SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-10623
Pamet Systems, Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2985838
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Main Street
Acton, Massachusetts 01720
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 263-2060
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
none none
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
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(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $2,077,896
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The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant, based upon the average of the closing
bid and asked prices on March 27, 1997 was $6,010,956 .
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The number of shares outstanding of the Registrant's common stock, as
of March 27, 1998 was 2,535,250 shares.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Annual
Meeting of Stockholders (if filed pursuant to Regulation 14A within
120 days of the close of the Company's fiscal year ended December
31, 1997) shall be deemed to be incorporated by reference in Part
III.)
<PAGE>
PART I
Item 1. Business
This Form 10-K contains statements which are not historical
facts. These forward-looking statements reflect management's
current views, are based on many assumptions and factors and may
involve risks and uncertainties. Certain factors and other
information contained in this Form 10-K could cause such views,
assumptions and factors and the Company's results of operations to
be materially different.
Pamet Systems, Inc. (the "Company" or "Pamet Systems")
develops, markets and supports computer software and turnkey
computer systems for organizations in the public safety and
criminal justice sectors. The Company's products automate the
acquisition, storage, processing, retrieval and communication of
information for these organizations. The Company specializes in
the integration of computer software and hardware with
communications and other technologies to provide total solutions.
The Company's customers include law enforcement agencies, fire
fighting agencies, and corrections facilities.
The Company's principal product for law enforcement is
PoliceServer(R), a fully integrated information management system
providing agencies with the full spectrum of information-related
functionality needed for agency operations and management.
Designed primarily to serve agencies with fewer than 500 officers
(99.4% of US police agencies), current users include both municipal
agencies such as the Worcester Massachusetts Police and other
agency types such as the Harvard University Police, the
Metropolitan Atlanta Rapid Transit Authority (MARTA) Police, and
the Boston Housing Authority Police. PoliceServer capabilities
include computer-aided dispatch, criminal records management,
department management, and personal productivity applications such
as word processing. Designed to accommodate a wide diversity in
agency type, PoliceServer is both easy to learn and to use.
PoliceServer automates many of the complex and time consuming
department functions such as arrest booking, crime analysis and
reporting, and case management. A number of interfaces are
provided to other data sources such as the E911 network, various
state Criminal Justice Information Systems, and the National Crime
Information Center (NCIC). The Company also provides interfaces
with systems for digital imaging, mobile and remote access and for
scanning and identification of fingerprints.
FireServer(R) provides comparable functionality for fire
fighting agencies. A Computer Aided Dispatch (CAD) component is
designed with a "look and feel" similar to that of the PoliceServer
CAD in order to support integrated E911 dispatch centers. The fire
records capability provides fire departments with data on
structures, fire suppression plans, inspections data, and hazardous
materials.
JailServerTM provides corrections facility staff with the
ability to capture, track and report a wide variety of data related
to inmates. The Company acquired the assets of Technology
Assemblers, Inc. (TAI), which had developed this product,
subsequent to the end of the 1997 period. The acquisition was made
to broaden the product offering of the Company. The addition of
JailServer allows the company to expand its available market to
include the County Sheriff agencies which have both a law
enforcement role that could be served by PoliceServer and
responsibility for the operation of the county jail which can be
served by JailServer. The product is in use by a number of state
and county level facilities, and interfaces, where appropriate, to
other PoliceServer modules.
The Company also offers several companion products,
including ImageServerTM, an image capture, storage and printing
system, and MobileServerTM, a mobile terminal allowing fully
integrated communications with the department's internal system as
well as other local, state and federal databases.
The Company believes that the level and quality of its
support service is vital to continuing customer satisfaction and
the long-term success of the Company. The Company has established
a strong history of responsiveness to customer requirements and a
high level of support which have resulted in a loyal customer base.
The Company provides product updates and enhancements and customer
support services under an annual maintenance program. Annual fees
are based on a percentage of the price paid for the licensed
software products. Historical renewal rates for annual maintenance
for the Company's products has been in excess of 99%.
The Company's primary customer support center is located at
the Company's headquarters in Acton, Massachusetts. The Company
also maintains a support center in Maitland, Florida, currently
serving principally JailServer customers. The standard support
service provides access during business hours Monday through
Friday, with 24 hour, 7-day service optionally available.
As of December 31, 1997, the Company had installed
PoliceServer in 103 police departments, FireServer in 32 fire
departments, JailServer in 12 institutions, ImageServer in 31
departments, and MobileServer in 14 departments. These
installations are located in 10 states in the Eastern US.
Over the past five years the Company has expanded its
markets beyond Massachusetts, and is constantly adapting and
enhancing its products to fit the needs of these additional
markets. Expansion has been predominantly in the Southeastern and
lower Midwestern states. Regional offices have been established in
Charleston, SC and Maitland, FL to support sales activity in the
Southeastern states.
In the 12 month period ended December 31, 1997 (the 1997
period) a significant portion of sales to police departments was
funded by federal grants associated with the "Violent Crime Control
and Law Enforcement Act of 1994" (the 1994 Crime Bill) designed to
provide automation grants to law enforcement agencies. This grant
program is expected to continue at least through 1998, and possibly
through 1999. In general, however, the long lead time and
uncertainties of selling to the governmental sector continue and
will continue to result in volatility in sales and cash flow. The
Company continues to evaluate mergers, acquisitions and other
business combinations, as well as capital raising alternatives to
enhance its working capital.
The Company was incorporated in Massachusetts on November
24, 1987 by Dr. Joel B. Searcy, Chairman of the Board.
PoliceServer and FireServer are registered trademarks of the
Company. JailServer, ImageServer and MobileServer are trademarks
of the Company.
Business of the Company
Public safety agencies are paper-intensive organizations,
which manage large amounts of information in their day-to-day
activities. These agencies must collect, process, file and retrieve
such information quickly, conveniently and cost effectively.
Traditionally, police and fire departments have performed these
tasks manually, resulting in significant resources and man-hours
being spent processing and locating documents in large, sometimes
haphazardly maintained, filing systems. Critical information can be
inadvertently lost or misfiled, and information can only be
accessed by one person at a time. In an attempt to more efficiently
manage information and to improve personnel productivity and
response time, many public safety agencies have computerized
certain aspects of their business practices.
Corrections facilities face a similar requirement to
maintain information on the inmates under their custody. In
addition to background information and information on current
status and assignments, there is a need to maintain readily
accessible data on inmate health and to account for and control
inmate funds. Corrections officials must have ready access to data
on all aspects of inmate life.
Although its revenue for the 1997 period was less that the
1996 period due to factors that will be discussed later, the
Company continues to believe that the market for the computer
systems it provides continues to be positioned for growth due to a
number of major factors. The first factor is the passage of the
1994 Crime Bill which will potentially allocate more than $33.0
billion of funding for police and prison agencies over the first
five years of the grant program, of which over $1.0 billion will be
for the automation of police agencies. Approximately $300M has been
allocated for automation thus far. Although the majority of the
funding from the 1994 Crime Bill is earmarked for additional police
presence on the street, automation and computerization of police
agencies is encouraged if it can be demonstrated that this
investment will allow additional police resources to be re-deployed
or "put back on the street". The Company has designed and
implemented a series of seminars to provide departments with the
information necessary to demonstrate the cost effectiveness of the
Company's products. The second factor is E911 systems currently
being established around the country that require 24 hour dispatch
centers for police, fire and EMS departments. Many smaller
communities have not been able to afford to staff a dispatch center
24 hours a day. This has lead to the establishment of regional
dispatch centers serving a number of communities. This
regionalization requires computer systems to enable the regional
dispatchers to have timely access to the information needed to
respond to varied situations in a diverse geography. The Company's
products are designed and marketed with the option to be used in
this type of regional application. Currently five regional
dispatch centers in Massachusetts and Georgia use the Company's
product for this application. The third factor is the growing trend
toward the use of mobile technologies. Given its existing product
base, the Company believes that it is capable of meeting these
needs with its current suite of products.
Additional factors affecting the business include the
following: the improving economy, which may provide greater
availability of funding for public safety computerization; the
requirement by potential customers for public safety applications
to run only on the NT operating system; the emphasis municipalities
are currently placing on crime prevention; the trend among public
safety officials towards increasing effectiveness of operations
through computers; the pressures to control personnel costs, which
account for a major portion of municipal budgets; the need to
achieve higher personnel productivity due to local budgetary
constraints; and the availability of computer hardware that does
not require special environmental systems and can, in fact, be used
in a remote location such as a police cruiser.
The corrections market also continues to grow in response to
the need for prison space as well as continued pressure for
economies in prison operations. There is also an active trend in
the corrections sector to move from older, main frame systems to
more cost-effective computing platforms.
Products
General. In an effort to meet the demands of its market,
which consists of approximately 15,000 police departments and 5,000
fire departments nationwide, the Company has not only developed
proprietary software but also offers its customers complete turnkey
computer systems. The Company provides the customer with hardware,
software, training, support, installation and initial maintenance
for its products for an all-inclusive price. The Company also
sells hardware upgrades and supplies.
The Company has developed and actively markets five software
products: PoliceServer, a management information system for police
departments; FireServer, a management information system for fire
departments; ImageServer, an image capture, storage and printing
system; MobileServer, a mobile terminal allowing fully integrated
communications with the department's internal system as well as
other local, state and federal databases and JailServer, an
information management tool for corrections facilities with the
capability to capture, track and report data on inmates. The
Company owns the full and exclusive rights to the PoliceServer,
FireServer, ImageServer and JailServer products and has a private
label business relationship for the MobileServer product, which the
Company licenses from the Cerulean Technologies.
All the Company's products were developed using a 4 digit
year designation. The 4 digit year allows for the calculation of
dates beyond the date of January 1, 2000 to be correctly computed.
The company has always considered its products to be "Year 2000
compliant" and is currently completing testing to assure Year 2000
compliance.
The Company's PoliceServer and FireServer software are
presently operational on Digital Equipment Corporation's Open VMS(R)
operating system and the ALPHAServer hardware. Consequently, the
Company's turnkey computer systems presently employ Digital servers
and operating system software. The Company's turnkey computer
systems also include networked personal computers, networking
equipment, printers and bundled nonproprietary software for word
processing and spreadsheets, all of which the Company purchases
from other companies and sells to the Company's users. Due to the
increasing demand for Graphical User Interface (GUI) PC-based
systems the Company is currently redeveloping its application to be
operable on an even larger selection of operating systems including
Windows NT. The Company's management believes that this development
is of primary importance to the Company. Many Requests for
Proposals (RFP's) presently specify applications that run only on
the NT operating system. The Company's current NT development
activity has helped position the PoliceServer and FireServer
products to comply with these RFP's in a phased implementation
proposal. The ImageServer, MobileServer and JailServer products are
currently PC-based products and the base hardware is readily
available from multiple sources
PoliceServer. PoliceServer is part of a comprehensive suite
of law enforcement applications software, which performs the
clerical and record keeping functions necessary for police
department operation. PoliceServer includes a computer-aided
dispatch and incident reporting function which assists dispatchers
in allocating and controlling resources and logging and reporting
incidents, and performs automatic checks for outstanding arrest
warrants and gun permits. The system's functions include an arrest
booking system which collects, stores and reports data on arrests
from the time of arrest through court appearances. The system also
automatically produces and prints all reports, forms and other
documents needed in connection with a booking. In addition, the
system provides access to the Federal Government's Computer Aided
Management of Emergency Operations Hazardous Materials (CAMEO(R))
database. Other functions create and maintain records with respect
to arrest warrants, alarm systems, citations, licenses, permits,
personnel, payroll, property, equipment and vehicle maintenance, as
well as provide word processing, electronic mail, spreadsheet and
personal calendar management capabilities.
PoliceServer automatically cross references and updates all
appropriate files in the data base. This feature eliminates the
need for repetitive input, saves man-hours, and ensures the timely
and consistent updating of police records. The Company estimates
that after the first 6 to 20 months of operation, a PoliceServer
system typically produces manpower savings whose dollar value
equals the total system price. The system provides multiple levels
of security controls, which the Company believes limit the
likelihood of tampering with police records.
An important feature of PoliceServer is ease of use.
Current customers find the system easy to learn and operate.
PoliceServer is designed to be used by any member of the department
to expedite the handling of departmental paperwork. PoliceServer
eliminates much of the manual process, replacing it with a series
of simple interactive entry screens. This single step both
produces the needed paperwork on a laser printer and captures the
data for storage and analysis.
FireServer. FireServer relies on the design approach taken
with the PoliceServer and performs a number of similar functions.
Like PoliceServer, the FireServer system assists dispatchers in
allocating and controlling resources and logging and reporting
incidents, as well as providing access to the CAMEO Hazardous
Materials database. In addition, FireServer permits a dispatcher
to immediately print a fire suppression plan for use by
firefighters at the scene, including incident location information;
orders for first arriving units; emergency contact information;
structure type, size and usage data; identification of any permits,
inspection violations or hazardous material at the site and
identification of individuals with special needs known to reside at
the incident address. FireServer's other functions create and
maintain records with respect to hydrant location and history;
permits, inspections, violations, street box and building alarm
systems and personnel, payroll, property and equipment and vehicle
maintenance, as well as provide word processing, electronic mail,
spreadsheet and personal calendar management capabilities.
JailServer. JailServer is the latest product addition to
the suite of the Company's products. It is an integrated technology
solution utilizing barcode and video imaging technologies to ensure
effective information collection, processing, and output for law
enforcement agencies at city, county and state levels. JailServer
modules include tracking of inmate booking, arrest, housing, trusts
accounting, medical, commissary, property, and visitation.
ImageServer. ImageServer is an image capture, storage and
printing system that handles color or monochrome photo images (mug
shots, crime scene etc.), and document imaging. The ImageServer
product operates on a networked Pentium class computer system. The
product can be fully integrated with the PoliceServer, FireServer
and MobileServer systems, and supports unlimited numbers of images
connected to Master Name File entries. Photo lineup capability
permits either video or printed lineups in either color or
monochrome. Documents relating to individuals or incidents can
also be stored and printed with the document scan option. Incident
or accident related images can be connected to incident reports and
can include photo images or document images. Images can also be
associated with property and evidence and with department personnel
files. The system has been designed for compatibility with new
Federal standards (NCIC 2000), and will be evolved to maintain such
compatibility as NCIC 2000 specifications evolve. In addition
ImageServer can be integrated into other vendors' records and
dispatch systems potentially broadening the market for this
product.
