U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT ISSUED UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the 39--week period ended Commission file
March 27, 1999 Number 2-99212-A
PALLET MANAGEMENT SYSTEMS, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2197020
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(State or other jurisdiction of (IRS Employer Identification
incorporation) Number)
One S. Ocean Boulevard, Suite 305, Boca Raton, Florida 33432
------------------------------------------------------------
(Address of principal executive offices)
(561) 338-7763
--------------
Registrant's telephone number, including area code:
-------------------------------------------
(Former name or address if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or 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
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
On April 25, 1999, the Registrant had outstanding 3,917,612 shares of
common stock, $.001 par value.
<PAGE>
PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Year Ended
March 27, June 27,
ASSETS 1999 1998
---- ----
CURRENT ASSETS Audited
<S> <C> <C>
Cash $ 349,281 $ 401,166
Accounts Receivable - trade, net of allowance
for doubtful accounts 2,181,882 1,691,827
Inventories 2,163,427 1,175,346
Other Current Assets 484,481 155,731
----------- -----------
Total current assets 5,179,071 3,424,070
Property and equipment - net of accumulated
depreciation 4,342,520 2,966,946
Other assets 339,925 41,572
----------- -----------
$ 9,861,516 $ 6,432,588
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 1,123,446 $ 2,127,888
Accounts payable - trade 1,287,246 593,521
Accrued liabilities 897,895 406,761
----------- -----------
Total current liabilities 3,308,587 3,128,170
----------- -----------
LONG TERM DEBT
Deferred income tax -0- 31,381
Long-term debt 425,466 1,097,595
----------- -----------
425,466 1,128,976
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares at $.001 par value;
issued and outstanding 3,917,612 shares at March 27, 1999 and
2,342,034 at June 27, 1998 3,918 2,342
Additional paid in capital 6,948,704 4,526,340
Unrealized gain on securities available for sale 8,671 13,477
Retained earnings (deficit) (833,830) (2,366,718)
----------- -----------
TOTAL STOCKHOLDERS EQUITY 6,127,463 2,175,441
----------- -----------
$ 9,861,516 $ 6,432,587
=========== ===========
</TABLE>
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<PAGE>
PALLET MANAGEMENT SYSTEMS
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
Mar. 27, Mar. 28, Mar. 27, Mar. 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 10,747,042 $ 6,718,390 $ 29,470,130 $ 16,463,025
Cost of goods sold 9,517,737 $ 5,964,884 25,748,770 14,874,197
------------ ------------ ------------ ------------
Gross profit 1,229,305 753,506 3,721,360 1,588,828
Selling, general and administrative expense
770,882 508,649 2,159,956 1,411,390
------------ ------------ ------------ ------------
Operating profit 458,423 244,857 1,561,404 177,438
Other income (expense)
Other income (expense) (155,823) 60,161 (1,778) 60,161
Interest expense (67,707) (74,195) (248,619) (282,870)
------------ ------------ ------------ ------------
Earnings before income taxes 234,893 230,823 1,311,007 (45,271)
Income tax expense (benefit) (221,881) 0 (221,881) 0
------------ ------------ ------------ ------------
Net earnings (loss) $ 456,774 $ 230,823 $ 1,532,888 (45,271)
============ ============ ============ ============
Net earnings (loss) per common share
$ 0.11 $ 0.13 $ 0.44 ($ 0.03)
------------ ------------ ------------ ------------
Diluted earnings (loss) per common share $ 0.08 $ 0.06 $ 0.33 *
------------ ------------ ------------ ------------
</TABLE>
* exercise of warrants and options would be anti-dilutive
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<PAGE>
PALLET MANAGEMENT SYSTEMS
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
13 Weeks Ended 39 Weeks Ended
-------------- --------------
- ----------------------------------------------------------------------------------------------------------------
Mar. 27, Mar. 28, Mar. 27, Mar. 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 456,774 $ 230,823 $ 1,532,888 ($ 45,271)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities:
Depreciation 124,221 104,727 354,067 302,772
(Incr.) Decr. in operating assets:
Accounts receivable (322,224) (329,201) (490,055) 113,640
Inventories (155,456) 102,657 (781,250) (256,461)
Prepaid expenses (144,061) (52,092) (328,750) (49,020)
Income tax refund receivable 0 0 0 0
Other assets (225,664) (41,884) (303,160) (80,663)
Incr. (Decr.) in operating assets:
Accounts payable 640,254 (167,944) 693,724 235,268
Accrued liabilities and taxes 245,330 (23,554) 491,133 (192,182)
Deferred credits (31,381) 0 (31,381) 0
----------- ----------- ----------- -----------
Net cash provided by (used in)
Operating activities 587,793 (176,468) 1,137,216 28,083
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (905,135) (140,057) (1,936,469) (449,962)
----------- ----------- ----------- -----------
Net cash (used in) investing (905,135) (140,157) (1,936,469) (449,962)
----------- ----------- ----------- -----------
activities
Cash flows from financing activities:
Borrowing from (Payments to) lenders (1,105,698) 6,589 (1,676,572) (377,921)
Capital contributed 120,000 2,700 2,423,940 784,591
----------- ----------- ----------- -----------
Net cash (used in) provided by
Financing activities (985,697) 9,289 747,368 406,670
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH (1,303,039) (307,236) (51,885) (15,209)
Cash at beginning of period 1,652,320 529,474 401,166 237,447
----------- ----------- ----------- -----------
Cash at end of period $ 349,281 $ 222,238 $ 349,281 $ 222,238
=========== =========== =========== ===========
</TABLE>
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<PAGE>
Pallet Management Systems, Inc.
Notes to Financial Statements
March 27, 1999
Note 1. Consolidated Financial Statements:
The consolidated balance sheet as of March 27, 1999, and the
consolidated statement of operations and cash flows for the 13 week and 39
week periods ended March 27, 1999 and March 28, 1998 have been prepared by
the Company without audit. In the opinion of management, all adjustments
necessary to present fairly the financial position, results of operations
and cash flows for the periods reported have been made. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and the
notes thereto as of June 30, 1998.
Certain prior year amounts within the accompanying financial statements
have been reclassified to conform to the current year presentation.
