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 Twenty-six- week period ended Commission File Number
------------------------------------- ----------------------
December 26, 1998 2-99212-A
PALLET MANAGEMENT SYSTEMS, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Florida 59-2197020
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<S> <C>
(State or other jurisdiction of Incorporation) (IRS Employer Identification Number)
</TABLE>
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:
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(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 December 26, 1998, 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
December, 26, June 27,
ASSETS 1998 1998
---- ----
(Audited)
<S> <C> <C>
CURRENT ASSETS
Cash $1,652,320 $401,166
Accounts Receivable - trade, net of allowance
for doubtful accounts 1,859,658 1,691,827
Inventories 2,007,971 1,175,346
Other Current Assets 340,420 155,731
------------ -----------
Total current assets 5,860,369 3,424,070
Property and equipment - net of accumulated Depreciation 3,561,604 2,966,946
Other assets 115,075 41,572
------------ -----------
$9,537,048 $6,432,588
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $2,178,816 $2,127,888
Accounts payable - trade 646,992 593,521
Accrued liabilities 652,565 406,761
------------ -----------
Total current liabilities 3,478,373 3,128,170
------------ -----------
LONG TERM DEBT
Deferred income tax 31,381 31,381
Long-term debt 475,793 1,097,595
------------ -----------
507,174 1,128,976
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares
at $.001 par value; issued and outstanding 3,917,612
shares at December 26, 1998 and 2,342,034
at June 27, 1998 3,918 2,342
Additional paid in capital 6,828,704 4,526,340
Unrealized gain on securities available for sale 9,484 13,477
Retained (deficit) earnings (1,290,605) (2,366,718)
------------ -----------
TOTAL STOCKHOLDERS EQUITY 5,551,501 2,175,441
------------ -----------
$9,537,048 $6,432,587
============ ===========
</TABLE>
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<PAGE>
PALLET MANAGEMENT SYSTEMS
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
-------------- --------------
Dec. 26, 1998 Dec. 27, 1997 Dec. 26, 1998 Dec. 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $10,803,440 $5,168,237 18,723,087 $9,744,636
Cost of goods sold 9,518,498 4,698,320 16,231,032 8,909,313
------------- ------------- ------------- -------------
Gross profit 1,284,943 469,917 2,492,055 835,323
Selling, general and administrative expense 690,451 458,247 1,169,074 902,741
------------- ------------- ------------- -------------
Operating profit 594,492 11,670 1,322,980 (67,418)
Other income (expense)
Other income (expense) 23,137 0 (65,955) 0
Interest expense (97,203) (111,920) (180,913) (208,675)
------------- ------------- ------------- -------------
Earnings before income taxes 520,426 (100,250) 1,076,113 (276,093)
Income tax expense (benefit) 0 0 0 0
------------- ------------- ------------- -------------
Net earnings (loss) $520,426 ($100,250) $1,076,113 ($276,093)
============= ============= ============= =============
Net earnings (loss) per common share
(reflects 1 for 4 reverse split) $.11 $(.07) $.33 $(.20)
------------- ------------- ------------- -------------
Diluted earnings (loss) per common share $.10 * $.25 *
------------- ------------- ------------- -------------
</TABLE>
* exercise of warrants and options would be anti-dilutive
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<PAGE>
PALLET MANAGEMENT SYSTEMS
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
-------------- --------------
Dec. 26, 1998 Dec. 27, 1997 Dec. 26, 1998 Dec. 27, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) earnings $520,426 ($100,250) $1,076,113 ($276,094)
Adjustments to reconcile net (loss) earnings to net
cash provided by (used in) operating activities:
Depreciation 121,076 98,961 229,846 198,045
(Incr.) Decr. in operating assets:
Accounts receivable 254,191 (101,737) (167,832) 442,841
Inventories (199,651) (122,570) (832,625) (359,118)
Prepaid expenses 12,925 63,139 (184,690) 3,072
Income tax refund receivable 0 0 0 0
Other assets (74,364) (24,214) (77,495) (38,779)
Incr. (Decr.) in operating assets:
Accounts payable 50,383 93,360 53,470 403,212
Accrued liabilities and taxes (24,944) (171,832) 245,804 (168,628)
------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities 660,042 (265,143) 342,591 204,551
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (245,630) (221,201) (824,503) (309,905)
------------ ------------ ------------ ------------
Net cash (used in) investing activities (245,630) (221,201) (824,503) (309,905)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Borrowing from (Payments to) lenders (644,339) 70,275 (570,874) (384,510)
Capital contributed -0- 781,891 2,303,940 781,891
------------ ------------ ------------ ------------
Net cash (used in) provided by
Financing activities (644,339) 852,166 1,733,066 397,381
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH (229,927) 365,822 1,251,154 292,027
Cash at beginning of period 1,882,247 163,652 401,166 273,447
------------ ------------ ------------ ------------
Cash at end of period $1,652,320 $529,474 $1,652,320 $529,474
============ ============ ============ ============
</TABLE>
-4-
<PAGE>
Pallet Management Systems, Inc.