MobileServer. MobileServer mobile data terminals (MDT's)
are a fully integrated companion product to the Company's other
products. Based on the private branding agreement with Cerulean
Technologies, the Company is able to offer a mobile date product
that has many of the "Best in Class" mobile data capabilities. The
enhanced product allows communications from car to dispatch, car to
car, as well as access into the files in PoliceServer and many
government information systems. In addition all messages are fully
encrypted and many officer safety and alarm features are standard
in the product. These systems increase officer efficiencies and
minimize the need for the officer to return to the station. This
system has also served to increase the police presence on the
street, due to the fact that an officer, in the cruiser, has a link
to the state CJIS information system and full access to all of the
information in the entire PoliceServer system, that he is
authorized to access.
Product Pricing. Complete turnkey systems including
software, hardware, training, one year's hardware maintenance
(provided by the hardware vendor) and six months of software
support and update service, including a warranty against defects in
the software, have sold for between $28,000 and $300,000, with most
sales falling within the $50,000 - $100,000 range. Pricing of the
FireServer and PoliceServer software packages is identical, with a
discount offered on the base software license when the packages are
installed together on the same computer hardware. The majority of
FireServer systems in operation utilize the same computer as the
PoliceServer in that municipality.
In addition to revenues generated by sales of the
PoliceServer, FireServer, JailServer, ImageServer, MobileServer and
software support fees, the Company generates operating revenues
from the sale of additions to its existing systems, miscellaneous
supplies, accessories and training.
Marketing
The Company's marketing strategy is designed to attract
potential customers from the existing base of law enforcement, fire
agencies, and corrections facilities. The Company utilizes live
demonstrations of its products, conducted in a way that emphasizes
the operational features of the products rather than the
operational technology. Seminars are held at various facilities
selected to allow potential customer representatives to see the
products in a relaxed, neutral environment. The 1994 Crime Bill
also provided another marketing avenue as the Company conducted
seminars to assist public safety agencies obtain grants as
described below.
The Company generally concentrates its marketing efforts on
the police department using the integrated PoliceServer,
ImageServer, and MobileServer systems, with approach to the fire
department following success with the municipality's police
department. In locations where the police and fire departments are
incorporated in a single Department of Public Safety, the Company's
strategy is to sell the entire suite of products. The expanded use
of E911 will add greater focus to the latter strategy. In county
sheriff departments, JailServer is offered to round out a
comprehensive information system.
The Company customizes its software by state, so that each
state's prescribed reporting forms can be printed in accordance
with such state's requirements. In addition, the Company's
software allows users to customize their reporting forms to their
particular specifications.
With the encouragement of the Company, active, independent
user groups, consisting of the police departments using
PoliceServer and fire departments using FireServer, have developed.
Any department participating in the Company's annual support and
update service may attend its group's monthly meetings. Currently
there are three police groups, one in each region, and one fire
group, which is in the Northeast. Since each department uses
identical software, the users are able to effectively discuss the
application and development of the system, to support each other in
identifying training techniques and new applications, and to
discuss concerns encountered in using the system. The groups have
also served as a source of referrals of potential customers and as
a source of satisfied customers willing to recommend the Company's
products to prospective customers. The Company relies on the groups
to determine the direction and development of updates or
enhancements to be made to the software.
In addition, Digital provides sales and marketing support
through its sales representatives, assisting in the generation of
leads for prospective customers. The Company also attends public
safety agency conventions and trade shows as part of its marketing
efforts. The Company jointly sponsored COPS MORE seminars with
Digital during the 1995 period that generated over $800,000 of
revenue in the 1996 and 1997 periods. In late 1996 the Company
sponsored seminars that focused on the COPS MORE 96 portion of the
1994 Crime Bill for over 100 public safety agencies. The seminars
were designed to inform these public safety agencies of what was
included in the 1994 Crime Bill and also how to apply for
automation grants under the "Cops More 96" section of the bill.
Over $600,000 of revenue during the 1997 period was attributed to
grants from "Cops More 96". These seminars simplified the
sometimes complex justifications that were required as part of the
proposals and allowed many small to medium size agencies to submit
proposals who otherwise might not have been able to do so. The
Company has scheduled and plans to conduct a series of seminars to
assist law enforcement agencies in applying for the next round of
technology grants associated with the 1994 Crime Bill, due for
announcement in late Spring of 1998.
The Company's strategy is to continue to expand its current
distribution approach by focusing in those states where the Company
has established reference sites within the region. The strategy is
structured so as to permit the techniques and strategies developed
in the New England area to be extended to those states covered by
dedicated sales teams.
The Company believes that the initial sale of its products
in a state is critical to its marketing efforts and that subsequent
sales within the same state will be easier due to the already-
achieved acceptance of its products and the ability to use the
first installation as a reference and for demonstrations. As of
March 1998, the Company has customers in Massachusetts,
Connecticut, Rhode Island, Ohio, South Carolina, Florida, Georgia,
Indiana, New Hampshire, Tennessee, and Missouri, and Pennsylvania.
The Company markets its products in the New England area as
well as in two additional regions of the country. The Company
established offices in Charleston, South Carolina and Maitland,
Florida to support sales activities in the Southeastern states.
Marketing for the Midwest part of the country is now being
coordinated through the Company's headquarters in Massachusetts.
Competition
The public safety software business is highly competitive.
There are a large number of small local and regional vendors across
the country who offer competing products on personal computers to
agencies in the Company's target market. There are also some
medium sized companies that have a national marketing presence.
The Company's management believes, that although it will not be the
only supplier, it will be one of a small group of vendors providing
an internally developed integrated suite of public safety products
when the NT development is complete.
The Company expects to encounter future competition from
established companies that are developing new products and from new
companies that may develop comparable products.
The principal competitive factors that exist in the public
safety software business are price, ease of use and sophistication
of the system. Management believes the competitive advantages of
the Company's products include sophisticated capabilities and
relative ease of use within a fully integrated software suite.
Based on the January 1997 study performed by the Massachusetts
Executive Office of Public Safety, management believes that it is
currently the largest supplier of integrated police and fire
systems in Massachusetts. Nevertheless, the Company believes that
to stay competitive in its target market, it must continue to make
its products available on a greater number of computer platforms.
Principal Suppliers
Through an arrangement between the Company and Hall-Mark
Computer Products, a Digital Equipment Corporation authorized
Distributor, the Company purchases Digital servers at a discount
for resale as part of the Company's turnkey computer systems. The
Company re-sells the hardware at Digital's list price. The Digital
systems and components that the Company purchases are available
from many suppliers and distributors.
The Company also purchases PC's, networking equipment and
peripherals from a number of manufacturers and suppliers. The
Company acquires it mobile date software from Cerulean
Technologies. Cerulean Technologies sells the products to the
Company at a discount and the Company resells them at the Cerulean
list price.
Customers
The Company's target market consists of police and fire
departments serving populations under 250,000, campus police
departments and other non-municipal public safety agencies such as
transit authority police, state police and county sheriff
departments. The Company estimates that this target market
nationally is comprised of approximately 15,000 police departments
and 5,000 fire departments. Currently, however, the Company is
marketing its products to police and fire departments only in New
England, the Midwest and the Southeast, and the largest portion of
its sales to date have been in New England, particularly
Massachusetts. The Company has installed seven systems in the
lower Midwest Region, which is composed of the states of Ohio,
Indiana, Illinois, Kentucky and Missouri and has installed twelve
systems in the Southeast Region, which is composed of Georgia,
South Carolina, Alabama, and Tennessee.
In any given fiscal period, sales to any one purchaser of
the Company's products may account for 10% or more of the Company's
revenues for that fiscal period. Because such sales usually
involve a one-time purchase for the customer, the existence of such
purchase is not indicative of future sales or the Company's
dependence on any one customer. During 1997 no one customer
accounted for more than 10% of sales.
Licensing and Support
The purchase price for the software system includes a
perpetual license to use the software. The Company typically
enters into a software license agreement with its customers.
Support and update service is priced at 14% of the cost of
the software package per year after the initial six month warranty
period. Payment of the annual support and update service fee
automatically extends the Company's warranty against software
defects for an additional year and entitles the licensee to receive
all software upgrades and enhancements and to participate in the
appropriate user group. In addition to providing licensees with
updates and enhancements, the Company's annual fee also includes
telephone support for all applications. Currently all customers
subscribe to this service, primarily to receive software updates
and enhancements which average a minimum of one update per year.
Maintenance charges on the hardware are not included in the
Company's annual fee and are currently billed and collected
directly by hardware maintenance suppliers.
The Company generally relies upon contract, trade secret and
copyright laws to protect its products. The license agreement
under which a customer uses the Company's products restricts the
customer's use to its own operations and prohibits disclosure to
third persons. Notwithstanding these restrictions, it may be
possible for other persons to obtain copies of the Company's
products. The Company believes that such copying would have
limited utility without access to the product's source code, which
the Company keeps highly confidential. The Company's products are
encoded to run only on designated types and sizes of computers. The
Company incorporates certain technological defenses into its
products. The Company believes that because of the rapid pace of
technological change in the computer industry, copyright and patent
protection is of less significance than factors such as the
knowledge and experience of the Company's personnel and their
ability to develop, enhance, market and acquire new products.
The Company also requires all of its employees to execute
agreements requiring them to maintain the confidentiality of the
Company's proprietary information.
Research and Development
The Company made significant research and development
expenditures in 1997 in several areas totaling over $317,000. The
majority of the expenditure was on the NT product development of
PoliceServer 2. Other expenditures included the MobileServer
product, overall product quality and customer satisfaction and new
product development. Much of the additional expenditure is
attributable to research and development spending on the mobile
product interface to the state information system and development of
a public safety intranet search product. In all cases, the Company
used outside resources to design and develop these projects with the
least impact on the long-term financial commitments of the company.
NT product development will continue throughout 1998 until all
modules of the PoliceServer and FireServer have been ported to the
NT platform, as the market currently demands.
Employees
As of December 31, 1997, the Company had 20 employees, of
whom 6 were engaged in computer programming, 5 were engaged in
documentation, training and software support and 9 were engaged in
sales, marketing and administration. The Company considers its
employee relations to be satisfactory.
<PAGE>
Item 2. Properties
The Company's operations are located in Acton,
Massachusetts, where the Company owns a 12,000 square foot office
building. This facility contains office, training, conference,
development and shipping space. The acquisition and renovation of
the building had been financed from the Company's working capital.
In April 1992 the Company mortgaged the facility through a local
lending institution with a $560,000 mortgage on the improved
facility, the balance of which was $495,959 at December 31, 1997.
The building was designed to be adequate to house the training,
development and other headquarters needs for the foreseeable
future.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
Election of Board Members
Item 4A. Executive Officers and Directors
The present executive officers of the Company, who are
elected by the Board of Directors on an annual basis at the meeting
of the Board of Directors after each annual meeting of stockholders
and serve at the discretion of the Board of Directors, are as
follows:
Name Age Position
David McKay 56 President and Chief Executive Officer
of the Company since June 1997. Mr.
McKay served as the Global Systems
Manager for Mobil Oil, an oil
production company from 1996 to 1997.
From 1994 to 1996 was the Vice
President of Information Systems at
Moore Corporation, a business supply
company.
Dr. Joel B. Searcy 62 Chairman of the Board of the Company
since its inception, was Treasurer
until May 1991, served as Clerk until
September 1990 and President and CEO
until June 1997.
Arthur V. Josephson, 55 Director of the Company since
Jr. January 1988 and has served as Clerk
since September 1990. In addition to
his responsibilities to the Company,
since 1985 Mr. Josephson has served
as an accounting consultant to a
number of clients in Massachusetts,
as well as Treasurer of Assabet
Valley Home Health Association, Inc.,
a visiting nurse agency, from 1977
through October 1994.
Richard C. Becker 51 Director and Treasurer of the Company
since May 1991, Vice President of
Finance and Administration since June
1997 and was Vice President - Chief
Operating Officer from July 1993 to
June 1997, Assistant Clerk since
February 1991 and was Vice President -
Finance and Administration from
January 1991 until July 1993.
There are no family relationships among any of the executive
officers or directors of the Company.
<PAGE>
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters.
Shares of the Company's Common Stock are available for
trading in the over-the-counter market. The Common Stock is quoted
under the symbol PAMT.
The following table sets forth the high and low bid prices of the
Common Stock as quoted on the OTC Bulletin Board.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31 COMMON STOCK
------------
High Low
---- ----
<S> <C> <C>
1996
First Quarter 2.12 1.00
Second Quarter 6.50 1.75
Third Quarter 5.75 3.00
Fourth Quarter 4.00 2.50
1997
First Quarter 3.38 1.88
Second Quarter 5.38 1.62
Third Quarter 4.87 2.87
Fourth Quarter 5.50 3.12
</TABLE>
The Company had 58 holders of record of Common Stock on
March 27, 1998. The Company has not paid any dividends to date.
For the foreseeable future, it is anticipated that earnings, if any,
will be used to finance the growth of the Company and that cash
dividends will not be paid to stockholders.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
Pamet Systems, Inc. (the "Company" or "Pamet Systems"), founded in
1987, designs and implements broad-based information technology
solutions for public safety agencies enabling them to realize cost
efficiencies and provide better service. The company's suite of
products is composed of four major components: PoliceServer,
FireServer, MobileServer and Imageserver. The Company's revenues
consist primarily of sales of these software applications, the
associated hardware and systems integration, and support and update
service fees.
The Company's revenues for the 12 month period ended December 31,
1997 (the 1997 period) decreased 15.8% from the 12 month period
ending December 31, 1996 (the 1996 period). During the period, the
revenues showed a significant shift to the MobileServer product,
which represented 28.4% of sales in the 1997 period, up from 3.2%
in the 1996 period. The MobileServer product enables officers to
submit reports and access critical databases from their cruisers
increasing officer productivity. As a result of this market shift
to mobile products, the Company joined forces with Cerulean
Technology, Inc. in November of 1997 to offer Cerulean's
PacketCluster PatrolTM wireless client/server software under a
three-year private branding agreement as its exclusive mobile
information solution. This Mobileserver market shift and the
subsequent Cerulean agreement caused the Company to experience
substantial one time product development, implementation
engineering and staff training costs which affected the results of
operations during the 1997 period. In addition, a significant
portion of the Company's 1997 MobileServer sales and current
backlog are the result of the "Cops More 96" federal grant awards
of the 1994 Crime Bill. The pricing on these MobileServer sales
reflects previous commitments made to customers during the grant
application process and prior to the Cerulean agreement and,
combined with the high hardware component of the MobileServer
product, have resulted in lower product margins.