Note 2. Net Earnings (Loss) per Share of Common Stock:
Net earnings (loss) per share was computed using the weighted average
number of shares outstanding based on the consolidated results of the
Company for the periods presented. On January 29, 1998, the shareholders
voted for a one-for-four reverse stock split which took place February 16,
1998. All stock data and per share amounts in the consolidated financial
statements have been revised to reflect this reverse stock split. A
reconciliation of weighted average shares outstanding for purposes of
computing basic earnings per share and diluted earnings per share for the 13
and 39 week period ended March 27, 1999 is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
13 weeks ended 39 weeks ended
March 27, 1999 March 27, 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average shares outstanding - basic earnings per common share 3,917,612 3,466,073
-------------------------------------------------------------------------------------------------------------------------
Assumed exercise of warrants and options 1,690,434 1,690,434
-------------------------------------------------------------------------------------------------------------------------
Assumed repurchase of shares from proceeds of assumed exercise of
warrants and options, at average market value during period
(434,907) (520,628)
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Weighted average shares outstanding - diluted earnings per
common share 5,173,139 4,635,880
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 3. Stockholders' Equity:
During the 13 week and 39 week periods ended March 27, 1999
stockholders' equity changed for the following items:
<TABLE>
<CAPTION>
13 Weeks 39 Weeks
Mar. 27, 1999 Mar. 27, 1999
------------- -------------
<S> <C> <C>
Common stock sold -0- 1,576
Additional paid-in capital 120,000 2,422,364
Current net income 456,774 1,532,888
</TABLE>
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<PAGE>
PART I
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction
with the financial statements appearing as Item 1 to this Report. These
financial statements reflect the consolidated operations of Pallet Management
Systems, Inc. (the "Company") for the 13 and 39 week periods ended March 27,
1999 and March 28, 1998.
Results of Operations
- ---------------------
General
- -------
The Company provides major manufacturers and distributors with
value-added transport packaging components and packaging logistics management.
The Company provides a broad variety of pallet products and related services,
including the manufacture and distribution of new pallets; the recycling of
pallets (including used pallet retrieval, repair and recycling); maintenance of
depot operations and the sorting and storage of transport packaging and other
transport packaging for selected customers.
The pallet is the base component for the transportation and warehousing
of most packaging. Pallets allow goods to be transported or warehoused
economically by providing a foundation for the use of forklifts and vertical
storage. Most commonly associated with a four-foot square wood platform, pallets
are also engineered from various materials in varying dimensions. The pallet, a
little known entity to the consumer, is a key factor to worldwide retail and
industrial distribution. Without pallets, shipping by air, land and sea would be
severely hampered. The pallet industry in the United States has grown to
approximately $6 billion and plays a vital role in commercial transportation and
distribution today. The industry is characterized by many small, localized,
and/or specialized companies that usually have an operational radius of less
than 100 miles, none of which individually has any appreciable market impact.
There is no industry dominator and it is free from government regulation.
The Company focuses on total solutions for its customers' pallet and
packaging requirements through comprehensive products and services, including
manufacturing and distributing new and recycled pallets as well as the
systematic collection, repair, return and reuse of pallets and other types of
packaging. Due to rising costs and increasing competition, the industry's gross
profit for typical four-foot square wooden pallets has decreased over the years.
Consequently, the Company is focused on manufacturing specially engineered
pallets for niche markets and transport packaging services.
The Company anticipates that over the next 12 to 18 months a
substantial portion of its revenues will be from the manufacture of CHEP
pallets, which have a lower gross margin than specialty pallets. The Company
intends to focus its expansion on transport packaging services.
The Company has a customer base of over 200, many of which are Fortune
500 companies, including AlliedSignal, Bethlehem Steel, Canon, CHEP America,
DuPont, IAMS, Metal Container, Mitsubishi, Scotts Company, Siemens, Disney,
Westvaco and various governmental agencies.
13 Weeks Ended March 27, 1999 compared to 13 Weeks Ended March 28, 1999
- -----------------------------------------------------------------------
For the 13 week period ended March 27, 1999 net sales increased to
$10,747,042 from $6,718,390 for the comparable 1998 period. This 59.96% increase
was due primarily to increased production at the company's new pallet
manufacturing facility in Rogersville, Alabama.
During the 13 week period ended March 27, 1999 new pallet manufacturing
sales increased 67.14% to $8,169,819 from $4,888,000 and services (depot,
repair, logistical services and sales of used pallets) increased by 51.69% to
$2,577,223 from $1,699,000 for the 13 week period ended March 28, 1998. The
sales increase in pallet recycling was in used CHEP storage and sorting. The
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<PAGE>
gross margin for this 13 week period was 11.4% as compared to 11.2% for the
prior year's 13 week period. This slight increase in gross margin was due to
better utilization of raw material resources and improved product mix. The
Company experienced a $262,233 (51.55%) increase in Selling, General and
Administrative expenses for the 13 week period ended March 27, 1999 when
compared to March 28, 1998. SG & A increased because of the addition of key
management personnel to handle the Company's expansion, as well as being in a
transitional phase at the Bolingbrook and Lawrenceville manufacturing
facilities. The Company experienced a $6,488 (8.74%) decrease in interest
expense for the 13 week period ended March 27, 1999. This decrease in interest
is a result of less borrowings resulting from better cash flow. The Company has
recently entered into a new financing agreement with a new lender, as discussed
below, that has enabled the Company to move forward with its expansion plans and
to lower its borrowing costs. Net income of $456,774 or $0.11 per share was
realized during the 13 week period ended March 27, 1999 compared to a net profit
of $230,823 or $0.13 per share recorded for the same period last year. Start-up
costs at a new facility in the Chicago area as well as relocating equipment to
this new facility affected both sales and profits during this period. The
Company did record a $221,881 net tax benefit on the net income due to the
projected utilization of prior years' net operating loss carryovers.
During this 13 week period, the Company continued to upgrade its
computer equipment and systems as well as commence installation of new computer
equipment at the Company's new Raleigh, North Carolina offices. The Company's
new facility in Rogersville, Alabama, which commenced operations in September
1998, became fully staffed this period and runs two shifts of production.
During the end of this period, the Company entered into a five-year
lease for a 110,000 square foot building in Bolingbrook, Illinois, which is in
the Chicago area. Pallet manufacturing equipment was relocated from the
Lawrenceville facility to the new Bolingbrook facility, where it will be better
utilized. In addition to this relocated equipment, a new "state-of-the-art"
high-speed pallet manufacturing and assembly line should be installed at the
Bolingbrook facility during the fourth fiscal quarter. As a result of relocating
the manufacturing equipment to Bolingbrook, production for the last month of
this period and the first month of the next period has declined as the equipment
was disassembled and reassembled.
