
entitled to receive under such plans and programs, but the Company shall not
provide those benefits directly if they cannot be obtained through insurance and
shall not be obligated to pay premiums in excess of two (2) times the group rate
previously paid on his behalf. Prinzing agrees that any such coverage will
reduce the applicable period for which coverage might have to be offered under
applicable federal or state laws. Nothing in this provision shall provide
eligibility for bonuses, vacation, or pension or profit-sharing programs after
the Severance Event, except as otherwise required by the generally-applicable
terms of those programs.
<PAGE>
EXHIBIT B
Arbitration Provisions
1. Any arbitration required under Section 3(b) of this Agreement
shall be administered by the American Arbitration Association ("AAA"), and shall
be conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"), as such Rules may be amended from time to
time, with the hearing locale to be Syracuse, New York, unless some other
location and/or arbitrator are chosen by mutual consent of the Company and
Prinzing.
2. A single neutral arbitrator shall preside over the arbitration
and decide the Dispute (the "Decision"). The AAA shall use its normal procedures
pursuant to the Rules for selection of an arbitrator.
3. The Decision shall be binding, and the prevailing party may
enforce such decision in any court of competent jurisdiction.
4. The parties shall cooperate with each other in causing the
arbitration to be held in as efficient and expeditious a manner as practicable
and in this connection to furnish such documents and make available such persons
as the Arbitrator may request.
5. The parties have selected arbitration in order to expedite the
resolution of Disputes and to reduce the costs and burdens associated with
litigation. The parties agree that the Arbitrator should take these concerns
into account when determining whether to authorize discovery and, if so, the
scope of permissible discovery and other hearing and pre-hearing procedures.
6. Without limiting any other remedies that may be available
under applicable law, the Arbitrator shall have no authority to award punitive
damages.
7. The Arbitrator shall render a Decision within ninety (90) days
after accepting an appointment to serve as Arbitrator unless the parties
otherwise agree or the Arbitrator makes a finding that a party has carried the
burden of showing good cause for a longer period.
8. All proceedings and decisions of the Arbitrator shall be
maintained in confidence, to the extent legally permissible, and shall not be
made public by any party or any Arbitrator without the prior written consent of
all parties to the arbitration, except as may be required by law.
9. Each party shall bear its own costs and attorneys' fees, and
the parties shall equally bear the fees, costs, and expenses of the Arbitrator
and the arbitration proceedings; provided, however, that the Arbitrator may
exercise discretion to award costs, but not attorneys' fees, to the prevailing
party.
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 6-MOS
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<PERIOD-END> NOV-30-1996
<CASH> 11,948
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<RECEIVABLES> 9,613
<ALLOWANCES> (55)
<INVENTORY> 7,102
<CURRENT-ASSETS> 28,608
<PP&E> 10,292
<DEPRECIATION> (7,485)
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<CURRENT-LIABILITIES> 1,607
<BONDS> 4,153
0
0
<COMMON> 70
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<SALES> 15,532
<TOTAL-REVENUES> 20,072
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<NET-INCOME> 1,808
<EPS-PRIMARY> .26
<EPS-DILUTED> 0
</TABLE>