The Company has continued to see increased revenues from software
support and update service fees resulting from increases in the
installed base and renewal rates approaching 100%. The service
revenues represented 22.3% of the Company's total revenues in the
1997 period versus 15.7% in the 1996 period.
Market expectations for a complete Microsoft operating environment
using Microsoft NT Server and a Windows 95 or NT Desktop graphical
user interface have grown substantially in 1997, particularly in
the Southeast market. Consequently, the Company has begun
rebuilding its products on the NT platform at considerable expense,
which has affected the 1997 results of operation. During the 1997
period, the Company expended over $234,000 to design and begin the
development of PoliceServer 2 and a network search product. The
company also expended considerable funds during the 1997 period on
product quality improvements, testing and demonstration platforms,
and product documentation to address competitive requirements and
improve customer satisfaction. In addition, the Company supported
these efforts internally by re-deploying existing resources to
address product quality, documentation and customer satisfaction
issues.
The Company continues to believe there are significant market
opportunities based on the federal Crime bill funding expected in
1998 and beyond, the establishment of E911 centers, heightened
emphasis on crime in most communities and the awareness by
municipalities that computer systems can improve the efficiency and
effectiveness of their public safety resources. The Company has
also seen increased emphasis on the coordination of public safety
systems between neighboring towns, county, and state police
organizations. The Registrant's products are designed and marketed
with the option to be used in this type of regional application.
Results of Operations
Year Ended December 31, 1997 vs. Year Ended December 31, 1996.
During 1997, the Company's net sales decreased 15.8% to $2,077,896
from $2,468,073 in the 1996. The decrease in sales of turnkey
systems and hardware upgrades of $1,101,970 or 70.0% to $470,432 for
the 1997 period from $1,572,402 for the 1996 period had the most
significant impact on the Company's total revenues. The number of
system sales decreased from 27 in the 1996 period to 6 in the 1997
period. Hardware upgrades decreased to 5 in the 1997 period from 10
in the 1996 period. This decrease in the total revenue and total
number of systems sold can be partially attributed to communities
delaying purchases of systems while they await more vendors offering
products on a Microsoft operating environment using Microsoft NT
Server and a Windows 95 or NT Desktop graphical user interface,
particularly in the Southeast market. In addition, the Company
believes that some business was lost in 1997 as a result of the
Company not offering a PC-based police or fire system further
highlighting importance of the migration to NT. System revenues
resulting from the "COPS MORE 96" portion of the 1994 Crime bill
were approximately $270,500 or 57.5% of turnkey system and hardware
upgrade sales, representing 4 new system sales and 2 system
upgrades. "COPS MORE 96" grants will continue to impact revenue in
1998.
Sales of the MobileServer product increased 653.0% to $591,030 in
the 1997 period from $78,490 in the 1996 period. Revenue from the
ImageServer product decreased 11.8% to $217,501 for the 1997 period
from $246,737 in the 1996 period. Support revenues increased $77,491
or 19.3% to $479,498 for the 1997 period from $402,007 for the 1996
period. This increase in the support revenues reflects the
increasing customer base.
Cost of sales increased $107,610 or 11.5% to $1,043,293 for the 1997
period from $935,683 for the 1996 period. Cost of sales increased
despite the decrease in revenue due to a less profitable product mix
and new product startup costs. Gross margins decreased from 62.1%
in the 1996 period to 49.8% in the 1997 period. Margins on system
sales and hardware upgrades remained relatively flat. However
systems sales and hardware upgrades represented only 22.6% of
revenues in the 1997 period versus 63.7% in the 1996 period
significantly reducing their contribution to gross margin.
The MobileServer product had the most significant unfavorable impact
on gross margins as a result of a 653.0% increase in sales combined
with the fact that 1997 margins were less than half of the margins
earned on the Company's PoliceServer and FireServer systems. The
MobileServer margins were unfavorably impacted by startup costs
associated with the Cerulean private branding agreement including
upgrading existing customers to the Cerulean system, first-in-state
discounts, and prior pricing commitments to customers for mobile
systems funded by grants. It is expected that margins on the
MobileServer product will improve significantly during the second
half of 1998 as a result of the implementation of more efficient
implementation processes and pricing analysis tools.
In contrast, software support and update service revenues delivered
traditionally high margins which increased from 95.5% in the 1996
period to 96.0 in the 1997 period.
The Company's operating expenses increased $768,343 or 63.3% to
$1,981,539 for the 1997 period from $1,213,196 for the 1996 period.
The Company's commitments in several areas including the
MobileServer product, overall product quality and customer
satisfaction, and other new product development contributed
significantly to the increases in spending. Of the increases,
$317,612 or 41.3% is attributable to research and development
spending on the mobile product interface to the state information
system, a network search product (LENS), and NT product development
of PoliceServer 2. In all cases, the Company used outside
resources to design and develop these projects creating minimal
impact on the long-term financial commitments of the company. NT
product development will continue throughout 1998 until all modules
of PoliceServer and FireServer have been ported to the NT platform,
consistent with market demands. During 1997, a significant number
of the requests for proposals (RFP's) received by Pamet Systems have
required either a functioning NT system or a transition plan to the
NT platform.
Personnel costs increased 34.2% or $252,676 to $990,897 for the 1997
period from $738,221 for the 1996 period. The most significant
portion of the increased expense results from hiring David McKay as
President and Chief Executive Officer while Dr. Joel Searcy, the
Company's former President and Chief Executive officer, remains as
Chairman of the Board. In addition, employee salary increases and
incentive plans were implemented to bring employee compensation more
in line with market rates. The other significant impact on
personnel costs was a 19.5% increase in employee health insurance
costs.
Rent, utilities and telephone increased 21.8% to $76,228 for the
1997 period from $62,574 for the 1996 period as a result of
increased telephone usage. The most significant reason for this
increase is telephone support for the Company's growing client base
located outside of the Northeast.
Travel and entertainment expenses increased $47,247 or 80.8% to
$105,706 for the 1997 period from $58,459 for the 1996 period due to
the increased travel associated with the customer satisfaction,
program management and training activities in the Southeast region.
The complex nature of the installation at Cherokee County, GA from a
program management and technological standpoint stretched the
Company's resources and required numerous site visits. This
incremental spending was not planned and was not billable to the
customer. The Company has taken steps to insure that travel, project
management, bid and performance bond interest costs and conversion
and interface costs are included in all future pricing decisions.
Spending on professional fees increased $100,199 or 149% to $167,381
for the 1997 period from $67,182 for the 1996 period. Consulting
fees contributed $34,834 of the increase. The most significant
expenditures resulted from an outside marketing survey to determine
the mobile product market demand and the cost of an outside firm
hired to update existing product documentation. These expenditures
supported the ongoing mobile data terminal and product quality
projects. Legal fees increased 226.2% to $90,550 for the 1997
period from $27,758 for the 1996 period as a result of the services
that were required to complete a private placement of 200,000 shares
of Company stock, to negotiate employment agreements with the
Company's officers, and to support the acquisition of Technology
Assembles Inc. in February 1998.
Depreciation expense increased 18.9% to $72,472 for the 1997 period
from $60,963 for the 1996 period reflecting the increased first year
depreciation on the new computer equipment purchased as a result of
the theft of nearly all the corporate computer equipment in June
1997.
Other operating expenses increased 11.3% or $25,446 to $251,243 for
the 1997 period from $225,797 for the 1996 period. The most
significant components of the increase were the replacement
purchases of a substantial amount of non-capitalizable assets, the
upgrade of the corporate Internet access line, and the increased
costs of officers' life insurance. This increased spending was
partially offset by a reduction in grant related marketing expenses.
Net interest expense decreased to $69,027 for the 1997 period
compared to the net expense of $80,013 for the 1996 period. This
decrease reflects the lower average balance on working capital loans
obtained from Directors and Officers as well as the decreased
balance and interest rate on the Company's mortgage note. During
1997, the Company completed a private placement of 200,000 shares of
common stock at $2.75 per share reducing the need for Director and
Officer debt financing.
As stated above, the Company experienced a theft of essentially all
of its computer equipment in June 1997. The Company's commercial
insurance policy provided for replacement cost of the stolen
equipment. This theft generated other income of $61,649 for the
Company because the majority of the equipment that was stolen was
fully depreciated.
The loss for the 1997 period was $954,314 or $(.42) per share
compared to a profit of $243,681 or $.10 per share for the 1996
period assuming fully diluted shares outstanding.
Liquidity and Capital Resources
The Company's working capital was a deficit of $430,122 at December
31, 1997 compared to a deficit of $78,293 at December 31, 1996. Cash
decreased to $40,522 at December 31, 1997 from $55,353 at December
31, 1996. The deterioration in working capital reflects the
investments in the business as well as the reduced gross margins
generated from revenues for the year. Accounts receivable increased
to $661,260 at December 31, 1997 from $600,672 at December 31, 1996,
reflecting the increase in days sales outstanding.
The Company's backlog exclusive of support revenues was in excess of
$600,000 at December 31, 1997. On March 27, 1998 the backlog was
approximately $490,000. The trend that was exhibited in 1997 towards
increased sales in the MobileServer product is anticipated to
continue into 1998. MobileServer represents over $386,000 or 79% of
the backlog at March 27, 1997. The remaining awards from the "Cops
More 96" grant submissions combined with sales of the Company's
suite of products should help sustain sales growth in 1998. In
addition, the Company is continuing to consider projects to increase
its cash position such as activities to raise capital, mergers,
acquisitions or other business combinations. Subsequent to year-end,
the Company completed a stock sale to a Director of 125,000 shares
of stock at $4.25 per share raising $531,250. Included with this
sale of stock, the Director received 31,250 warrants exercisable at
4.25 per share. The Company has also secured an additional line of
credit for $300,000 from a Director, increasing the total available
lines of credit to $600,000 from Directors. The Company believes
its existing backlog, the loan commitments, additional securities
offerings and its current market position will be sufficient to
ensure the continued operations through the end of the year.
As of December 31, 1997, the Registrant had accumulated
approximately $4,700,000 and $2,800,000 in net operating loss
carryforwards for federal and state income tax purposes
respectively. The loss carryforwards expire in the year 2011. Under
the Internal Revenue Code of 1986, as amended, the rate at which a
corporation may utilize its net operating losses to offset its
income for federal tax purposes is subject to specified limitations
during periods after the corporation has undergone an "ownership
change". It has been determined that an ownership change did take
place at the time of the Registrant's initial public offering.
However, the limitations on the loss carryforward exceed the
accumulated loss at the time of the "ownership change". Thus there
is no restriction on its use.
Seasonality
The majority of the Company's installed base has a fiscal year that
commences on July 1 and, therefore, the Company bills its customers
for their annual software support and update service on July 1 of
each year. Consequently, cash flow representing software support
revenues has tended to be higher in the second half of the
Registrant's fiscal year, although software support revenues are
recognized ratably throughout the fiscal year.
Revenue Recognition
Revenues from software license fees are recognized when a contract
has been executed, the product has been delivered, all significant
contractual obligations have been satisfied and collection of the
related receivable is probable. Maintenance revenues, including
those bundled with the initial license fee, are deferred and
recognized ratably over the service period. Consulting and training
service revenues are recognized as the services are performed.
In October 1997, the American Institute of Certified Public
Accountants issued Statement of Position 97-2 "Software Revenue
Recognition," (the "SOP"). This SOP is effective for transactions
entered into in fiscal years beginning after December 15, 1997.
This Company will adopt this SOP in its fiscal year 1998. The
application of this SOP is not expected to have a material effect on
the Company's results of operations as reported herein as the
revenue recognition rules utilized by the Company are substantially
consistent with the provisions of the SOP. Accordingly, adoption of
this SOP will not have a material effect on future results of
operations.
Recently Issued Accounting Standards
In July 1997, the FASB issued SFAS 130 "Reporting Comprehensive
Income." This statement is effective for fiscal years beginning after
December 15, 1997. The Company will implement this statement as
required in fiscal year 1998. The future adoption of SFAS 130 is not
expected to have a material effect on the Company's financial position
or results of operations.
Inflation
Inflation has not had a significant impact on the Registrant's
operations to date.
<PAGE>
Item 7. Financial Statements and Supplementary Data.
PAMET SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors _________ F-2
Financial Statements:
Balance Sheet - December 31, 1997 ____ F-3
Statements of Operations -
Years Ended December 31, 1997 and 1996 F-4
Statements of Stockholders' Equity -
Years Ended December 31, 1997 and 1996 F-5
Statements of Cash Flows -
Years Ended December 31, 1997 and 1996 F-6
Notes to Financial Statements __________ F-8
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pamet Systems, Inc.
We have audited the accompanying balance sheet of Pamet Systems,
Inc. as of December 31, 1997, and the related statements of
operations, stockholders' equity and cash flows for each of the two
years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pamet
Systems, Inc. as of December 31, 1997, and the results of its
operations and its cash flows for each of the two years in the
period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Carlin, Charron & Rosen LLP
March 27, 1998
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET
PAMET SYSTEMS, INC.
ASSETS December 31, 1997
-----------------
<S> <C>
CURRENT ASSETS
Cash $40,522
Accounts receivable, net of allowance for
doubtful accounts of $60,000 661,260
Inventory, net of reserve of $15,000 89,811
Prepaid expenses and other current assets 39,594
------
TOTAL CURRENT ASSETS 831,187
PROPERTY AND EQUIPMENT, NET 945,970
RESTRICTED CASH 27,860
------
TOTAL ASSETS $1,805,017
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $627,227
Accrued expenses 144,178
Notes payable-related party 192,439
Deferred software maintenance revenue 279,823
Current portion of long-term debt 17,642
------
TOTAL CURRENT LIABILITIES 1,261,309
LONG TERM DEBT, less current portion 478,317
UNEARNED SUPPORT REVENUE 28,962
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued
Common stock, $.01 par value, 7,500,000 shares
Authorized, 2,410,250 issued and outstanding 24,103
Additional paid-in capital 4,776,821
Accumulated deficit (4,764,495)
-----------
TOTAL STOCKHOLDERS' EQUITY 36,429
------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,805,017
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
PAMET SYSTEMS, INC.