39 Weeks Ended March 27, 1999 compared to 39 Weeks Ended March 28, 1998
- -----------------------------------------------------------------------
For the 39 week period ended March 27, 1999 net sales increased 79.01%
to $29,470,130 from $16,463,025 for the comparable 1998 period.
During the 39 week period ended March 27, 1999 new pallet sales
increased 98.14% to $22,445,717 from $11,328,000, and services increased by
43.71% to $7,024,413 from the $4,825,000 recorded for the same 39 week period
ended March 28, 1998. The gross margin for the 39 week period was 12.63% as
compared to 9.7% achieved for the same 39 week period a year prior. This
increase in gross margin was due to an increase in manufacturing efficiencies,
termination of unprofitable customers, and improved raw material utilization.
The Company experienced a $748,566 (53.03%) increase in Selling, General and
Administrative expenses for the 39 week period ended March 27, 1999 when
compared to March 28, 1998. This increase is a direct result of transition in
manufacturing sites as well as the addition of certain new high level management
personnel. The Company experienced a $34,251 (12.11%) decrease in interest
expense for the 39 week period ended March 27, 1999 as a result of decreased
borrowing due to increased cash flow. Net income of $1,532,888 or $0.33 per
share was realized during the 39 week period ended March 27, 1999 compared to a
loss of $(45,271) or ($0.03) per share recorded for the same period last year.
The Company recorded a net tax benefit during the year of $221,881 from
utilization of net operating loss carryovers from prior years.
Liquidity and Capital Resources
-------------------------------
The Company had $349,281 of cash on hand at March 27, 1999, versus
$401,166 at the beginning of fiscal year 1999. Net cash from operating
activities was $794,624 for the 13 week period and $1,137,216 for the 39 week
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<PAGE>
period. The Company purchased $1,936,469 of fixed assets during the 39 week
period, had net repayments of $1,676,572 of bank borrowings during the 39 week
period and received $2,423,940 from the exercise of warrants. The new equipment
primarily related to the expansion into Alabama and Illinois. The Company is in
the process of securing a $10,000,000 line of credit in a financing agreement
with The National Bank of Canada. This new funding replaces the previous
$3,900,000 financing from American Commercial Finance Corporation. The increased
line of credit is at better terms than American Commercial Finance Corporation
with additional accounts receivable, inventory and equipment financing
availability.
The Company intends to pursue expansion and acquisition plans, which
may include the opening of additional facilities as well as the acquisition of
additional facilities or companies. The success and timing of any such plans and
required capital expenditures are unpredictable and the Company has no current
arrangements with respect to any such acquisition. Funding for such plans could
be a combination of issuance of additional equity, working capital, additional
borrowings, and profits from operations. The Company can not make any assurances
that such funding would become available for such plans.
The Company is in the process of achieving ISO 9002 registration. Once
completed, this process will streamline and enhance internal operations to
better meet customer needs. Many large corporations are now requiring their
vendors to be ISO certified. The Company views this program as a vehicle to
strengthen its ongoing quality program.
Year 2000
- ---------
The Company uses software and related technologies throughout its businesses
that may be affected by the "Year 2000 Problem", which is common to most
businesses and relates to the inability of information systems and computer
software programs to properly recognize and process date-sensitive information
as the year 2000 approaches.
Assessment. The Company has undertaken various initiatives intended to ensure
that its computer equipment and software will function properly with respect to
dates in the Year 2000 and thereafter. For this purpose, the term "computer
equipment and software" includes systems that are commonly thought of as IT
systems, including accounting, data processing, telephone/PBX systems and other
miscellaneous systems, as well as systems that are not commonly thought of as IT
systems, such as alarm systems, fax machines, or other miscellaneous systems.
Both IT and non-IT systems may contain embedded technology and complicate the
Company's Year 2000 identification, assessment, recycling, and testing efforts.
Internal Systems. Based upon its identification and assessment efforts to date,
the Company believes that substantially all of its computer equipment and
software are Year 2000 compliant. The Company has recently upgraded its computer
systems and believes that it has minimized the detrimental effects of any Year
2000 Problem. Utilizing both internal and external resources to identify and
assess needed Year 2000 remediation, the Company anticipates that its Year 2000
identification, assessment, remediation and testing efforts, which began in the
fourth quarter 1998, are expected to be completed by second quarter 1999, and
that these efforts will be completed prior to any currently anticipated impact
on its computer equipment and software.
The Company believes that substantially all of its manufacturing equipment are
not affected by Year 2000 issues.
Suppliers. The Company has mailed letters to its significant vendors
and service providers to determine the extent to which interfaces with such
entities are vulnerable to Year 2000 issues and whether the products and
services purchased from or by such entities are Year 2000 compliant. As of March
27, 1999 the Company had received responses from approximately 25% of these
third parties, and all of them that have responded have provided written
assurance that they expect to address all their significant Year 2000 issues on
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<PAGE>
a timely basis. A follow-up mailing to significant vendors and service providers
that did not initially respond, or whose responses were deemed unsatisfactory by
the Company, will be conducted in May 1999.
Costs. The Company believes that the cost of its Year 2000
identification, assessment, remediation and testing efforts, as well as
currently anticipated costs to be incurred by the Company with respect to Year
2000 issues of third parties, will not exceed $100,000 and will be funded from
current existing financial resources. As of March 27, 1999, the Company had
incurred costs of approximately $35,000 related to its Year 2000 identification,
assessment, remediation and testing efforts. These costs were for planning,
analysis, repair or replacement of existing software, upgrades of existing
software, or evaluation of information received from significant vendors,
service providers, or customers.
If all Year 2000 issues are not properly identified, or assessment,
remediation and testing of those Year 2000 problems that are identified is not
effected in a timely manner, there can be no assurance that the Year 2000 issue
will not materially adversely impact the Company's results of operations or
adversely affect the Company's relationships with customers, vendors, or others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities will not have a material adverse impact on the Company's systems or
results of operations.
Contingency Plan. The Company has not yet completed a comprehensive
analysis of the operational problems and costs (including loss of revenues) that
would be reasonably likely to result from the failure by the Company and certain
third parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. The Company has no contingency plan for dealing with the most
reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by September 30, 1999. Virginia Power, which supplies two
of the Company's facilities, has told the Company that they cannot assure
compliance and that potential power disruptions are possible. The Company
believes that there is no viable alternative for the expected temporary power
disruption. The Company has also switched nail suppliers to those that are Year
2000 compliant to minimize the disruption of supplies.