Notes to Financial Statements
December 26, 1998
Note 1. Consolidated Financial Statements:
The consolidated balance sheets as of December 26, 1998 and June 27,
1998, the consolidated statement of operations and cash flows for the thirteen
week and twenty-six week periods ended of December 26, 1998 and December 27,
1997 have been prepared by the Company without audit. In the opinion of
management, all adjustments necessary to present fairly the financial position,
results of operations and cash flows for the periods reported have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
the notes thereto as of June 27, 1998, which are included in the Company's Form
10KSB for the Year ended June 30, 1998.
Note 2. Net Earnings (Loss) per Share of Common Stock:
Net loss per share was computed using the weighted average number of
shares outstanding based on the consolidated results of the Company for the
periods presented.
Note 3. Stockholders' Equity:
During the thirteen week and twenty-six week periods ended December 26,
1998 stockholders' equity changed for the following items:
<TABLE>
<CAPTION>
13 Weeks 26 Weeks
Dec. 26, 1998 Dec. 26, 1998
------------- -------------
<S> <C> <C>
Common stock issued upon exercise of warrants$ $ -0- 1,576
Additional paid-in capital -0- 2,303,364
Decrease in unrealized gain on available for
sale securities -0- (3,993)
Current net gain 520,426 1,076,113
----------- -------------
$ 520,426 $3,376,060
=========== =============
</TABLE>
The effects of the calculation of comprehensive income is not material to the
financial statements
-5-
<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 thirteen and twenty-six week periods ended
December 26, 1998 and December 27, 1997.
Results of Operations
- ---------------------
General
- -------
The Company provides the transport packaging industry with pallet
supplies, pallet retrieval, pallet repair, other packaging components and
packaging logistics management. The Company was formed by the combination of
several companies and has operations in Alabama, Florida and Virginia.
The pallet is the base component for the transportation and warehousing
of most packaging which allows goods to be transported or warehoused
economically by providing a foundation which enables 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 ($6,000,000,000) and plays a vital
roll 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 logistical
and remediation services. (Remediation is 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 logistical 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.
Thirteen Weeks Ended December 26, 1998 compared to Thirteen Weeks Ended
- -----------------------------------------------------------------------
December 27, 1997
- -----------------
For the thirteen week period ended December 26, 1998 net sales
increased 99.8% to $10,803,440 from $5,168,237 for the comparable 1997 period.
This was the first full period of production for the company's new pallet
manufacturing facility in Rogersville, Alabama.
-6-
<PAGE>
During the thirteen-week period ended December 26, 1998 new pallet
sales increased 176.0% to $8,598,161 from $3,111,221, and pallet remediation and
logistical services increased by 19.5% to $2,203,910 from $1,844,276 for prior
period. The gross margin for the 1998 period was 11.9% as compared to 9.1% for
the 1997 period. This increase in gross margin was due to better utilization of
raw material resources through advanced automation, improved product mix,
increased remediation and logistical sales which have higher margins than
manufacturing, and customer price increases in certain niche markets. The
Company experienced a $232,204 (50.7%) increase in selling, general and
administrative expenses for the 1998 period when compared to 1997 period. This
increase was a result of additional variable costs related to the sales volume
increase and expanding the management infrastructure for increased remediation
and logistical services. The Company experienced a $14,717 (13.1%) decrease in
interest expense for the thirteen week period ended December 26, 1998 because of
better cash flow resulting from improved profits and from additional capital
which allowed the Company to decrease its bank borrowings. The Company realized
a net profit of $520,426 or $0.11 per share during the thirteen week period
ended December 26, 1998 compared to a loss of ($100,250) or ($0.07) per share
recorded for the same period last year. The Company did not record any income
tax expense due to the utilization of net operating loss carryforwards.
Twenty-six Weeks Ended December 27, 1997 compared to Twenty-six Weeks Ended
- ---------------------------------------------------------------------------
December 28, 1996
- -----------------
For the twenty-six week period ended December 26, 1998 net sales
increased 92.1% to $18,723,087 from $9,744,636 for the comparable 1997 period.