Year Ended December 31,
1997 1996
---- ----
<S> <C> <C>
Net hardware and software sales $1,598,398 $2,066,066
Support revenues 479,498 402,007
--------- ---------
TOTAL REVENUES 2,077,896 2,468,073
Cost of sales 1,043,293 935,683
--------- ---------
GROSS PROFITS 1,034,603 1,532,390
Operating expenses
Personnel costs 990,897 738,221
Rent, utilities and telephone 76,228 62,574
Travel and entertainment 105,706 58,459
Professional fees 167,381 67,182
Depreciation 72,472 60,963
Research and development 317,612 --
Other operating expenses 251,243 225,797
------- -------
TOTAL OPERATING EXPENSES 1,981,539 1,213,196
--------- ---------
Income (loss) from operations (946,936) 319,194
Interest income 1,265 1,243
Interest expense (70,292) (81,256)
Gain on sale of property and equipment -- 4,500
Gain on insurance settlement 61,649 --
--------- ---------
NET INCOME (LOSS) $(954,314) $243,681
========= ========
Earnings (loss) per common share $(.42) $.11
==== ===
Earnings (loss) per common share- -- $.10
assuming dilution ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
PAMET SYSTEMS, INC.
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1996 2,018,250 $20,183 $4,072,629 $(4,053,862) $38,950
NET INCOME 243,681 243,681
CONVERSION OF
STOCK OPTIONS 84,000 840 34,976 35,816
--------- ------ ------- ------- --------
BALANCE AT
DECEMBER 31, 1996 2,102,250 21,023 4,107,605 (3,810,181) 318,447
NET LOSS (954,314) (954,314)
CONVERSION OF
STOCK OPTIONS 108,000 1,080 121,216 122,296
PRIVATE PLACE-
MENT OF STOCK 200,000 2,000 548,000 550,000
--------- ------ ------- ------- --------
BALANCE AT
DECEMBER 31, 1997 2,410,250 $24,103 $4,776,821 $(4,764,495) $36,429
========= ======= ========== ============ ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
PAMET SYSTEMS, INC.
Year Ended December 31,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(954,314) $243,681
Adjustments to reconcile net income
(loss) to net cash used for
operating activities:
Depreciation and amortization 72,473 60,963
Gain on sale of property and
equipment -- (4,500)
Gain on Insurance settlement (61,649) --
Changes in operating assets and
liabilities:
Accounts receivable (58,588) (356,511)
Inventory (21,121) (58,994)
Prepaid expenses and other current
assets (19,342) 26,392
Other assets -- 1,025
Restricted cash (714) (696)
Accounts payable 312,498 69,213
Accrued expenses 37,044 (33,550)
Deferred software maintenance and
unearned support revenue 22,744 16,724
------ ------
Net cash used for operating
activities (670,969) (36,253)
INVESTING ACTIVITIES
Expenditures for property
and equipment (129,835) (56,809)
Proceeds from sale of property and
equipment -- 4,500
Proceeds from insurance settlement 108,708 --
_______ ______
Net cash used for investing
activities (21,127) (52,309)
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS - CONTINUED
PAMENT SYSTEMS, INC. Year Ended December 31,
1997 1996
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from notes payable-
related party 375,000 243,000
Payment of notes payable-related party (355,660) (151,000)
Payments of long-term debt (14,371) (12,165)
Issuance of capital stock 672,296 35,816
------- -------
Net cash provided by
financing activities 677,265 115,651
NET INCREASE (DECREASE) IN CASH (14,831) 27,089
Cash at beginning of period 55,353 28,264
------ ------
CASH AT END OF PERIOD $40,522 $55,353
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOWS INFORMATION:
Cash paid for interest $74,000 $78,000
======= =======
</TABLE>
See accompanying notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PAMET SYSTEMS, INC.
NOTE A--NATURE OF OPERATIONS
Pamet Systems, Inc. (the Company), a Massachusetts corporation, was
formed in November 1987 to engage in the business of designing,
developing, installing and servicing computer software systems for
the municipal market throughout the Eastern United States,
principally in the area of public safety. Credit is granted to
certain customers, most of which are municipalities. The Company
generally does not require collateral.
The Company's committed backlog at March 27, 1998 was in excess of
$480,000 (unaudited). Management believes that this level of backlog
and its anticipated sales are adequate to sustain operations through
the end of fiscal year 1998.
However, the ultimate success of the Company is still dependent upon
its ability to secure financing adequate to meet its working capital
and product development needs and the successful development of a
Microsoft Windows NT computing platform for the Company's current
applications that can be effectively marketed to expand the Company's
operations. Some directors and officers of the Company, under certain
circumstances, have agreed to provide short term financing on a
temporary basis as needed. Management believes the Company's current
sources of liquidity and funding are adequate to sustain operations.
Management is also trying to enhance its financial position by
obtaining permanent additional financing. There can be no assurance,
however, that the Company's operations will be sustained or be
profitable in the future, that adequate sources of financing will be
available at all, when needed or on commercially acceptable terms, or
that the Company's product development efforts will be successful.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
Restricted Cash: In connection with its mortgage agreement, the
Company is required to maintain an interest reserve account with the
mortgagee. Withdrawals from the account are restricted to the payment
of mortgage principal or interest.
Property and Equipment: Property and equipment are stated at cost
and are depreciated on the straight line or accelerated methods over
their estimated useful lives.
Inventory: Inventory, which consists primarily of computer-related
supplies, is stated at the lower of cost (first-in, first-out) or
market value.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Software Maintenance Revenue and Unearned Support Revenue:
Deferred software maintenance revenue and unearned support revenue
represent revenue relating to software support, updates and
warranties which the Company has not yet earned. Software
maintenance fees are recognized ratably over the period of the
service contract. The portion of the maintenance fee associated with
the sale of a first time system or software that relates to the
initial maintenance period is also recognized ratably over the period
of the extended service.
Revenue Recognition: The Company generally recognizes product
revenue upon shipment. Revenues for products with extensive
installation requirements under contractual agreements are recognized
upon customer acceptance.
Earnings (loss) per Common Share: In 1997, loss per common share is
computed using the weighted average number of shares of common stock
outstanding during the period. Diluted per share computations are not
presented since the effect would be antidilutive. In 1996, earnings
per common share are also computed using the weighted average number
of shares of common stock outstanding during the period. Diluted per
share computations include dilutive common equivalent shares from
stock options, using the treasury stock method.
Stock-Based Compensation: The Company measures compensation expense
relative to employee stock-based compensation plans using the
intrinsic value-based method of accounting as prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". However, the Company will disclose the pro
forma amounts of net income and earnings per share as if the fair
value-based method of accounting prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" had been applied. See the Stockholders' Equity
footnote for these disclosures.
Research and Development: Research and development costs are charged
to expense as incurred.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Income Taxes: The Company accounts for income taxes according to the
liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between financial
reporting and income tax bases of assets and liabilities and are
measured using enacted tax rates and tax laws that will be in effect
when the differences are expected to reverse. The primary component
of the Company's deferred tax asset as of December 31, 1997, which is
fully reserved, is net operating loss carryforwards.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE C--RELATED-PARTY TRANSACTIONS
Director Compensation: The Company paid approximately $15,000 in
1997 and $14,000 in 1996 to a stockholder and director for financial
accounting consulting services.
<TABLE>
<CAPTION>
Notes Payable - Related party consist of the following:
<S> <C>
1997
Notes payable to a director for unsecured advances. $192,439
=======
</TABLE>
NOTE D--PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Property and equipment at December 31 is as follows:
Balance at
Beginning Balance at
of Additions End of
Classification Period at Cost Retirements Period
<S> <C> <C> <C> <C>
Year Ended December
31, 1997:
Land $231,283 $231,283
Building 758,728 758,728
Furniture and Fixtures 122,850 122,850
Computer Equipment 317,287 $129,835 $(76,610) 370,512
Automobiles 24,894 24,894
--------- -------- -------- ----------
TOTALS $1,455,042 $129,835 $(76,610) $1,508,267
========= ======== ======== ==========
Year Ended December
31, 1996:
Land $231,283 $231,283
Building 758,728 758,728
Furniture and
Fixtures 118,049 $4,801 122,850
Computer Equipment 293,960 27,114 $(3,787) 317,287
Automobiles 22,900 24,894 (22,900) 24,894
--------- -------- -------- ----------
TOTALS $1,424,920 $56,809 $(26,687) $1,455,042
========= ======== ======== ==========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE D--PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION
(Continued)
<TABLE>
<CAPTION>
Accumulated depreciation at December 31 is as follows:
Balance at
Beginning Additions Balance at
of Charged End of
Classification Period To Expense Retirements Period
<S> <C> <C> <C> <C>
Year Ended December
31, 1997:
Building $135,972 $24,117 $160,089
Furniture and
Fixtures 108,567 8,102 116,669
Computer Equipment 287,340 32,698 $(46,776) 273,262
Automobiles 4,721 7,556 12,277
________ ______ ________ ________
TOTALS $536,600 72,473 $(46,776) $562,297
======== ====== ========= ========
Year Ended December
31, 1996:
Building $111,849 $24,123 $135,972
Furniture and
Fixtures 98,689 9,878 108,567
Computer Equipment 268,886 22,241 $(3,787) 287,340
Automobiles 22,900 4,721 (22,900) 4,721
________ _______ ________ ________
TOTALS $502,324 $60,963 $(26,687) $536,600
======== ======= ========= ========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE E--ACCRUED EXPENSES
<TABLE>
<CAPTION>
Accrued expenses include the following:
December 31,
1997
----
<S> <C>
Accrued payroll and vacation $102,245
Accrued and withheld payroll taxes 19,895
Other 22,038
------
$144,178
========
</TABLE>
NOTE F--LONG TERM DEBT
Long term debt represents a note secured by a mortgage on the
Company's facility. On October 21, 1997, the note was extended for a
one year term with monthly payments determined according to a twenty-
year amortization period. $5,423, including interest at 10.00%, is
payable monthly. In addition, the note is subject to several
conditions, including:
- Four officers, directors and/or stockholders of the
Company are limited guarantors of the note to the extent
of $50,000 each. In connection with these guarantees
these four officers, directors and/or stockholders
received $1,500 in 1997 and 1996.
- Payment of dividends is restricted, requiring approval of
the mortgagee.
- Salary increases for officers above base levels are
restricted, requiring approval of the mortgagee.
Subsequent to December 31, 1997, the bank issued a commitment letter
that indicates this mortgage note will be renewed for one year, until
October 1999. Payment terms and interest rates, although not
finalized, are expected to remain consistent with current terms and
rates. Maturities reflect these terms and rates.
<TABLE>
<CAPTION>
Annual principal maturities of long-term debt are as follows:
<S> <C>
Year ending December 31, 1998 $17,642
December 31, 1999 478,317
-------
TOTAL $495,959
========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE G--STOCKHOLDERS' EQUITY
Stock-based compensation expense under the fair value-based method of
accounting would have resulted in pro forma net income and earnings
(loss) per common share approximating the following amounts:
<TABLE>
<CAPTION>
1997 1996
---- ----
As Reported Pro Forma As Reported Pro Forma
<S> <C> <C> <C> <C>
Net Income (loss) $(954,314) $(1,364,185) $243,681 $186,967
========== ============ ======== ========
Earnings (loss)
per common share $(.40) $(.60) $.10 $.08
===== ====== ==== ====
</TABLE>
The fair value for each option granted during 1997 and 1996,
reflecting the basis for the above pro forma disclosures, was
determined on the date of grant using the Black-Scholes option-
pricing model. The following assumptions were used in determining
fair value through the model:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Expected Life 5-8 years * 5-8 years *
Risk-free interest rate 5.80%-6.68% * 6.23%-6.74% *
Expected Volatility 128% 136%
</TABLE>
*Amounts vary due to graded vesting for options granted to employees
and differences between options granted to employees and granted to
directors.
The Company recognizes forfeitures as they occur.
The application of fair value-based accounting in arriving at the pro
forma disclosures above is not an indication of future income
statement effects. The pro forma disclosures do not reflect the
effect of fair-value accounting on stock-based compensation awards
granted prior to 1995, if any.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE G--STOCKHOLDERS' EQUITY (Continued)
Stock Option Plans: In 1990, the Company adopted a Stock Option Plan
under which the Board of Directors may grant incentive or non-
qualified stock options to employees, directors and consultants of the
Company. The maximum number of shares of stock subject to issuance
under the 1990 Stock Option Plan is 400,000 shares. These options, of
which a total of 109,000 had been exercised at December 31, 1997, are
exercisable within a ten-year period from the date of the grant,
generally fully exercisable when issued to directors and exercisable
20% per year and continuing over five years for employees and
consultants. The options are not transferrable except by will or
domestic relations order. The option price per share under the Plan
is not less than the fair market value of the shares on the date of
grant.
Stock option activity for the 1990 Stock Option Plan for the two year
period ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted Average
-----------------------------
Exercise Remain-
Number Price Exercise Fair Value ing
Of Options Per Share Price at grant Life
---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Outstanding
January 1, 1996 320,500 $.02-$5.50 $.55 5.71 years
Granted to
Directors 8,000 $1.12 $1.12 $1.00
Granted to
Employees 54,500 $3.50 $3.50 $3.27
Exercised (34,000) $.02-$1.44 $.06
---------- ---------- -------- ---------- ----------
Outstanding
December 31,
1996 349,000 $.02-$5.50 $1.07 5.08 years
Granted to
Directors 0 0
Granted to
Employees 0 0
Exercised (58,000) $.02-$3.50 $.38
---------- ---------- -------- ---------- ----------
Outstanding
December 31,
1997 291,000 $.02-$5.50 $1.21 3.49 years
========= ========== ===== ========== ==========
Exercisable at
December 31, 1997 191,000 $.02-$5.50 $.83
========= ========== =====
Exercisable at
December 31, 1996 214,800 $.02-$5.50 $.60
========= ========== =====
Available for
Grant At December
31, 1997 and 1996 -0-
====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE G--STOCKHOLDERS' EQUITY (Continued)
In addition, the Company also issued stock options outside of any
formalized plan that are exercisable within a ten-year period from the
date of grant and are generally fully exercisable when issued to
directors and exercisable 25% per year and continuing over four years
for employees and consultants. The options are not transferable except
by will or domestic relations order. The option price per share is not
less than the fair market value of the shares on the date of grant.