The costs of the Company's Year 2000 identification, assessment,
remediation and testing efforts and the dates on which the Company believes it
will complete such efforts are based upon management's best estimates, which
were derived using numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans, and
other factors. The Company cannot assure you that these estimates will prove to
be accurate, and actual results could differ materially from those currently
anticipated. Specific factors that could cause material differences include, but
are not limited to, the availability and cost of personnel trained in Year 2000
issues, the ability to identify, assess, remediate and test all relevant
computer codes and embedded technology and other similar uncertainties. In
addition, variability of definitions of "compliance with Year 2000" and the
variety of different products and services and combinations thereof sold by the
Company may lead to claims relating to Year 2000 compliance whose impact on the
Company is not currently estimable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None.
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
On January 7, 1999, the Company held its annual meeting of
shareholders. At the meeting (i) all five director nominees were elected,
(ii) the Company's 1998 Omnibus Stock Option Plan was approved and ratified,
and (ii) the appointment of Kaufman Rossin & Co. as the independent auditors
was ratified.
(i) The following directors were elected for a one-year term by the votes
indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Name Votes For Votes Against Abstain
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John C. Lucy, III 3,154,420 1,100 16,685
- -----------------------------------------------------------------------------------------------------------------
Zachary M. Richardson 3,154,420 1,100 16,685
- -----------------------------------------------------------------------------------------------------------------
John C. Lucy, II 3,154,420 1,100 16,685
- -----------------------------------------------------------------------------------------------------------------
Donald Radcliffe 3,154,420 1,100 16,685
- -----------------------------------------------------------------------------------------------------------------
David W. Sass 3,154,420 1,100 16,685
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(ii) The Company's Omnibus Stock Option Plan was approved and ratified by a
vote of 1,242,785 for, 89,765 against and 16,135 abstaining.
(iii) The appointment of Kaufman Rossin & Co. was ratified by a vote of
3,136,395 for, 27,000 against and 8,810 abstaining.
Item 5. Other Information
David Shumate was appointed Executive Vice President and Secretary of
the Company in February 1999 and is responsible for manufacturing, sales and
marketing and customer service. From 1994 until joining the Company he was
Senior Vice President of the Southeast Region for CHEP, where he was
instrumental in establishing a national customer service and sales organization
for the distributor network.
Leo J. Ryan was elected Vice President-Finance, Treasurer and Assistant
Secretary in March 1999. From 1979 to February 1999, Mr. Ryan was a business
advisor to small and medium sized firms on mergers and acquisitions and raising
capital. He also spent over 15 years in banking with Chase Manhattan Bank in New
York and Union Bank in Los Angeles. He also was member of the Board of Directors
of Union Venture Corporation, the venture capital subsidiary of Union Bank. He
also has acted as a crisis manager for some businesses restructuring their
finances, and renegotiating their lending relationships.
In January 1999, the Company entered into a Understanding of
Compensation with David Shumate. Pursuant to this arrangement, Mr. Shumate is
paid at an annual rate of $156,000 and is entitled to a bonus based on the
Company's pretax earnings. Mr. Shumate was also granted options to purchase
20,000 shares of Common Stock and 25,000 stock appreciation rights that vest
only upon a "Change of Control." Mr. Shumate's employment may be terminated by
the Company at any time with or without cause without any payment by the
Company.
In March 1999, the Company entered into an employment agreement with
Leo Ryan. Pursuant to the terms of the three-year agreement, Mr. Ryan is
entitled to receive (i) annual base compensation of $90,000, which increases in
future years by the percentage increase of the Consumer Price Index and (ii) a
bonus up to 25% of base salary based on the increase in pretax earnings per
share over the prior year. The agreement also provides for annual grants of
stock options commencing in fiscal 2000 equal to .25% of the then outstanding
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number of shares at the then fair market value and the granting of 15,000 stock
appreciation rights that vest only upon a "Change of Control" as defined in the
Agreement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulations S-B.
10.1 Employment Agreement between the Company and John C. Lucy, III (1)
10.2 Employment Agreement between the Company and Zachary M. Richardson (1)
10.3 1998 Omnibus Stock Plan (2)
10.4 Understanding of Compensation with David Shumate
10.5 Employment Agreement between the Company and Leo Ryan
27.1 Financial Data Schedule
(1) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB for the period ended December 26, 1998
(2) Incorporated by reference to the Registrant's Proxy Statement filed
November 30, 1998
(b) None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on
behalf by the undersigned thereunto duly authorized.
PALLET MANAGEMENT SYSTEMS, INC.
Dated : April 29, 1999 By:/s/ Zachary M. Richardson
------------------------------------
Zachary M. Richardson, President
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UNDERSTANDING of COMPENSATION
DAVID SHUMATE - EXECUTIVE
1. Employment.
Employment and Term: This Understanding of Compensation does
not establish any contractual relationship; that its provisions, including
salary, hours, benefits and terms and conditions of employment may be changed at
any time by management; and that this Understanding of Compensation is not a
guarantee of future or present employment policies. Neither this Understanding
of Compensation nor any verbal or written statement by any official of Pallet
Management Systems, Inc. is an employment contract and that either the Company
or the Executive can terminate the employment relationship at any time, as
Executive is an "at-will employee".
Duties of Executive. The Executive shall serve as an Executive
Vice and shall perform the duties of an executive commensurate with such
position. Reports to the President of the Company. The Executive shall devote
his full time business hours to the business and affairs of the Company. The Job
Duties of the Executive will consist of, but not limited to the following
description:
<TABLE>
<CAPTION>
<S> <C>
Job Description
Key Goal
- Monitors and Implements Profitability of Company Operations
Areas of Responsibility
- Leadership and Direction of Operations / Sales / Customer Service
- Growth of new business
- Contribute as Member of Executive Team
Objectives
- Second and Third Quarter 1999
- Organization (top priority)
- Develop Organizational Structure
- Increase profit Margins
- Manufacturing (top priority)
- Hire Director of Manufacturing
- Improve Manufacturing Margins
- Remediation
- Develop Network
- Target Companies
- Develop Sales Force
1
<PAGE>
- Sales
- Understand Nelson Capabilities
- Review Personnel
- Develop Sales Force
- Develop Customer Service
- First and Second Quarter 2000
- Manufacturing
- Improve Quality
- ISO 9000 Certification
- Remediation
- Develop Pilot Program
- Position for Long Term Growth
- Sales
- Develop Business Plan for Base Business, Niche Marketing and Remediation
- Develop Sales Training Program
- Institute Sales Performance Management System
- Institute Weekly Reporting
</TABLE>
Place of Performance. In connection with his employment by the
Company, the Executive shall be based at the Company's executive offices in
Cary, North Carolina. The Company has the option to retain the Executive with
the understanding that the Executive will maintain an office in the Atlanta,
Georgia area, with a budget of $500 per month. Any expenses relating to this
office above the budgeted amount will be paid by the Executive. The Company, at
its sole discretion, may require the Executive to relocate to the Cary, North
Carolina area, or any other location where the company has executive offices and
terminate any budget for an office outside of these areas. Any such relocation
shall be at the sole expense of the Executive.