The Company's new pallet manufacturing facility in Rogersville, Alabama only
operated during the second half of this 1998 period.
During the twenty-six week period ended December 26, 1998 new pallet
sales increased 134.6% to $ 14,275,897 from $6,083,221, pallet remediation and
logistical services increased by 29.4% to $4,447,190 from $3,436,276 for the
same twenty-six week period ended December 27, 1997. The gross margin for the
1998 period was 13.3% as compared to 8.6% achieved for the same 1997 period.
This increase in gross margin was due to better utilization of raw material
resources through advanced automation, improved product mix, increased
remediation and logistical sales which have higher margins than manufacturing,
and customer price increases in certain niche markets. The Company had a
$206,333 (29.5%) increase in selling, general and administrative expenses for
the twenty-six week period ended December 26, 1998 compared to December 27,
1997. This increase was a result of additional management hired to handle the
Company's expanding pallet remediation and logistical operations. The Company
had a $180,913 (13.3%) decrease in interest expense for the twenty six week
period ended December 26, 1998. This decrease was a result of better cash flow
resulting from improved profits and from additional capital which allowed the
Company to decrease its bank borrowings. The Company realized a net profit of $
1,076,113 or $0.33 per share for the twenty-six week period ended December 26,
1998 compared to a loss of ($276,093) or ($.20) per share recorded for the 1997
period. The Company did not record any income tax expense due to the utilization
of net operating loss carryforwards.
Liquidity and Capital Resources
- -------------------------------
The Company had $1,652,320 cash on hand at December 26, 1998, versus
$401,166 at the beginning of the fiscal year. This increase in cash was
attributable to 1,382,100 warrants exercised, which generated $2,303,940 in cash
and cash provided by operations of an additional $342,591. These increases were
offset by $ 570,874 of cash used in net payments to lenders and $824,503 used in
purchases of fixed assets.
-7-
<PAGE>
During this twenty-six week period, the Company called its outstanding
"A" and "B" warrants for redemption on October 1, 1998. Prior to the redemption
date, all warrants were exercised, including the underwriter warrants, which
generated $2,298,612 in cash during the period.
On September 8, 1998, the Company opened a new pallet manufacturing
facility in Rogersville, Alabama. This facility has "state of the art" pallet
manufacturing equipment, which is utilized to fulfill a new multi-year contract
with Chep America. The Company expects to commence operations at another
manufacturing facility in the Chicago, Illinois, area during the third fiscal
quarter.
On February 19, 1998 the Company completed a two year financing
agreement with American Commercial Financial Corporation, which provided a $3.7
million line of credit to the Company and was increased on March 20, 1998 to
$3.9 million, at an interest rate of prime plus 2.25%. This line is secured by a
priority lien upon substantially all the assets of the Company, except for real
estate. Included in the line is a $3,000,000 revolving loan. Under this
revolving loan, the lender can advance 80% of eligible accounts receivable and
50% of inventory up to a maximum of $800,000 on inventory. In addition, the line
has a term loan of $900,000 for equipment. As of December 26, 1998, the Company
had an outstanding balance of $1,996,931. The Company is seeking to increase its
line of credit and to negotiate better terms.
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 acquistion. 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.
Profile Consulting Group, Ltd. of Troy, MI has been engaged to assist in this
endeavor. 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 Issues
The Company uses software and related technologies throughout is 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. The Company has recently up-graded its computer systems
and believes that it has minimized the detrimental effects of any Year 2000
Problem. The Company is also working with its customers and vendors to resolve
Year 2000 Problems, which could interrupt the normal course of business.
Although it is not possible to estimate the actual cost to resolve Year 2000
Problems, the Company does not anticipate this problem to have any significant
impact on the Company's financial position or operations. The Company will
continue to consider the likelihood of a material business interruption due to
the Year 2000 Problem, and if necessary implement an appropriate contingency
plan.
-8-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
In December 1998, the Company entered into new employment
agreements with John C. Lucy, III, its chairman, and Zachary M. Richardson, its
president. The agreements provide for a base salary of $150,000, bonuses based
on increases to earnings per share and a five-year term.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement between the Company and John C. Lucy, III
10.2 Employment Agreement between the Company and Zachary M. Richardson
(b) Reports on Form 8-K
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: January 29, 1999 By: /s/ Zachary M. Richardson
------------------------------------
Zachary M. Richardson, President
-9-
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the 1st day of November, 1998 by and between PALLET MANAGEMENT SYSTEMS, INC., a
Florida corporation with its principal office at One South Ocean Boulevard,
Suite 306, Boca Raton, Florida 33432 (the "Company"), and JOHN C. LUCY, III,
whose residence address is __________________, Lawrenceville, Virginia (the
"Executive").