Stock option activity for stock options issued outside a formalized
plan for the two year period ended December 31, 1997 follows:
<TABLE>
<CAPTION>
Weighted Average
-----------------------------
Exercise Remain-
Number Price Exercise Fair Value ing
Of Options Per Share Price at grant Life
---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Outstanding
January 1,
1996 120,000 $.68-$.80 $.73 9.60 years
Exercised (50,000) $.68 $.68
Cancelled (5,000) $.68 $.68
---------- ---------- -------- ---------- ----------
Outstanding
December 31,
1996 65,000 $.68-$.80 $.77 8.20 years
Granted to
Directors and
officers in
consideration
of providing
short-term
financing 120,000 $2.00 $2.00 $1.51
Granted to
Directors 8,000 $2.75 $2.75 $2.39
Granted to
Employees 230,000 $2.75-$4.25 $3.07 $3.02
Exercised (50,000) $2.00 $2.00
---------- ----------- -------- ---------- ----------
Outstanding
December 31,
1997 373,000 $.68-$4.25 $2.10 5.94 years
========= =========== ======== ========== ==========
Exercisable at
December 31,
1997 193,000 $.68-$2.75 $1.81
========= =========== ========
Exercisable at
December 31,
1996 65,000 $.68-$.80 $.77
========= =========== ========
</TABLE>
On January 1, 1998 options representing 8,000 shares were granted to
directors at an exercise price of $4.25 per share.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE H--EARNINGS PER SHARE DISCLOSURE
Earnings per share disclosures for the two year period ended December
31, 1997 are as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
------------------------------------
Weighted-
Average Per Share
Income Shares Amount
<S> <C> <C> <C>
Basic loss per common share
Income available to common
stockholders $(954,314) 2,265,321 ($.42)
========== ========= ====
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
------------------------------------
Weighted-
Average Per Share
Income Shares Amount
<S> <C> <C> <C>
Basic earnings per common share
Income available to common
stockholders 243,681 2,120,259 $.11
====
Dilutive stock options -- 293,134
------- ---------
Diluted earnings per common
share
Income available to common
shareholders plus assumed
conversions 243,681 2,413,393 $.10
========= ========= ====
</TABLE>
Options to purchase 64,500 shares of stock at values ranging from
$3.50-$5.50 per share were outstanding during 1996 but were not
included in the computation of diluted earnings per common share
because the options' exercise price was greater than the average
market price of the common shares.
<PAGE>
NOTES TO FINANCIAL STATEMENTS_CONTINUED
PAMET SYSTEMS, INC.
NOTE I--INCOME TAXES
In 1997, there is no current provision for federal or state income
taxes due to the Company's net operating loss. During 1997,the
Company recorded deferred tax assets for the benefit of net operating
losses in the amount of $227,000. The cumulative amount of these
assets, which is $937,000 at December 31, 1997 is fully reserved due
to the Company's history of operating losses. Thus, management has
concluded that realization of the benefit is not likely. During 1996
there was no current provision for federal or state income taxes due
to the Company's utilization of pat operating loss carryforwards to
completely offset taxable income.
<TABLE>
<CAPTION>
The reconciliation of income tax attributable to operations computed
at the U.S. federal statutory tax rates to income tax expense for
1996 is as follows:
<S> <C> <C>
Tax at U.S. Statutory Rates $82,852 34%
State income taxes, net of
Federal tax effect -- --
Other $(15,403) (34)%
Effect of net operating
Loss carryforwards $(67,449) (34)%
________ _____
TOTALS $ -- -- %
======== =====
</TABLE>
The Company has available for federal and state income tax purposes
net operating loss carryforwards of approximately $4,700,000 and
$2,800,000, respectively, which may be used to offset future taxable
income. These net operating loss carryforwards, if unused, expire in
2011.
NOTE J--SIGNIFICANT CUSTOMERS
There were no sales to individual customers that were greater than
10% of total revenues for the years ended December 31, 1997 and 1996.
NOTE K--ECONOMIC DEPENDENCY
The Company obtained approximately 33% of its merchandise from two
sources in 1997. Management believes that if these suppliers ceased
providing merchandise, the Company could find alternative suppliers
without serious interruption of business.
<PAGE>
NOTES TO FINANCIAL STATEMENTS_CONTINUED
PAMET SYSTEMS, INC
NOTE L--PROFIT SHARING PLAN
During 1997, the Company established a qualified contributory profit
sharing plan [401(k) Plan]. The Plan covers substantially all
eligible employees meeting certain age and service requirements.
Employee contributions are voluntary, based on specific percentages
of compensation. The Plan also provides for contributions by the
Company in any amount approved by the Board of Directors. During
1997, the Board elected to make contributions equal to 15% of
employee contributions. The employees' and employer's contributions
may not exceed maximum amounts established by the Internal Revenue
Code. Total Company contributions to the plan were $4,914 during
1997.
NOTE M--GAIN ON INSURANCE SETTLEMENT
During 1997, the Company was burglarized. The Gain on Insurance
Settlement represents the net gain on the settlement with the
insurance company for equipment and inventories lost in the burglary.
NOTE N--EMPLOYMENT CONTRACT
The Company has entered into employment contracts with three of its
officers through 1999 that provide for minimum annual salaries,
adjusted for cost-of-living changes, and incentives based on the
Company's attainment of specified levels of sales and earnings. At
December 31, 1997, the total salary commitment, excluding incentives,
was $385,500.
NOTE O--RESEARCH AND DEVELOPMENT
Research and development costs in the current year represent costs
associated with developing a Microsoft Windows NT computing platform
for the Company's current computer applications as well as developing
a mobile product interface to the state information system.
NOTE P--SUBSEQUENT EVENT
On March 2, 1998, the Company had a private placement in which an
investor purchased 125,000 shares of the Company's common stock at a
price of $4.25 per share.
February 4, 1998, the Company acquired Technology Assemblers, Inc.
(TAI). TAI is a Florida based software company whose customers are
correctional institutions. The acquisition will be accounted for as a
purchase and includes one year employment contracts and 30,000 stock
options granted to three key TAI employees.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
PAMET SYSTEMS, INC.
NOTE Q--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Summarized quarterly financial data for 1997 and 1996 is as follows:
Quarter Ended
-------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $607,506 $432,105 $506,455 $531,830
Gross Profits 349,290 182,168 281,822 221,323
Operating Income
(loss) 30,270 (213,630) (158,448) (605,128)
Net Income
(loss) 12,228 (191,174) (156,556) (618,812)
Income (loss)
per share $.01 $(.08) $(.07) $(.28)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 238,204 $ 759,321 $788,402 $682,146
Gross Profits 164,413 496,540 468,604 402,833
Operating Income
(loss) (86,133) 215,006 120,233 70,088
Net Income
(loss) (101,280) 193,073 97,403 54,485
Income (loss)
per share $ (.05) $ .08 $ .04 $ .03
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
During the Registrant's fiscal years ended December 31, 1997
and 1996 there were no disagreements with it's auditing firm,
Carlin, Charron & Rosen, LLP on any matters.
PART III
Item 9. Directors and Executive Officers of the Registrant.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Transactions.
If the Registrant's definitive proxy statement is filed
within 120 days of the close of the Registrant's fiscal year ended
December 31, 1997, the information called for by Items 9, 10, 11,
and 12 (except to the extent set forth in Item 4A above) shall be
deemed incorporated herein by reference to the Registrant's
definitive proxy statement relating to the Annual Meeting of
Stockholders.
<PAGE>
Item 13. Exhibits. Financial Statement Schedules, and Reports on
Form 8-K
(a) Exhibits
3.1 Restated and Amended Articles of Organization (filed by
reference to Exhibit 3.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1990)
3.2 By-Laws, as amended (filed by reference to Exhibit 3.2
to Registration Statement No. 33-36989)
4.2 Specimen Common Stock Certificate (filed by reference to
Exhibit 4.2 to Registration Statement No. 33-36989)
10.1 Form of Employment agreement between the Registrant and
Dr. Joel B. Searcy (filed by reference to Exhibit 10.1
to Registration Statement No. 33-36989)
10.3 Stock Option Plan (filed by reference to Exhibit 10.3 to
Registration Statement No. 33-36989)
10.5 Form of License Agreement (filed by reference to Exhibit
10.5 to Registration Statement No. 33-42819)
10.8 Commercial real estate promissory note to Lexington
Savings Bank dated April 21, 1992 (filed by reference to
Exhibit 28.1 to the Registrant's Quarterly Report of
Form 10-Q for the Quarter Ended June 30, 1992)
10.9 Mortgage security agreement, and assignment granted to
Lexington Savings Bank, dated April 21, 1992 (filed by
reference to Exhibit 28.2 to the Registrant's Quarterly
Report of Form 10-Q for the Quarter Ended June 30, 1992)
10.10 Mortgage guaranty by six Pamet Systems, Inc. Directors
and Officers, dated April 21, 1992 (filed by reference
to Exhibit 28.3 to the Registrant's Quarterly Report of
Form 10-Q for the Quarter Ended June 30, 1992)
10.11 Mortgage security extension (one year) Agreement granted
to Lexington Savings Bank, dated 21 June 1996 (Filed by
reference to Exhibit 10.12 to the Registrant's Quarterly
Report of Form 10-Q for the Quarter Ended June 30, 1996.
10.12 Mortgage guaranty for five Pamet Systems, Inc. Directors
and Officers, Dated June 21, 1996 (Filed by reference to
Exhibit 10.12 to the Registrant's Quarterly Report of
Form 10-Q for the Quarter Ended June 30, 1996.
10.13 Form of Employment agreement between the Registrant and
Dr. Joel B. Searcy
10.14 Form of Employment agreement between the Registrant and
David T. McKay
10.15 Form of Employment agreement between the Registrant and
Richard C. Becker
11 None
12 None
13 None
16 None
18 None
19 None
22 None
23 Consent of Carlin, Charron & Rosen LLP
24 None
25 None
29 None
- ----------------------
(b) Reports on Form 8-K - none
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PAMET SYSTEMS, INC.
(Registrant)
By JOEL B. SEARCY
Dr. Joel B. Searcy
Chairman
Date March 30, 1998
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Capacity Date
JOEL B. SEARCY ________________________
Dr. Joel B. Searcy Chairman of the Board March 30, 1998
DAVID T. MCKAY ________________________
David T. McKay President and Chief Executive March 30, 1998
Officer
RICHARD C. BECKER ________________________
Richard C. Becker Vice President, Finance March 30, 1998
And Administration,
Treasurer, Director
(Principal Financial and
Accounting Officer)
LAURENCE B. BERGER ________________________
Laurence B. Berger Director March 30, 1998
ARTHUR V. JOSEPHSON, JR. ________________________
Arthur V. Josephson, Jr. Director March 30, 1998
BRUCE J. ROGOW ________________________
Bruce J. Rogow Director March 30, 1998
STANLEY J. ROBBOY, M.D. ________________________
Stanley J. Robboy, M.D. Director March 30, 1998
LEE SPELKE ________________________
Lee Spelke Director March 30, 1998
<PAGE>
INDEX OF EXHIBITS
Exhibit Page
10.13 Form of Employment agreement between
the registrant and Dr. Joel B. Searcy
10.14 Form of Employment agreement between
the registrant and David T. McKay
10.15 Form of Employment agreement between
the registrant and Richard C. Becker
23 Consent of Carlin, Charron & Rosen LLP
Financial Data Sheet
<PAGE>
Exhibit 10.13
Employment Agreement
This Employment Agreement is made as of this 30th day of May,
1997 (this "Agreement") by and between Joel B. Searcy (the
"Employee") and Pamet Systems, Inc., a Massachusetts corporation (the
"Company").
In consideration of the terms and mutual covenants herein
contained, the Employee and the Company hereby agree as follows:
1. Position, Responsibilities and Term of Employment.
1.01 Position. The Employee will serve as the Chairman of the
Board of Directors of the Company and have the responsibilities and
duties customarily associated with such position as the Board of
Directors of the Company (the "Board") may, from time to time,
designate or as may otherwise be appropriate and/or necessary in
connection with his employment.
1.02 Full Efforts. The Employee will devote his full
professional and business time and best efforts to the performance of
his duties to the Company. Except with the prior written consent of
the Board, the Employee will not undertake or engage in any other
employment, occupation or business enterprise. Further, the Employee
agrees not to acquire, assume or participate in any position,
investment or interest adverse or antagonistic to the Company, its
business or prospects, financial or otherwise, or take any direct or
indirect action intended to achieve any of the foregoing. This
Agreement shall not be construed as preventing or otherwise
restricting the Employee from serving on the boards of directors of
charitable organizations or engaging in charitable activities and
community affairs, or serving on the board of directors of a for-
profit organization that is not in competition with the Company
provided that such service does not substantially interfere with his
duties hereunder.
1.03 Board Membership. The Employee will serve as a member of
the Board during his employment by the Company, subject to the
provisions of the Company's Articles of Organization and By-laws.
1.04 Term of Agreement. Unless sooner terminated pursuant to
Section 6 below, the term of the Employee's employment hereunder is
from the date of this Agreement until the close of business on
December 31, 1999. The term of this Agreement shall be automatically
extended for one (1) additional year beyond its initial term or any
extensions thereof if this Agreement is still in force immediately
prior to such extension unless, at least one hundred and eighty days
(180) prior to such expiration date, either party shall have given
written notice to the other that it elects not to extend the term of
this Agreement. The actual term of the Employee's employment
hereunder, giving effect to any early termination or extension of the
term hereunder, is hereinafter referred to as the "Term." The
scheduled end date of the Employee's employment hereunder, giving
effect to any extension of the term hereunder, is hereinafter
referred to as the "Expiration Date."
1.05 Location of Employee. The Employee's primary place of
residence will be in the greater Boston area but he will be expected
to travel and work in any of a number of Company and customer
locations on a regular basis.