2. Compensation.
Base Salary. The Executive shall receive a base salary at the
weekly rate of $3,000, subject to adjustments herein described (the "Base
Salary"). The Base Salary shall be subject to applicable withholding and other
taxes. Commencing on the Second Anniversary Date (July 1st), and each
Anniversary Date thereafter, the Base Salary shall be increased, but shall not
be decreased, by that percentage by which the Consumer Price Index (All Items
Less Shelter), Urban Wage Earners and Clerical Workers, for Metropolitan Areas
published by the United States Government (the "Index") for the immediately
preceding calendar year exceeds such index for the next preceding calendar year.
If publication of the Index is discontinued, the parties hereto shall accept
comparable statistics on the cost of living as computed and published by an
agency of the United States government or, if no such agency computes and
publishes such statistics, by any regularly published national periodical that
does compute and publish such statistics.
2
<PAGE>
Additional Cash Compensation. Executive shall be entitled to
receive a bonus calculated as follows:
(a) For the fiscal year ending June, 1999, Executive shall
receive a bonus equal to one eighth the percentage of Base Salary annualized,
equal to the percentage that fully diluted pre-tax earnings per share, is in
excess of $.20 up to 15% of Base Salary (if income is $.25, then the bonus would
be 2.5% of base salary earned). Executive shall not be entitled to a bonus if
earnings per share is less than $.20.
(b) For the fiscal year ending June 30, 2000 and future years,
the bonus will be equal to one quarter percentage of Base Salary earned for the
year equal to the percentage increase in fully diluted pre tax earnings per
share over the prior fiscal year up to 50% of Base Salary, provided that the
base for the bonus computation for any year cannot increase more than 100% from
the prior year even if fully diluted pre-tax earnings per share, increases by
more than 100% (i.e., if the fully diluted pre-tax earnings per share for 2000
was $.40 and for 2001 was $1.00, the base for bonus computation purposes will be
$.80 or 100% of the prior year), provided further, that if fully diluted
earnings per share decreases from the prior year base, then no bonus is payable.
(c) Executive's bonus shall be paid no later than ten business
days after the Company files its Annual Report on Form 10-K with the Securities
and Exchange Commission if the Company is a public company, and if not a public
company, within ten business days of the completion of its annual audit.
Stock Options. (a) Effective on the Execution Date, the
Executive shall be granted 20,000 options with an exercise price equal to the
fair market value of the Company's Common Stock on the grant date. The terms
shall be set forth in a separate stock option agreement.
(b) At the beginning of each fiscal year commencing with
fiscal 2000, Executive shall be granted stock options under the Company's stock
option plans to purchase shares of Common Stock equal to not less than one
quarter percent (1/4%) of the shares then outstanding, with an exercise price
equal to the fair market value of the Company's Common Stock on the grant date.
The terms shall be set forth in a separate stock option agreement.
(c) Effective the Commencement Date, Executive shall be
granted 25,000 Stock Appreciation Rights under the Company's stock option plan
that shall vest only upon a "Change of Control" as defined elsewhere. The
exercise price shall be the fair market value of the Company's Common Stock on
the grant date and can only be exercised if the Executive is employed by the
company at the time of exercise.
3. Expense Reimbursement and Other Benefits.
Expense Reimbursement. During the Term, the Company, upon the
submission of supporting documentation by the Executive, and in accordance with
Company policies for its executives, shall reimburse the Executive for all
expenses actually paid or incurred by the Executive in the course of and
pursuant to the business of the Company, including expenses for travel and
entertainment.
3
<PAGE>
Other Benefits. The Company shall obtain or shall continue in
force comprehensive health insurance coverage, including dental coverage, either
group or individual, for the Executive and his dependents, and shall obtain or
shall continue in force disability and life insurance for the Executive, which
the Company shall keep in effect at its sole expense throughout employment. The
life insurance policy shall have a minimum face amount of $250,000 and the
disability insurance shall have the maximum amount obtainable and an elimination
period of not more than one year, as it becomes available. Mr. Shumate shall
have the right to name the beneficiaries of the life insurance policy and, if he
leaves the employ of the Company for any reason, to own the policy and any
benefits therefrom, including any cash value.
Automobile Allowance. The Executive's allowance for
automobile, being $1,000 monthly. The Executive will be reimbursed for all
operating fluids used in the automobile via submission of expense reports.
Vacation. Executive shall be entitled to reasonable vacations
during each year of the Term, the time and duration thereof to be determined by
mutual agreement between Executive and the Company.
4. Restrictive Covenants. - Must sign non-compete and non-
disclosure agreement as attached.
IN WITNESS WHEREOF, this Understanding has been duly signed by the
parties hereto on the day and year first above written.
Date of Execution: January 15, 1999
Date of Commencement: January 31, 1999
PALLET MANAGEMENT SYSTEMS, INC.
By: /s/Zachary M. Richardson
-----------------------------------
ZACHARY M. RICHARDSON, President
/s/ David Shumate
-----------------------------------
DAVID SHUMATE, Executive
4
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the 14st day of March, 1999 by and between PALLET MANAGEMENT SYSTEMS, INC., a
Florida corporation with its principal office at One South Ocean Boulevard,
Suite 305, Boca Raton, Florida 33432 (the "Company"), and LEO RYAN, whose
residence address is 313 Warren Street, South Hill, Virginia (the "Executive").
Recitals
--------
1. The Executive is hired as Vice President of the Finance for the
Company.
2. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
3. The President of the Company recognizes that the Executive's
contribution, as Vice President of the Finance for the Company, to the growth
and success of the Company has been and will be substantial and desires to
assure the Company of the Executive's present and continued employment in an
executive capacity and to compensate him therefor.
4. The President has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
5. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
Agreement
---------
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereby agree as follows:
1. Employment.
1.1 Employment and Term. The Company shall continue to employ the
Executive and the Executive shall continue to serve the Company, on the terms
and conditions set forth herein, for the period (the "Term") effective as of
March 14, 1999 (the "Commencement Date") and expiring on the third anniversary
of the Commencement Date, unless sooner terminated as hereinafter set forth.