Recitals
--------
1. The Executive is currently Chairman of the Board of Directors and
Chief Executive Officer of the Company.
2. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
3. The Board of Directors (the "Board") of the Company recognizes that
the Executive's contribution, as Chairman of the Board and Chief Executive
Officer of 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 Board 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
November 1, 1998 (the "Commencement Date") and expiring on the fifth anniversary
of the Commencement Date, unless sooner terminated as hereinafter set forth;
provided that the Term automatically shall be extended for additional one-year
periods unless the Company gives Executive written notice of its intent not to
renew the Agreement at least six months prior to the end of the Term.
1.2 Duties of Executive. The Executive shall serve as Chairman of
Board and Chief Executive Officer of 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 Board and shall exercise such
1
<PAGE>
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 provided that Executive may devote a
reasonable amount of time to the affairs of Clary Lumber Company, Inc. 1.3 Place
of Performance. In connection with his employment by the Company, the Executive
shall be based at the Company's offices in Lawrenceville, Virginia except for
required travel on the Company's business to an extent substantially consistent
with his present travel obligations, provided that at the request of the Company
the Executive shall relocate to Raleigh, North Carolina. 1.4 Relocation. If at
any time the Board determines that it is in the best interests of the Company to
relocate the Executive's offices to a location other than Lawrenceville and
Executive needs to relocate to such location in order to perform his duties
hereunder (including but not limited to Executive's pending relocation to
Raleigh, North Carolina), then the Company shall reimburse Executive for all
out-of-pocket relocation expenses for him and his family, including but not
limited to, moving expenses, temporary living and travel expenses for a
reasonable time while arranging to move his residence to the changed location,
reasonable closing costs, if any, associated with the sale of his existing
residence and the purchase of a comparable replacement residence at the changed
location.
2. Compensation.
2.1 Base Salary. During the Term, the Executive shall receive a base
salary at the annual rate of $150,000, 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 half the percentage of Base Salary equal to the
percentage that fully diluted pre-tax earnings per share is in excess of $.20 up
to 100% (if pre-tax earnings per share is $.25, then the bonus would be 10% of
base salary). 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 a percentage of Base Salary equal to the percentage
2
<PAGE>
increase in fully diluted pre-tax earnings per share over the prior fiscal year
up to 100% 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.
(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 percent (1%) 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),
(ii) for "cashless exercise" upon exercise of the options, and (iii) for
"automatic reload" grants upon the exercise of any options.
(b) Effective on the Commencement Date, Executive shall be granted
100,000 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 $1,000,000 and the
disability insurance shall have the maximum amount obtainable and an elimination
period of not more than one year. Mr. Richardson 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
<PAGE>
3.3 Working Facilities. The Company shall furnish the Executive with
an office, a secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties hereunder.
3.4 Automobile Allowance. Throughout the Term of this Agreement, the
Company will pay for and provide Executive with, a monthly automobile allowance
of $1,100, together with reimbursement for all operating fluids used in the
automobile.
3.5 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. 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 Disability. Notwithstanding anything to the contrary contained
in this Agreement if, during the term hereof the Executive suffers a disability
(as defined below) the Company shall continue to pay Executive the compensation
provided in Paragraph 2.1 hereof during the period of his disability; provided,
however, that, in the event Executive is disabled for a period of more than 180
days in any 12 month period (the "Disability Period"), the Company may, at its
election, by a vote of a majority of the members of the Board within 90 days
from the end of the Disability Period, and provided that disability insurance is
in effect pursuant to Section 3.2, terminate this agreement. In the event of
such termination, payment of the Executive's Base Salary at the rate prevailing
on the date of termination of the Executive and fringe benefits (to the extent
permissible by applicable law) shall be continued for a period of six months
after such termination. As used in this Agreement, the term "disability" shall
mean the complete inability of Executive to perform his duties under this
Agreement as determined by an independent physician selected with the approval
of the Company and the Executive. 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).
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4.3 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 compensation, including cash and
non-cash benefits provided in Paragraphs 2 and 3.2, to which he would have been
entitled if the Agreement had not been terminated, for a period of one year
after the date of termination or until the expiration of the term of this
Agreement, whichever shall last occur.
4.4 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 through 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.
(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
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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, subject to the provisions of subparagraphs (e) and (f)
below, 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 4.1) 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, other than Clary Lumber Company, Inc. and affiliates
(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.