1.06 Policies and Procedures. It is also understood and agreed
that, except as otherwise specifically stated herein, the Employee
shall be subject to certain Company or executive-wide operational
policies and procedures, which policies and procedures may be
implemented, amended or terminated by the Company at any time.
2. Compensation and Benefits.
For the services to be rendered by the Employee pursuant to this
Agreement, the Employee will be entitled to the following
compensation and benefits during the Term:
2.01 Base Salary. The Company will pay to the Employee a salary
at a rate of not less than One Hundred Thirty-Two Thousand Dollars
($132,000) per annum, payable in equal semi-monthly installments,
subject to reduction for lawful withholding. Such salary is
hereinafter referred to as the Employee's "Base Salary." Such salary
normally will be reviewed by the Company once at the beginning of
each calendar year. The Board, in its discretion, may increase the
amount of the Employee's Base Salary.
2.02 Bonuses. In addition to his Base Salary, the Employee
shall be entitled to receive such additional compensation, including
grants of stock options or other equity of the Company pursuant to
Company plans or otherwise, as shall be determined by the Board, or a
committee thereof, in its discretion, based upon the reasonable value
of his services to the Company.
Moreover, the Employee will also be entitled to receive
from the Company bonus compensation in accordance with any long-term
and/or annual incentive compensation plans as may be maintained by
the Company for the benefit of its executives and to participate in
any other bonus plans maintained by the Company for the benefit of
its executives.
2.03 Stock Options. To the extent that Employee receives any
stock option(s), the exercise of which would give rise to
compensation income pursuant to Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code"), and the compensation element
of such option(s) would not qualify as "performance based
compensation" within the meaning of Code Section 162(m)(4)(C), then:
(i) notwithstanding anything to the contrary, in any fiscal
year, Employee shall not be entitled to exercise any stock
options, whether granted hereunder or otherwise, to the
extent that, following such exercise, Employee's aggregate
total compensation from the Company during such fiscal year
(including Employee's Base Salary and any bonuses, fringe
benefits or other compensation which would constitute
"applicable employee remuneration" for purposes of Section
162(m) of the Code) would exceed One Million Dollars
($1,000,000) and any of such applicable employee
remuneration would not be deductible to the Company as a
result of the application of Code Section 162(m); and
(ii) in the event that, pursuant to Section 2.03(i) above,
Employee is not permitted to exercise any fully vested
stock options in any fiscal year in which such stock
options would otherwise be exercisable and are due to
expire, then the term of such options shall be extended
until such time as such options may be exercised by
Employee without resulting in applicable employee
remuneration which would not be deductible to the Company
as a result of the application of Code Section 162(m);
provided, however, that the limitations set forth in
Section 2.03(i) above shall continue to apply to the
Employee's exercise of such stock options.
2.04 Fringe Benefits. The Employee will be entitled to
participate in any (i) pension or profit sharing or other retirement
plans, (ii) life, health, hospitalization or disability insurance
plans, or (iii) other benefit plans that are provided by the Company
for its employees generally or for its executives. The Employee
will be entitled to twenty-five (25) working days' paid vacation for
each calendar year, and a pro rata number of working days paid
vacation for any partial calendar year.
2.05 Company Automobile. The Company will provide the Employee
with the use of an automobile and will pay all expenses related to
the operation of said vehicle, including insurance, gas, taxes,
registration fees and maintenance. Upon termination of the Employee's
employment with the Company for any reason, the Employee will return
the automobile to the Company or else immediately pay the Company the
fair market value of such automobile, determined as of the date of
the termination of his employment.
2.06 Reimbursement. The Company will promptly reimburse the
Employee for all reasonable business expenses incurred by him in
connection with his performance of his duties to the Company, upon
substantiation of such expenses in accordance with the policies of
the Company.
3. Proprietary Information.
3.01 Access to Information. The Employee recognizes that his
relationship with the Company is one of high trust and confidence by
reason of his access to and contact with the confidential,
proprietary or secret information owned, possessed, or used by the
Company and/or its affiliates (collectively, "Proprietary
Information"). By way of illustration, but not limitation,
Proprietary Information includes creative ideas and concepts;
contemplated or planned advertising or public relations plans,
methods or techniques; slogans, copy, names, layout, formulas,
compositions, projects, developments, media or marketing plans;
research data, personnel data, computer programs, whether or not
copyrightable, trademarkable or licensable; trade secrets, processes,
forecasts, unpublished financial statements, budgets, and licenses;
and information concerning prices, costs, employees, customers and
suppliers.
3.02 Nondisclosure. The Employee will not at any time, either
during his employment with the Company or thereafter, disclose to
others, or use for his own benefit or the benefit of others, any
Proprietary Information.
3.03 Return of Information. Upon the termination of the
Employee's employment with the Company for any reason, or at any
other time upon the request of the Company, the Employee will
promptly deliver to the Company all letters, notes, memoranda, data,
notebooks, sketches, drawings, records, reports, files and other
written, photographic or other tangible material (and all copies or
reproductions of such materials) in his possession or under his
control, whether prepared by him or others, which contain Proprietary
Information. The Employee acknowledges that this material is the
sole property of the Company and is to be used by the Employee only
for the Company's benefit in the performance of his duties to the
Company.
3.04 Remedies. The restrictions contained in this Section 3 are
necessary for the protection of the business of the Company and are
considered by the Employee to be reasonable for this purpose. The
Employee agrees that any breach of this Section 3 will cause the
Company substantial and irrevocable damage and, therefore in the
event of any such breach, in addition to such other remedies as may
be available, the Company will have the right to seek specific
performance and injunctive relief. The Employee further agrees that
his obligations and the Company's rights under this Section 3 shall
survive the termination of this Agreement. The Employee also
acknowledges that in the event that this Agreement is terminated in
circumstances in which payments are made to the Employee in
accordance with Section 6, such payments shall constitute additional
consideration for the Employee's agreement to and compliance with
this Section 3 and that such payments shall terminate immediately in
the event that the Employee shall breach any of his covenants
contained in this Section 3.
4. Inventions and Patents.
4.01 Disclosure of Developments. The Employee will make full
and prompt disclosure to the Company of all inventions, improvements,
ideas, concepts, discoveries, methods, developments, software, and
works of authorship, whether or not copyrightable, trademarkable or
licensable, which are created, made, conceived or reduced to practice
either by the Employee, under his direction or jointly with others
during his employment with the Company, whether or not during normal
working hours or on the premises of the Company (all of which are
collectively referred to in this Agreement as "Developments"). All
Developments shall be the sole property of the Company, and the
Employee hereby assigns to the Company, without further compensation,
all his right, title and interest in and to such Developments and any
and all related patents, patent applications, copyrights, copyright
applications, trademarks, and trade names in the United States and
elsewhere.
4.02 Assistance in Obtaining Patents. The Employee will assist
the Company in obtaining, maintaining and enforcing patent, copyright
and other forms of legal protection for intellectual property in any
country. Upon the request of the Company, the Employee will sign all
applications, assignments, instruments and papers and perform all
acts necessary or desired by the Company in order to protect its
rights and interests in any Developments.
During his employment with the Company, the Employee will
perform his obligations under this subsection 4.02 without further
compensation, except for reimbursement of expenses incurred at the
request of the Company. If the Employee is not employed by the
Company as an employee at the time he is requested to perform any
obligations under this subsection 4.02, he will receive for such
performance a reasonable per diem fee, as well as reimbursement of
any expenses incurred at the request of the Company.
4.03 Remedies. The Employee agrees that any breach of this
Section 4 will cause irreparable damage to the Company and that, in
the event of such breach, the Company will have, in addition to any
and all remedies of law, including rights which the Company may have
to damages, the right to equitable relief including, as appropriate,
all injunctive relief or specific performance or other equitable
relief.
5. Non-Competition.
5.01 Subsequent Employment. The Employee agrees that, for a
period of twenty-four (24) months following the termination of his
employment with the Company, he will not, whether personally or as
agent for another or as an employee, partner, joint venturer,
principal, consultant, lender, guarantor or owner of five percent or
more of any Organization, engage, directly or indirectly, anywhere in
the United States, in competition with any service or product made,
sold or provided by the Company, without the express written consent
of the Company. If any restriction set forth in this subsection 5.01
is found by any court of competent jurisdiction to be unenforceable
because it extends for too long a period of time or over too great a
range of activities or in too broad a geographic area, it shall be
interpreted to extend only over the maximum period of time, range of
activities or geographic areas to which it may be enforceable.
"Organization" shall mean any firm, association, syndicate,
corporation or other business entity.
5.02 No Solicitation. The Employee agrees that, during his
employment with the Company and during the twenty-four (24) month
period following the termination of his employment with the Company,
he will not directly or indirectly:
(i) recruit employees or other agents of the Company or
its affiliates or take any steps to induce any such
employees or agents to terminate their employment or
other association with the Company; or
(ii) contact, solicit, or sell to any of the customers or
prospective customers of the Company or its affiliates
which the Employee had contact with while employed by
the Company, with respect to any product or service
which is competitive with any product or service sold
by the Company or its affiliates or planned to be sold
by the Company or its affiliates during his employment
with the Company or during the twenty-four (24) month
period following the termination of his employment.
5.03 Remedies. The restrictions contained in this Section 5 are
necessary for the protection of the business and goodwill of the
Company and are considered by the Employee to be reasonable for this
purpose. The Employee agrees that any breach of this Section 5 will
cause the Company substantial and irrevocable damage and, therefore,
in the event of any such breach, in addition to such other remedies
as may be available, the Company will have the right to seek specific
performance and injunctive relief. The Employee further agrees that
his obligations and the Company's rights under this Section 5 shall
survive the termination of this Agreement. The Employee also
acknowledges that in the event that this Agreement is terminated in
circumstances in which payments are made to Employee in accordance
with Section 6, such payments shall constitute additional
consideration for the Employee's agreement to and compliance with
this Section 5 and that such payments shall terminate immediately in
the event that the Employee shall breach any of his covenants
contained in this Section 5.
6. Termination.
6.01 Termination Upon Death or Disability. If the Employee dies
while still employed by the Company, his employment will terminate as
of the date of his death. If the Employee, by virtue of ill health
or other disability, is unable to perform substantially and
continuously the duties assigned to him for a period in excess of one
hundred twenty (120) consecutive or non-consecutive days during any
twelve (12) month period, the Company shall have the right to
terminate his employment upon notice in writing to the Employee.
6.02 Termination for Cause. If the Employee has (i) engaged in
wilful or repeated breach of his duties hereunder, or (ii) committed
any act of gross negligence, fraud, misappropriation, embezzlement or
dishonesty in the performance of his duties hereunder, or (iii) been
convicted of, or entered a plea of guilty or nolo contendre to, a
felony (all of which are collectively referred to in this Agreement
as "Cause"), the Company may, by written notice to the Employee,
immediately terminate his employment.
6.03 Termination Without Cause or Upon a Change in Control. The
Company may, by written notice to the Employee, terminate his
employment at any time without Cause. Further, any "Constructive
Termination" will constitute termination without Cause. For purposes
of this Agreement, "Constructive Termination" shall mean the removal
of the Employee from, or appointment of the Employee to lesser
positions than, the position set forth in Section 1; material
diminution in the nature or scope of the authorities, powers,
functions, duties or responsibilities attached to the position
described in Section 1; or material reduction in the compensation or
benefits provided to the Employee in violation of Section 2. In
addition, the employment of the Employee shall be deemed to have been
terminated without Cause if, within ninety (90) days of a Change of
Control (as defined below in this subsection), he resigns or the
Company terminates his employment for any reason, including Cause.
A "Change of Control" shall be deemed to have taken place
upon the occurrence of any of the following events:
(i) a majority of the directors elected at any annual
or special meeting of stockholders or by
stockholder consent are not individuals nominated
by the Company's incumbent Board of Directors; or
(ii) the acquisition of beneficial ownership (as such
term is defined in Rule 13d-3 as promulgated
under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) by any "person" (as
such term is used in Section 13(d) and 14(d) of
the Exchange Act), other than (w) the Company,
(x) the Employee, (y) any group of which the
Employee is a member (within the meaning of Rule
13d-1(f) as promulgated under the Exchange Act)
or (z) any person who is a member of the Board of
Directors as of June 1, 1997, directly or
indirectly, of securities representing 30% or
more of the total number of votes that may be
cast for the election of directors of the
Company; provided, that the acquisition by the
Company of another company or the assets thereof
or a similar transaction in which the Company
issues securities representing 30% or more of the
total number of votes that may be cast for the
election of directors of the Company shall not
constitute a "Change in Control" if (1) the
Company is the surviving corporation (2) the
Chairman of the Board of Directors, the President
and the Chief Executive Officer of the Company
immediately preceding the signing of the
acquisition (or similar) agreement relating to
such transaction shall serve as such immediately
after the closing of such transaction and (3) the
Board of Directors of the Company shall not
change, in connection with such transaction, by
more than 30%.
6.04 Termination upon the Employee's Resignation. The Employee
may, by giving at least two (2) months' written notice to the
Company, terminate his employment.
6.05 Payments Upon Termination.
In the event that the Employee's employment is terminated
pursuant to subsection 6.02 or 6.04 above, the Employee will be
entitled only to compensation and benefits accrued pursuant to
Section 2 to the date of the termination of his employment.
In the event that the Employee's employment is terminated
pursuant to Section 6.03 following a Change in Control, then (i) the
Company shall pay the Employee his Base Salary as in effect at the
time of the termination of his employment as well as all bonus
compensation accrued through the date of the termination of his
employment and (ii) in lieu of all salary and bonus compensation
payments which the Employee would have earned under this Agreement
but for his early termination, the Company shall pay to the Employee
as liquidated damages a lump sum amount equal to 2.99 multiplied by
the sum of (x) the Employee's annual Base Salary in effect as of the
date of the termination of his employment and (y) all bonus
compensation paid or payable to the Employee for the most recent
year. All such payments will be made on or before the fifth day
following the date of the termination of his employment.