1.2 Duties of Executive. The Executive shall serve as Vice President of
the Finance for the Company and shall perform the duties of an executive
commensurate with such position, shall diligently perform all services as may be
reasonably designated by the President and shall exercise such power and
authority as is necessary and customary to the performance of such duties and
services. The Executive shall devote his full time business hours to the
business and affairs of the Company.
1
<PAGE>
1.3 Place of Performance. In connection with his employment by the
Company, the Executive shall be based at the Company's principal executive
offices in Raleigh, North Carolina except for required travel on the Company's.
1.4 Relocation. If at any time the Board determines that it is in the
best interests of the Company to relocate the Company's principal executive
offices to a location other than Raleigh, North Carolina and Executive needs to
relocate to such location in order to perform his duties hereunder, then the
Company shall reimburse Executive for all out-of-pocket relocation expenses for
him and his family, including but not limited to, moving and storage expenses,
temporary living and travel expenses for a reasonable time while arranging to
move his residence to the changed location.
2. Compensation.
2.1 Base Salary. During the Term, the Executive shall receive a base
salary at the annual rate of $90,000, subject to adjustment in accordance with
this Paragraph 2.1 (the "Base Salary"). The Base Salary shall be payable in
substantially equal installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. Commencing on the
first anniversary of the Commencement Date, and each anniversary of the
Commencement Date thereafter during the Term, the Base Salary shall be
increased, but shall not be decreased, by that percentage by which the Consumer
Price Index (All Items Less Shelter), Urban Wage Earners and Clerical Workers,
for Metropolitan Areas published by the United States Government (the "Index")
for the immediately preceding calendar year exceeds such index for the next
preceding calendar year. If publication of the Index is discontinued, the
parties hereto shall accept comparable statistics on the cost of living as
computed and published by an agency of the United States government or, if no
such agency computes and publishes such statistics, by any regularly published
national periodical that does compute and publish such statistics.
2.2 Additional Cash Compensation. Executive shall be entitled to
receive a bonus calculated as follows:
(a) For the fiscal year ending June 30, 1999, Executive shall receive a
bonus equal to one eighth the percentage of Base Salary equal to the percentage
that fully diluted pre-tax earnings per share is in excess of $.20 up to 15% of
Base Salary (for example, if pre-tax earnings per share is $.25, then the bonus
would be 3.12% of Base Salary). Executive shall not be entitled to a bonus if
pre-tax earnings per share is less than $.20.
(b) For the fiscal year ending June 30, 2000 and future years, the
bonus will be equal to one quarter percentage of Base Salary equal to the
percentage increase in fully diluted pre-tax earnings per share over the prior
fiscal year up to 50% of Base Salary, provided that the base for the bonus
computation for any year cannot increase more than 100% from the prior year even
if fully diluted pre-tax earnings per share increases by more than 100% (i.e.,
if the fully diluted pre-tax earnings per share for 2000 was $.40 and for 2001
was $1.00, the base for bonus computation purposes will be $.80 or 100% of the
prior year), provided further, that if fully diluted pre-tax earnings per share
decreases from the prior year base, then no bonus is payable.
2
<PAGE>
(c) Executive's bonus shall be paid no later than ten business days
after the Company files its Annual Report on Form 10-K with the Securities and
Exchange Commission if the Company is a public company, and if not a public
company, within ten business days of the completion of its annual audit.
(d) Executive shall also be entitled to receive such additional
increments in base salary and performance or merit bonuses as shall be
determined from time to time during the Term by the Board (collectively,
"Bonus").
2.3 Stock Options. (a) At the beginning of each fiscal year commencing
with fiscal 2000, Executive shall be granted stock options under the Company's
stock option plans to purchase shares of Common Stock equal to not less than one
quarter percent (1/4%) of the shares then outstanding, with an exercise price
equal to the fair market value of the Company's Common Stock on the grant date.
The terms shall be set forth in a separate stock option agreement, but shall
provide (i) that all options shall immediately vest upon a "Change of Control"
or a termination by the Company without "Cause" (as defined herein), and (ii)
for "cashless exercise" upon exercise of the options.
(b) Effective on the Commencement Date, Executive shall be granted
15,000 Stock Appreciation Rights under the Company's stock option plan that
shall vest only upon a "Change of Control" as defined in Section 6(a) below. The
exercise price shall be the fair market value of the Company's Common Stock on
the Commencement Date.
3. Expense Reimbursement and Other Benefits.
3.1 Expense Reimbursement. During the Term, the Company, upon the
submission of supporting documentation by the Executive, and in accordance with
Company policies for its executives, shall reimburse the Executive for all
expenses actually paid or incurred by the Executive in the course of and
pursuant to the business of the Company, including expenses for travel and
entertainment.
3.2 Other Benefits. The Company shall obtain or shall continue in force
comprehensive health insurance coverage, including dental coverage, either group
or individual, for the Executive and his dependents, and shall obtain or shall
continue in force disability and life insurance for the Executive, which the
Company shall keep in effect at its sole expense throughout the Term. The life
insurance policy shall have a minimum face amount of $100,000 and the disability
insurance shall have the maximum amount obtainable and an elimination period of
not more than one year, when available. Mr. Ryan shall have the right to name
the beneficiaries of the life insurance policy and, if he leaves the employ of
the Company for any reason, to own the policy and any benefits therefrom,
including any cash value.
3.3 Automobile Allowance. Throughout the Term of this Agreement, the
Company will pay for and provide Executive with, a monthly automobile allowance
of $500, together with reimbursement for all operating fluids used in the
automobile.
3.4 Vacation. Executive shall be entitled to reasonable vacations
during each year of the Term, the time and duration thereof to be determined by
mutual agreement between Executive and the Company.
3
<PAGE>
4. Termination.
4.1 Termination for Cause. Notwithstanding anything contained in this
Agreement to the contrary, this Agreement may be terminated by the Company for
Cause. As used in this Agreement "Cause" shall only mean (i) subject to the
following sentences, any action or omission of the Executive which constitutes a
willful and material breach of this Agreement which is not cured or as to which
diligent attempts to cure have not commenced within 20 business days after
receipt by Executive of notice of same, (ii) fraud, embezzlement or
misappropriation as against the Company, or (iii) the conviction (from which no
appeal can be taken) of Executive for any criminal act which is a felony. Upon
any termination pursuant to this Paragraph 4.1, the Company shall pay to the
Executive any unpaid Base Salary accrued through the effective date of
termination specified in such notice. In addition, the Company shall pay any
benefits, if any, owed to Executive under any plan provided for Executive under
Paragraph 3 hereof in accordance with the terms of such plan as in effect on the
date of termination of employment under this Paragraph 4.1. Except as provided
above, the Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Paragraph 3.1 hereof).