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.
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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.
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.
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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.
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
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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.
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:____________________________
Zachary Richardson, President
_______________________________
JOHN C. LUCY, III
9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the 1st day of November, 1998 by and between PALLET MANAGEMENT SYSTEMS, INC., a
Florida corporation with its principal office at One South Ocean Boulevard,
Suite 306, Boca Raton, Florida 33432 (the "Company"), and ZACHARY RICHARDSON,
whose residence address is __________________, Boca Raton, Florida (the
"Executive").
Recitals
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1. The Executive is currently President of the Company.
2. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
3. The Board of Directors (the "Board") of the Company recognizes that
the Executive's contribution, as President of 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 Board 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
November 1, 1998 (the "Commencement Date") and expiring on the fifth anniversary
of the Commencement Date, unless sooner terminated as hereinafter set forth;
provided that the Term automatically shall be extended for additional one-year
periods unless the Company gives Executive written notice of its intent not to
renew the Agreement at least six months prior to the end of the Term.
1.2 Duties of Executive. The Executive shall serve as President of
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 Board 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.
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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 Boca Raton, Florida except for required travel on the Company's
business to an extent substantially consistent with his present travel
obligations, provided that at the request of the Company the Executive shall
relocate to Raleigh, North Carolina.
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 Boca Raton and Executive needs to relocate to
such location in order to perform his duties hereunder (including but not
limited to Executive's pending relocation to Raleigh, North Carolina), then the
Company shall reimburse Executive for all out-of-pocket relocation expenses for
him and his family, including but not limited to, moving expenses, temporary
living and travel expenses for a reasonable time while arranging to move his
residence to the changed location, reasonable closing costs, if any, associated
with the sale of his existing residence and the purchase of a comparable
replacement residence at the changed location.
2. Compensation.
2.1 Base Salary. During the Term, the Executive shall receive a base
salary at the annual rate of $150,000, 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 half the percentage of Base Salary equal to the
percentage that fully diluted pre-tax earnings per share is in excess of $.20 up
to 100% (if pre-tax earnings per share is $.25, then the bonus would be 10% of
base salary). 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 a percentage of Base Salary equal to the percentage
increase in fully diluted pre-tax earnings per share over the prior fiscal year
up to 100% 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
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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.
(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 percent (1%) 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),
(ii) for "cashless exercise" upon exercise of the options, and (iii) for
"automatic reload" grants upon the exercise of any options.
(b) Effective on the Commencement Date, Executive shall be granted
100,000 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 $1,000,000 and the
disability insurance shall have the maximum amount obtainable and an elimination
period of not more than one year. Mr. Richardson 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 Working Facilities. The Company shall furnish the Executive with
an office, a secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties hereunder.
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3.4 Automobile Allowance. Throughout the Term of this Agreement, the
Company will pay for and provide Executive with, a monthly automobile allowance
of $1,100, together with reimbursement for all operating fluids used in the
automobile.
3.5 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. 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 Disability. Notwithstanding anything to the contrary contained
in this Agreement if, during the term hereof the Executive suffers a disability
(as defined below) the Company shall continue to pay Executive the compensation
provided in Paragraph 2.1 hereof during the period of his disability; provided,
however, that, in the event Executive is disabled for a period of more than 180
days in any 12 month period (the "Disability Period"), the Company may, at its
election, by a vote of a majority of the members of the Board within 90 days
from the end of the Disability Period, and provided that disability insurance is
in effect pursuant to Section 3.2, terminate this agreement. In the event of
such termination, payment of the Executive's Base Salary at the rate prevailing
on the date of termination of the Executive and fringe benefits (to the extent
permissible by applicable law) shall be continued for a period of six months
after such termination. As used in this Agreement, the term "disability" shall
mean the complete inability of Executive to perform his duties under this
Agreement as determined by an independent physician selected with the approval
of the Company and the Executive. 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).
4.3 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 compensation, including cash and
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non-cash benefits provided in Paragraphs 2 and 3.2, to which he would have been
entitled if the Agreement had not been terminated, for a period of one year
after the date of termination or until the expiration of the term of this
Agreement, whichever shall last occur.
4.4 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 through 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.
(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
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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, subject to the provisions of subparagraphs (e) and (f)
below, 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 4.1) 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.
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
<PAGE>
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.
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.
7
<PAGE>
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.
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.
8
<PAGE>
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.
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:_______________________________________
JOHN C. LUCY, III, Chairman of the Board
and Chief Executive Officer
__________________________________________
ZACHARY RICHARDSON
9
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