In all other events, upon the early termination of the
Employee's employment hereunder, the Employee (or, in the event of
his death, his Estate) (i) will continue to receive (x) his Base
Salary as in effect at the time of the termination of his employment
and (y) his fringe benefits as set forth in subsection 2.04 to the
extent permitted by law and any contracts related to such benefits,
until the later of (a) twelve (12) months from the date of the
termination of his employment, or (b) the Expiration Date and (ii)
will receive, with respect to the period beginning on the date the
Employee's employment is terminated and ending on the later of (A)
the date that is twelve (12) months from the date of said termination
or (B) the Expiration Date, an additional bonus amount for each
twelve (12) month portion of said period equal to the highest
annualized bonus paid to the Employee by the Company during the Term
(or prorated portion of such annualized bonus in the event such
additional bonus amount is paid with respect to a portion of said
period equal to less than twelve (12) months). If the employment of
the Employee is terminated as a result of a Constructive Termination
relating to a reduction in his compensation, then for purposes of
calculating the foregoing payments, the Employee's Base Salary shall
be his Base Salary in effect immediately prior to such reduction.
The Company may, in its sole discretion, accelerate the
payment of any amount payable under this Section 6.
7. Indemnification. Unless otherwise prohibited by law, if the
Employee is a party or is threatened to be made party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the
fact that the Employee is or was a director, executive, employee or
agent of the Company, the Company will indemnify the Employee against
expenses (including reasonable attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the
Employee in connection with such action; provided, however, that the
Employee will not be entitled to any indemnification hereunder for
any claim which is determined by a nonappealable court order to have
resulted from the gross negligence or willful misconduct of the
Employee.
8. Notices. All notices required or permitted hereunder shall be
in writing (including facsimile or similar writing) and shall be
deemed to have been duly given (i) on the date of service if
personally served, (ii) on the third day after mailing if mailed to
the party to whom notice is to be given, by first class mail,
registered, return receipt requested, postage prepaid, or (iii) on
the date sent if sent by facsimile, to the parties at the following
addresses or facsimile numbers (or at such other address or facsimile
number for a party as shall be specified by like notice):
Joel B. Searcy Pamet Systems, Inc.
________________ 1000 Main Street
________________ Acton, MA 01720
Fax: Fax:
9. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement. Further, a
court shall have authority to reform any invalid or unenforceable
provision so it will be valid and enforceable.
10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties, supersedes all prior agreements,
communications and understandings, whether oral or written, relating
to the subject matter of this Agreement, and shall not be amended or
modified except by a further written agreement signed by the Company
and the Employee.
11. Waiver. The waiver by the Company of the Employee's breach of
any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach thereof.
12. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the internal laws of
the Commonwealth of Massachusetts.
13. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the
same instrument.
14. Successors. This Agreement is not assignable by the
Employee and will be binding upon any successors or assigns of
the Company.
15. Independent Legal Advice. The Employee acknowledges that
he has been afforded the opportunity to obtain independent legal
advice in connection with this Agreement and further
acknowledges that he has read, understands and agrees to be
bound by all of the terms and conditions contained herein.
IN WITNESS WHEREOF, the undersigned parties have executed
this Agreement as of the date first above written.
PAMET SYSTEMS, INC.
By _______________________
David McKay
Title _______________________
President
_____________________________
Joel B. Searcy
<PAGE>
Exhibit 10.14
Employment Agreement
This Employment Agreement is made as of this 30th day of May, 1997
(this "Agreement") by and between David McKay (the "Employee") and
Pamet Systems, Inc., a Massachusetts corporation (the "Company").
In consideration of the terms and mutual covenants herein
contained, the Employee and the Company hereby agree as follows:
1. Position, Responsibilities and Term of Employment.
1.01 Position. The Employee will serve as the President and Chief
Executive Officer of the Company, having the responsibilities and
duties described in Exhibit A attached hereto and such other
responsibilities and duties customarily associated with such position
as the Board of Directors of the Company (the "Board") may, from time
to time, designate or as may otherwise be appropriate and/or necessary
in connection with his employment.
1.02 Full Efforts. The Employee will devote his full professional
and business time and best efforts to the performance of his duties to
the Company. Except with the prior written consent of the Board, the
Employee will not undertake or engage in any other employment,
occupation or business enterprise. Further, the Employee agrees not to
acquire, assume or participate in any position, investment or interest
adverse or antagonistic to the Company, its business or prospects,
financial or otherwise, or take any direct or indirect action intended
to achieve any of the foregoing. This Agreement shall not be construed
as preventing or otherwise restricting the Employee from serving on the
boards of directors of charitable organizations or engaging in
charitable activities and community affairs, or serving on the board of
directors of a for-profit organization that is not in competition with
the Company provided that such service does not substantially interfere
with his duties hereunder.
1.03 Board Membership. The Employee will serve as a member of the
Board during his employment by the Company, subject to the provisions
of the Company's Articles of Organization and By-laws.
1.04 Term of Agreement. Unless sooner terminated pursuant to
Section 6 below, the term of the Employee's employment hereunder is
from June 1, 1997 until the close of business on the first anniversary
of such date (the "Initial Term"). The term of this Agreement shall be
automatically extended for one (1) additional year (the "Second Year")
beyond the Initial Term if this Agreement is still in force immediately
prior to such extension unless, at least ninety (90) days prior to such
expiration date, either party shall have given written notice to the
other that it elects not to extend the term of this Agreement (a
"Notice of Non-Renewal"). Commencing upon the first day after the end
of the Second Year, this Agreement shall be automatically extended for
two (2) additional years unless, at least ninety (90) days prior to
such expiration date, either party shall have given a Notice of Non-
Renewal. The actual term of the Employee's employment hereunder,
giving effect to any early termination or extension of the term
hereunder, is hereinafter referred to as the "Term." The scheduled end
date of the Employee's employment hereunder, giving effect to any
extension of the term hereunder, is hereinafter referred to as the
"Expiration Date."
1.05 Location of Employee. The Employee's primary place of
residence will be in the greater Boston area but he will be expected to
travel and work in any of a number of Company and customer locations on
a regular basis.
1.06 Policies and Procedures. It is also understood and agreed
that, except as otherwise specifically stated herein, the Employee
shall be subject to certain Company or executive-wide operational
policies and procedures, which policies and procedures may be
implemented, amended or terminated by the Company at any time.
2. Compensation and Benefits.
For the services to be rendered by the Employee pursuant to this
Agreement, the Employee will be entitled to the following compensation
and benefits during the Term:
2.01 Base Salary. The Company will pay to the Employee a salary
at a rate of not less than One Hundred Sixty Thousand Dollars
($160,000) per annum, payable in equal semi-monthly installments,
subject to reduction for lawful withholding. Such salary normally will
be reviewed by the Company once at the beginning of each calendar year
and will be adjusted to reflect the minimum annual levels for Base
Salary as outlined in Exhibit B. Such salary is hereinafter referred
to as the Employee's "Base Salary."
2.02 Bonuses. In addition to his Base Salary, the Employee shall
be eligible to receive an annual performance bonus as outlined in
Exhibit B. Such bonus, reduced by lawful withholdings, will be paid no
later than April 1 of the year next succeeding the year in which it is
earned. If the Employee's employment is terminated before the
completion of a full fiscal year, the bonus shall be pro-rated and
based on performance through the last fully-completed fiscal quarter.
Moreover, the Employee will also be eligible to receive from
the Company such additional compensation, as shall be determined by the
Board, or a committee thereof, in its sole discretion, and in
accordance with any long-term and/or annual incentive compensation
plans as may be maintained by the Company for the benefit of its
executives and to participate in any other bonus plans maintained by
the Company for the benefit of its executives.
2.03 Stock Options. (a) Employee shall be granted, on the date of
the commencement of his employment, an option to purchase 50,000 shares
of the common stock of the Company at an exercise price per share equal
to the fair market value per share of the common stock of the Company
on the date of such grant. Such options shall be immediately
exercisable and shall have a term of ten years. The unexercised
portion of such option shall terminate sixty (60) days after the date
of termination of Employee's employment hereunder except that such
unexercised portion shall terminate (i) immediately upon termination of
employment in the event Employee's employment is terminated pursuant to
Section 6.02 hereof, (ii) one (1) year after termination of employment
in the event Employee's employment is terminated pursuant to Section
6.01 hereof and (iii) six (6) months after termination of employment in
the event the Company gives the Employee a Notice of Non-Renewal.
(b) On August 25, 1997, assuming Employee is employed on such
date, Employee shall be granted an option to purchase a minimum of
100,000 shares of common stock of the Company at an exercise price per
share equal to the fair market value per share of the common stock of
the Company on the date of such grant. These options will vest at a
rate no slower than 25% per year commencing on the first anniversary of
such grant, unless the Board of Directors or committee thereof provides
for a faster vesting schedule; provided, that in the event of a Change
in Control (as hereafter defined), all unvested options shall become
immediately exercisable. All other terms of these options shall be
substantially similar to those described in Section 2.03(a) above.
(c) Notwithstanding anything to the contrary, in any fiscal year,
Employee shall not be entitled to exercise any stock options, whether
granted hereunder or otherwise, to the extent that, following such
exercise, Employee's aggregate total compensation from the Company
during such fiscal year (including Employee's Base Salary and any
bonuses, fringe benefits or other compensation which would constitute
"applicable employee remuneration" for purposes of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code")) would
exceed One Million Dollars ($1,000,000) and any of such applicable
employee remuneration would not be deductible to the Company as a
result of the application of Code Section 162(m).
(d) In the event that, pursuant to Section 2.03(c) above,
Employee is not permitted to exercise any fully vested stock options in
any fiscal year in which such stock options would otherwise be
exercisable and are due to expire, then the term of such options shall
be extended until such time as such options may be exercised by
Employee without resulting in applicable employee remuneration which
would not be deductible to the Company as a result of the application
of Code Section 162(m); provided, however, that the termination
provisions set forth in Section 2.03(a) above and the limitations set
forth in Section 2.03(c) above shall continue to apply to the
Employee's exercise of such stock options.
2.04 Fringe Benefits. The Employee will be entitled to
participate in any (i) pension or profit sharing or other retirement
plans, (ii) life, health, hospitalization or disability insurance
plans, or (iii) other benefit plans that are provided by the Company
for its employees generally or
for its executives. The Employee will be entitled to twenty-five (25)
working days' paid vacation for each calendar year, and a pro rata
number of working days paid vacation for any partial calendar year.
2.05 Reimbursement. The Company will promptly reimburse the
Employee for all reasonable business expenses incurred by him in
connection with his performance of his duties to the Company, upon
substantiation of such expenses in accordance with the policies of the
Company.
3. Proprietary Information.
3.01 Access to Information. The Employee recognizes that his
relationship with the Company is one of high trust and confidence by
reason of his access to and contact with the confidential, proprietary
or secret information owned, possessed, or used by the Company and/or
its affiliates (collectively, "Proprietary Information"). By way of
illustration, but not limitation, Proprietary Information includes
creative ideas and concepts; contemplated or planned advertising or
public relations plans, methods or techniques; slogans, copy, names,
layout, formulas, compositions, projects, developments, media or
marketing plans; research data, personnel data, computer programs,
whether or not copyrightable, trademarkable or licensable; trade
secrets, processes, forecasts, unpublished financial statements,
budgets, and licenses; and information concerning prices, costs,
employees, customers and suppliers.
3.02 Nondisclosure. The Employee will not at any time, either
during his employment with the Company or thereafter, disclose to
others, or use for his own benefit or the benefit of others, any
Proprietary Information.
3.03 Return of Information. Upon the termination of the
Employee's employment with the Company for any reason, or at any other
time upon the request of the Company, the Employee will promptly
deliver to the Company all letters, notes, memoranda, data, notebooks,
sketches, drawings, records, reports, files and other written,
photographic or other tangible material (and all copies or
reproductions of such materials) in his possession or under his
control, whether prepared by him or others, which contain Proprietary
Information. The Employee acknowledges that this material is the sole
property of the Company and is to be used by the Employee only for the
Company's benefit in the performance of his duties to the Company.
3.04 Remedies. The restrictions contained in this Section 3 are
necessary for the protection of the business of the Company and are
considered by the Employee to be reasonable for this purpose. The
Employee agrees that any breach of this Section 3 will cause the
Company substantial and irrevocable damage and, therefore in the event
of any such breach, in addition to such other remedies as may be
available, the Company will have the right to seek specific performance
and injunctive relief. The Employee further agrees that his
obligations and the Company's rights under this Section 3 shall survive
the termination of this Agreement. The Employee also acknowledges that
in the event that this Agreement is terminated in circumstances in
which payments are made to the Employee in accordance with Section 6,
such payments shall constitute additional consideration for the
Employee's agreement to and compliance with this Section 3 and that
such payments shall terminate immediately in the event that the
Employee shall breach any of his covenants contained in this Section 3.
4. Inventions and Patents.
4.01 Disclosure of Developments. The Employee will make full and
prompt disclosure to the Company of all inventions, improvements,
ideas, concepts, discoveries, methods, developments, software, and
works of authorship, whether or not copyrightable, trademarkable or
licensable, which are created, made, conceived or reduced to practice
either by the Employee, under his direction or jointly with others
during his employment with the Company, whether or not during normal
working hours or on the premises of the Company (all of which are
collectively referred to in this Agreement as "Developments"). All
Developments shall be the sole property of the Company, and the
Employee hereby assigns to the Company, without further compensation,
all his right, title and interest in and to such Developments and any
and all related patents, patent applications, copyrights, copyright
applications, trademarks, and trade names in the United States and
elsewhere.
4.02 Assistance in Obtaining Patents. The Employee will assist the
Company in obtaining, maintaining and enforcing patent, copyright and
other forms of legal protection for intellectual property in any
country. Upon the request of the Company, the Employee will sign all
applications, assignments, instruments and papers and perform all acts
necessary or desired by the Company in order to protect its rights and
interests in any Developments.
During his employment with the Company, the Employee will
perform his obligations under this subsection 4.02 without further
compensation, except for reimbursement of expenses incurred at the
request of the Company. If the Employee is not employed by the Company
as an employee at the time he is requested to perform any obligations
under this subsection 4.02, he will receive for such performance a
reasonable per diem fee, as well as reimbursement of any expenses
incurred at the request of the Company.
4.03 Remedies. The Employee agrees that any breach of this
Section 4 will cause irreparable damage to the Company and that, in the
event of such breach, the Company will have, in addition to any and all
remedies of law, including rights which the Company may have to
damages, the right to equitable relief including, as appropriate, all
injunctive relief or specific performance or other equitable relief.