4.2 Termination Without Cause. The Company may terminate the employment
of Executive without Cause at any time upon 30 days' prior written notice,
provided that the Company shall be obligated to pay Executive, in a lump sum on
the date of termination, all of the Base Salary compensation until the
expiration of the term of this Agreement.
4.3 Termination by Executive. Executive shall have the right to
terminate this Agreement without cause any time upon 90 days' prior written
notice, in which case this Agreement shall continue in full force and effect
until the date of termination. The Company may terminate the Executive
immediately if Executive gives written notice of a termination under this
Section. Upon a termination pursuant to this Paragraph, Executive shall only be
entitled to receive his Base Salary to the date of termination.
5. Change of Control.
(a) For the purposes of this Agreement, a "Change of Control" shall be
deemed to have taken place if: (i) any person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, other than
a group whose primary persons are members of the Lucy family, becomes the owner
or beneficial owner of Company securities, after the date of this Agreement,
having 25% or more of the combined voting power of the then outstanding
securities of the Company that may be cast for the election of directors of the
Company (other than as a result of an issuance of securities initiated by the
Company, or open market purchases approved by the Board, as long as the majority
of the Board approving the purchases is the majority at the time the purchases
are made), or (ii) the persons who were directors of the Company before such
transactions shall cease to constitute a majority of the Board, or any successor
to the Company, as the direct or indirect result of or in connection with, any
cash tender or exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing transactions.
4
<PAGE>
(b) The Company and Executive hereby agree that, if Executive is
affiliated with the Company on the date on which a Change of Control occurs (the
"Change of Control Date"), the Company (or, if Executive is affiliated with a
subsidiary, the subsidiary) will continue to retain Executive and Executive will
remain affiliated with the Company (or subsidiary), for the period commencing on
the Change of Control Date and ending on the second anniversary of such date, to
exercise such authority and perform such executive duties as are commensurate
with the authority being exercised and duties being performed by the Executive
immediately prior to the Change of Control Date. If after a Change of Control
Executive is requested and, in his sole and absolute discretion, consents to
change his principal business location, the Company will reimburse the Executive
as provided in Section 1.4 hereof. If the Executive shall not consent to change
his business location, the Executive may continue to provide the services
required of him hereunder from his then residence and/or business address, and
the Company shall continue to maintain an office for Executive at that location
commensurate with the Company's office prior to the Change of Control Date.
(c) During the remaining term hereof after the Change of Control Date,
the Company (or subsidiary) will (i) continue to pay Executive at not less than
the Base Salary on the Change of Control Date, (ii) pay Executive bonuses in
amounts not less in amount than those paid during the 12 month period preceding
the Change of Control Date, and (iii) continue employee benefit programs as to
Executive at levels in effect on the Change of Control Date (but subject to such
reductions as may be required to maintain such plans in compliance with
applicable federal law regulating employee benefit programs).
(d) If during the remaining term hereof after the Change of Control
Date (i) Executive's employment is terminated by the Company (or subsidiary), or
(ii) there shall have occurred a material reduction in Executive's compensation
or employment related benefits, or a material change in Executive's status,
working conditions, management responsibilities or titles, and Executive
voluntarily terminates his relationship with the Company within 60 days of any
such occurrence, or the last in a series of occurrences, then Executive shall be
entitled to receive, a lump sum payment equal to 299% of Executive's Base
Salary. Such amount will be paid to Executive within 15 business days after his
termination of affiliation with the Company.
6. Restrictive Covenants.
6.1 Non-Competition. During the Term and for a period of two years
following the termination (other than a termination without Cause pursuant to
Paragraph 4.3) of the Executive's employment by the Company, Executive shall
not, directly or indirectly engage in or have any interest in, directly or
indirectly, any sole proprietorship, partnership, corporation, business or any
other person or entity (whether as an employee, officer, director, partner,
agent, security holder, creditor, consultant or otherwise) that, directly or
indirectly, engages primarily in the development, marketing, distribution or
sale of products and services competitive with the Company's products and
services in any and all states in which the Company conducts its business during
the Term or at the time Executive's employment with the Company is terminated
(the "Territory"); provided, however, that Executive may hold Company securities
and/or acquire, solely as an investment, shares of capital stock or other equity
securities of any such company, so long as Executive does not control acquire a
controlling interest in or become a member of a group which exercises direct or
indirect control of, more than ten percent of any class of capital stock of such
corporation.
5
<PAGE>
6.2 Nondisclosure. During the Term and following termination of the
Executive's employment with the Company, Executive shall not divulge,
communicate, use to the detriment of the Company or for the benefit of any other
person or persons, or misuse in any way, any Confidential Information (as
hereinafter defined) pertaining to the business of the Company. Any Confidential
Information or data now or hereafter acquired by the Executive with respect to
the business of the Company (which shall include, but not be limited to,
information concerning the Company's financial condition, prospects, technology,
customers, methods of doing business and marketing, distribution or sale of the
Company's products and services) shall be deemed a valuable, special and unique
asset of the Company that is received by the Executive in confidence and as a
fiduciary. For purposes of this Agreement "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through his employment by the Company (including information
conceived, originated, discovered or developed by the Executive) prior to or
after the date hereof and not generally known or in the public domain, about the
Company or its business. Notwithstanding the foregoing, nothing herein shall be
deemed to restrict the Executive from disclosing Confidential Information to the
extent required by law, provided that prior to such disclosure, Executive shall
give the Company 15 business days' (or such shorter period as Executive has to
respond to such request) written notice.
6.3 Nonsolicitation of Employees. During the Term and for a period of
two years following termination of the Executive's employment with the Company,
Executive shall not directly or indirectly, for himself or for any other person,
firm, corporation, partnership, association or other entity, attempt to employ
or enter into any contractual arrangement with any employee or former employee
of the Company, unless such employee or former employee has not been employed by
the Company for a period in excess of six months.
6.4 Books and Records. All books, records, accounts and similar
repositories of Confidential Information of the Company, whether prepared by the
Executive or otherwise coming into the Executive's possession, shall be the
exclusive property of the Company and shall be returned immediately to the
Company on termination of this Agreement or on the Board's request at any time.
7. Injunction. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Paragraph 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Paragraph 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. Consolidation, Merger or Sale of Assets. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another corporation
which assumes this Agreement, and all obligations of the Company hereunder, in
writing. Upon such consolidation, merger, or transfer of assets and assumption,
the term "the Company" as used herein, shall mean such other corporation and
this Agreement shall continue in full force and effect, subject to the
provisions of Paragraph 5 hereof.
6
<PAGE>
9. Binding Effect. Except as herein otherwise provided, this Agreement
shall inure to the benefit of and shall be binding upon the parties hereto,
their personal representatives, successors, heirs and assigns.
10. Terminology. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders; the singular shall include the plural and vice versa. Titles of
Paragraphs are for convenience only, and neither limit nor amplify the
provisions of the Agreement itself.
11. Further Assurances. At any time, and from time to time, each party
will take such action as may be reasonably requested by the other party to carry
out the intent and purposes of this Agreement.
12. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof. It
supersedes all prior negotiations, letters and understandings relating to the
subject matter hereof, including Executive's agreement dated June 30, 1995.
13. Amendment. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of any such amendment, supplement or
modification is sought.
14. Assignment. This Agreement may not be assigned by any party hereto
without the prior written consent of the other party and except as provided in
Paragraph 8 hereof.
15. Choice of Law. This Agreement will be interpreted, construed and
enforced in accordance with the laws of the State of Florida, without giving
effect to the application of the principles pertaining to conflicts of laws.
16. Effect of Waiver. The failure of any party at any time or times to
require performance of any provision of this Agreement will in no manner affect
the right to enforce the same. The waiver by any party of any breach of any
provision of this Agreement will not be construed to be a waiver by any such
party of any succeeding breach of that provision or a waiver by such party of
any breach of any other provision.
17. Construction. The parties hereto and their respective legal counsel
participated in the preparation of this Agreement; therefore, this Agreement
shall be construed neither against nor in favor of any of the parties hereto,
but rather in accordance with the fair meaning thereof.
18. Severability. The invalidity, illegality or unenforceability of any
provision or provisions of this Agreement will not affect any other provision of
this Agreement, which will remain in full force and effect, nor will the
invalidity, illegality or unenforceability of a portion of any provision of this
Agreement affect the balance of such provision. In the event that any one or
more of the provisions contained in this Agreement or any portion thereof shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
this Agreement shall be reformed, construed and enforced as if such invalid,
illegal or unenforceable provision had never been contained herein.
7
<PAGE>
19. Enforcement. Should it become necessary for any party to institute
legal action to enforce the terms and conditions of this Agreement, the
successful party will be awarded reasonable attorneys' fees at all trial and
appellate levels, expenses and costs. Any suit, action or proceeding with
respect to this Agreement shall be brought in the courts of Palm Beach County in
the State of Florida or in the U.S. District Court for the Southern District of
Florida while the Company's executive offices are located in Boca Raton, and
thereafter in the courts of Wake County in the State of North Carolina or in the
U.S. District Court for North Carolina. The parties hereto hereby accept the
exclusive jurisdiction of those courts for the purpose of any such suit, action
or proceeding.
Venue for any such action, in addition to any other venue permitted by
statute, will be Palm Beach County, Florida or Wake County, North Carolina as
applicable. The parties hereto hereby irrevocably waive, to the fullest extent
permitted by law, any objection that any of them may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating
to this Agreement or any judgment entered by any court in respect thereof
brought in Palm Beach County, Florida or Wake County, North Carolina, and hereby
further irrevocably waive any claim that any suit, action or proceeding brought
in Palm Beach County, Florida or Wake County, North Carolina, has been brought
in an inconvenient forum.
The parties hereto acknowledge and agree that any party's remedy at law
for a breach or threatened breach of any of the provisions of this Agreement
would be inadequate and such breach or threatened breach shall be per se deemed
as causing irreparable harm to such party. Therefore, in the event of such
breach or threatened breach, the parties hereto agree that, in addition to any
available remedy at law, including but not limited to monetary damages, an
aggrieved party, without posting any bond, shall be entitled to obtain, and the
offending party agrees not to oppose the aggrieved party's request for,
equitable relief in the form of specific enforcement, temporary restraining
order, temporary or permanent injunction, or any other equitable remedy that may
then be available to the aggrieved party.
20. Binding Nature. This Agreement will be binding upon and will inure
to the benefit of any successor or successors of the parties hereto.
21. No Third-Party Beneficiaries. No person shall be deemed to possess
any third-party beneficiary right pursuant to this Agreement. It is the intent
of the parties hereto that no direct benefit to any third party is intended or
implied by the execution of this Agreement.
22. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original.
8
<PAGE>
23. Notice. Any notice required or permitted to be delivered hereunder
shall be deemed to be delivered when sent by facsimile with receipt confirmed or
when deposited in the United States mail, postage prepaid, registered or
certified mail, return receipt requested, or by overnight courier, addressed to
the parties at the addresses first stated herein, or to such other address as
either party hereto shall from time to time designate to the other party by
notice in writing as provided herein.
IN WITNESS WHEREOF, this Agreement has been duly signed by the parties
hereto on the day and year first above written.
PALLET MANAGEMENT SYSTEMS, INC.
By: /s/ Zachary M. Richardson
-------------------------------
ZACHARY M. RICHARDSON, President
/s/ Leo Ryan
--------------------------------
LEO RYAN, Executive
9
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUL-28-1998
<PERIOD-END> MAR-27-1999
<CASH> 0
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<RECEIVABLES> $2,196,882
<ALLOWANCES> 15,000
<INVENTORY> 2,163,427
<CURRENT-ASSETS> 5,179,071
<PP&E> 4,342,520
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<TOTAL-ASSETS> 9,861,516
<CURRENT-LIABILITIES> 3,308,587
<BONDS> 0
0
0
<COMMON> 3,918
<OTHER-SE> 6,957,375
<TOTAL-LIABILITY-AND-EQUITY> 9,861,516
<SALES> 29,470,130
<TOTAL-REVENUES> 29,470,130
<CGS> 25,748,770
<TOTAL-COSTS> 25,748,770
<OTHER-EXPENSES> 1,778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 248,619
<INCOME-PRETAX> 1,311,007
<INCOME-TAX> 221,881
<INCOME-CONTINUING> 1,532,888
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,532,888
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.33
</TABLE>