5. Non-Competition.
5.01 Subsequent Employment. The Employee agrees that, for a
period of twenty-four (24) months (except that in the case of
termination of employment during the Initial Term other than pursuant
to Section 6.02, such period shall be twelve (12) months) following the
termination of his employment with the Company, he will not, whether
personally or as agent for another or as an employee, partner, joint
venturer, principal, consultant, lender, guarantor or owner of five
percent or more of any Organization, engage, directly or indirectly,
anywhere in the United States, in competition with any service or
product made, sold or provided by the Company, without the express
written consent of the Company. If any restriction set forth in this
subsection 5.01 is found by any court of competent jurisdiction to be
unenforceable because it extends for too long a period of time or over
too great a range of activities or in too broad a geographic area, it
shall be interpreted to extend only over the maximum period of time,
range of activities or geographic areas to which it may be enforceable.
"Organization" shall mean any firm, association, syndicate,
corporation or other business entity.
5.02 No Solicitation. The Employee agrees that, during his
employment with the Company and during the twenty-four (24) month
period following the termination of his employment with the Company, he
will not directly or indirectly:
(i) recruit employees or other agents of the Company or its
affiliates or take any steps to induce any such
employees or agents to terminate their employment or
other association with the Company; or
(ii) contact, solicit, or sell to any of the customers or
prospective customers of the Company or its affiliates
which the Employee had contact with while employed by
the Company, with respect to any product or service
which is competitive with any product or service sold by
the Company or its affiliates or identified and planned
to be sold by the Company or its affiliates during his
employment with the Company or during the twenty-four
(24) month period following the termination of his
employment.
5.03 Remedies. The restrictions contained in this Section 5 are
necessary for the protection of the business and goodwill of the
Company and are considered by the Employee to be reasonable for this
purpose. The Employee agrees that any breach of this Section 5 will
cause the Company substantial and irrevocable damage and, therefore, in
the event of any such breach, in addition to such other remedies as may
be available, the Company will have the right to seek specific
performance and injunctive relief. The Employee further agrees that
his obligations and the Company's rights under this Section 5 shall
survive the termination of this Agreement. The Employee also
acknowledges that in the event that this Agreement is terminated in
circumstances in which payments are made to Employee in accordance with
Section 6, such payments shall constitute additional consideration for
the Employee's agreement to and compliance with this Section 5 and that
such payments shall terminate immediately in the event that the
Employee shall breach any of his covenants contained in this Section 5.
6. Termination.
6.01 Termination Upon Death or Disability. If the Employee dies
while still employed by the Company, his employment will terminate as
of the date of his death. If the Employee, by virtue of ill health or
other disability, is unable to perform substantially and continuously
the duties assigned to him for a period in excess of one hundred twenty
(120) consecutive or non-consecutive days during any twelve (12) month
period, the Company shall have the right to terminate his employment
upon notice in writing to the Employee.
6.02 Termination for Cause. If the Employee has (i) engaged in
wilful or repeated breach of his duties hereunder, or (ii) committed
any act of gross negligence, fraud, misappropriation, embezzlement or
dishonesty in the performance of his duties hereunder, or (iii) been
convicted of, or entered a plea of guilty or nolo contendre to, a
felony (all of which are collectively referred to in this Agreement as
"Cause"), the Company may, by written notice to the Employee,
immediately terminate his employment.
6.03 Termination Without Cause or Upon a Change in Control. The
Company may, by written notice to the Employee, terminate his
employment at any time without Cause. Further, any "Constructive
Termination" will constitute termination without Cause. For purposes
of this Agreement, "Constructive Termination" shall mean the removal of
the Employee from, or appointment of the Employee to lesser positions
than, the position set forth in Section 1; material diminution in the
nature or scope of the authorities, powers, functions, duties or
responsibilities attached to the position described in Section 1; or
material reduction in the compensation or benefits provided to the
Employee in violation of Section 2. In addition, the employment of the
Employee shall be deemed to have been terminated without Cause if,
within ninety (90) days of a Change of Control (as defined below in
this subsection), he resigns or the Company terminates his employment
for any reason, including Cause.
A "Change of Control" shall be deemed to have taken place
upon the occurrence of any of the following events:
(i) a majority of the directors elected at any annual
or special meeting of stockholders or by
stockholder consent are not individuals nominated
by the Company's incumbent Board of Directors; or
(ii) the acquisition of beneficial ownership (as such
term is defined in Rule 13d-3 as promulgated under
the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) by any "person" (as such term
is used in Section 13(d) and 14(d) of the Exchange
Act), other than (w) the Company, (x) the Employee,
(y) any group of which the Employee is a member
(within the meaning of Rule 13d-1(f) as promulgated
under the Exchange Act) or (z) any person who is a
member of the Board of Directors as of June 1,
1997, directly or indirectly, of securities
representing 30% or more of the total number of
votes that may be cast for the election of
directors of the Company; provided, that the
acquisition by the Company of another company or
the assets thereof or a similar transaction in
which the Company issues securities representing
30% or more of the total number of votes that may
be cast for the election of directors of the
Company shall not constitute a "Change in Control"
if (1) the Company is the surviving corporation
(2) the Chairman of the Board of Directors, the
President and the Chief Executive Officer of the
Company immediately preceding the signing of the
acquisition (or similar) agreement relating to such
transaction shall serve as such immediately after
the closing of such transaction and (3) the Board
of Directors of the Company shall not change, in
connection with such transaction, by more than 30%.
6.04 Termination upon the Employee's Resignation. The Employee
may, by giving at least two (2) months' written notice to the Company,
terminate his employment.
6.05 Payments Upon Termination.
In the event that the Employee's employment is terminated
pursuant to subsection 6.02 or 6.04 above, the Employee will be
entitled only to compensation and benefits accrued pursuant to Section
2 to the date of the termination of his employment.
In the event that the Employee's employment is terminated
pursuant to Section 6.03 following a Change in Control, then (i) the
Company shall pay the Employee his Base Salary as in effect at the time
of the termination of his employment as well as all bonus compensation
accrued through the date of the termination of his employment and (ii)
in lieu of all salary and bonus compensation payments which the
Employee would have earned under this Agreement but for his early
termination, the Company shall pay to the Employee as liquidated
damages a lump sum amount equal to 2.99 multiplied by the sum of (x)
the Employee's annual Base Salary in effect as of the date of the
termination of his employment and (y) all bonus compensation paid or
payable to the Employee for the most recent year. All such payments
will be made on or before the fifth day following the date of the
termination of his employment.
In all other events, upon the early termination of the
Employee's employment hereunder, the Employee (or, in the event of his
death, his Estate) (i) will continue to receive (x) his Base Salary as
in effect at the time of the termination of his employment and (y) his
fringe benefits as set forth in subsection 2.04 to the extent permitted
by law and any contracts related to such benefits, until the later of
(a) twelve (12) months from the date of the termination of his
employment, or (b) the Expiration Date and (ii) will receive, with
respect to the period beginning on the date the Employee's employment
is terminated and ending on the later of (A) the date that is twelve
(12) months from the date of said termination or (B) the Expiration
Date, an additional bonus amount for each twelve (12) month portion of
said period equal to the highest annualized bonus paid to the Employee
by the Company during the Term (or prorated portion of such annualized
bonus in the event such additional bonus amount is paid with respect to
a portion of said period equal to less than twelve (12) months).
Notwithstanding the foregoing, if, during (a) the Initial Term or (b)
the Second Year, the Employee's employment is terminated, the maximum
period during which the Employee may receive compensation shall be (a)
three (3) months and (b) six (6) months, respectively. If the
employment of the Employee is terminated as a result of a Constructive
Termination relating to a reduction in his compensation, then for
purposes of calculating the foregoing payments, the Employee's Base
Salary shall be his Base Salary in effect immediately prior to such
reduction. If the Company gives a Notice of Non-Renewal to the
Employee during (a) the Initial Term or (b) the Second Year, the
Employee shall receive compensation for (a) three (3) months and (b)
six (6) months, respectively, after the date of termination.
The Company may, in its sole discretion, accelerate the
payment of any amount payable under this Section 6.
7. Indemnification. Unless otherwise prohibited by law, if the
Employee is a party or is threatened to be made party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact
that the Employee is or was a director, executive, employee or agent of
the Company, the Company will indemnify the Employee against expenses
(including reasonable attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by the Employee in
connection with such action; provided, however, that the Employee will
not be entitled to any indemnification hereunder for any claim which is
determined by a nonappealable court order to have resulted from the
gross negligence or willful misconduct of the Employee.
8. Notices. All notices required or permitted hereunder shall be in
writing (including facsimile or similar writing) and shall be deemed to
have been duly given (i) on the date of service if personally served,
(ii) on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid, or (iii) on the date sent if sent by
facsimile, to the parties at the following addresses or facsimile
numbers (or at such other address or facsimile number for a party as
shall be specified by like notice):
David McKay Pamet Systems, Inc.
825 West Street 1000 Main Street
Carlisle, MA 01741 Acton, MA 01720
Fax: 508-371-3155 Fax: 508-263-4158
9. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement. Further, a court shall have
authority to reform any invalid or unenforceable provision so it will
be valid and enforceable.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, supersedes all prior agreements, communications
and understandings, whether oral or written, relating to the subject
matter of this Agreement, and shall not be amended or modified except
by a further written agreement signed by the Company and the Employee.
11. Waiver. The waiver by the Company of the Employee's breach of any
provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach thereof.
12. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the internal laws of the Commonwealth of
Massachusetts.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
14. Successors. This Agreement is not assignable by the Employee and
will be binding upon any successors or assigns of the Company.
15. Independent Legal Advice. The Employee acknowledges that he has
been afforded the opportunity to obtain independent legal advice in
connection with this Agreement and further acknowledges that he has
read, understands and agrees to be bound by all of the terms and
conditions contained herein.
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement as of the date first above written.
PAMET SYSTEMS, INC.
By _______________________
Joel B. Searcy
Title _______________________
Chairman
_____________________________
David McKay
<PAGE>
Exhibit A
The responsibilities and duties of the position of President and CEO
are described but not limited to the following:
Overall multi year direction and strategies employed by the company
Development of the annual operating plan
Quarterly and annual operating results of the company
Effective relationship with the Board of Directors
Appropriate return on equity for the stockholders
Compliance with all laws, regulations and procedures required for a
public company
Ensure product marketing and development strategies are in place
Ensure sales and business operations strategies are in place
Ensure administrative and financial strategies are in place
Effectiveness of the organization and resources used within the company
<PAGE>
Exhibit B
1997 Compensation & Performance Targets
Salary for 1997 on an annualized basis will be $160,000 (base salary)
for sales up to $3,000,000 (threshold level), $240,000 if sales exceed
$3,600,000 and profit exceeds 1.5% (target level), and $320,000 if
sales exceed $4,200,000 and profit exceeds 4% (high water level). The
salary will be prorated for levels that fall in between. For
calculation, 30% will be allocated to profit targets, 50% to revenue
targets and 20% for personal performance. Profit margins shall not
fall below zero after calculation of salary. For purposes of
calculating profit margins, 1) the salary above is to be included,
while 2) any costs related to research development, porting, or
acquisitions that in aggregate exceed 30% of revenues shall be
excluded. Based on a hire date of June 1, 1997, the salary for 1997
will be prorated to 7/12ths and the annualized salary.
The base salary will be reviewed yearly by the Compensation Committee.
Performance targets for sales and profit levels for 1998 and each
succeeding year will be set during the first month after the new fiscal
year commences.
If need be, the compensation levels and performance targets will be
subjected to the recommendation of a 3 person ad-hoc committee
consisting of:
Mr. McKay (or his representative),
the Chairman of Pamet's Compensation Committee (or his designee, who
must also be an outside director), and
a third person jointly agreed upon by both of the above parties.
<PAGE>
Exhibit 10.14
Employment Agreement
This Employment Agreement is made as of this 30th day of May,
1997 (this "Agreement") by and between Richard C. Becker (the
"Employee") and Pamet Systems, Inc., a Massachusetts corporation (the
"Company").
In consideration of the terms and mutual covenants herein
contained, the Employee and the Company hereby agree as follows:
1. Position, Responsibilities and Term of Employment.
1.01 Position. The Employee will serve as the Vice President of
the Company and have the responsibilities and duties customarily
associated with such position as the Board of Directors of the
Company (the "Board") may, from time to time, designate or as may
otherwise be appropriate and/or necessary in connection with his
employment.
1.02 Full Efforts. The Employee will devote his full
professional and business time and best efforts to the performance of
his duties to the Company. Except with the prior written consent of
the Board, the Employee will not undertake or engage in any other
employment, occupation or business enterprise. Further, the Employee
agrees not to acquire, assume or participate in any position,
investment or interest adverse or antagonistic to the Company, its
business or prospects, financial or otherwise, or take any direct or
indirect action intended to achieve any of the foregoing. This
Agreement shall not be construed as preventing or otherwise
restricting the Employee from (i) serving on the boards of directors
of charitable organizations, (ii) engaging in charitable activities
and community affairs, (iii) continuing his activities in the
consumer products distribution business provided that such activities
do not substantially interfere with his duties hereunder, or (iv)
serving on the board of directors of a for-profit organization that
is not in competition with the Company provided that such service
does not substantially interfere with his duties hereunder.
1.03 Board Membership. The Employee will serve as a member of
the Board during his employment by the Company, subject to the
provisions of the Company's Articles of Organization and By-laws.
1.04 Term of Agreement. Unless sooner terminated pursuant to
Section 6 below, the term of the Employee's employment hereunder is
from June 1, 1997 until the close of business on December 31, 1999.
The term of this Agreement shall be automatically extended for one
(1) additional year beyond its initial term or any extensions thereof
if this Agreement is still in force immediately prior to such
extension unless, at least one hundred and eighty days (180) prior to
such expiration date, either party shall have given written notice to
the other that it elects not to extend the term of this Agreement.
The actual term of the Employee's employment hereunder, giving effect
to any early termination or extension of the term hereunder, is
hereinafter referred to as the "Term." The scheduled end date of the
Employee's employment hereunder, giving effect to any extension of
the term hereunder, is hereinafter referred to as the "Expiration
Date."
1.05 Location of Employee. The Employee's primary place of
residence will be in the greater Boston area but he will be expected
to travel and work in any of a number of Company and customer
locations on a regular basis.
1.06 Policies and Procedures. It is also understood and agreed
that, except as otherwise specifically stated herein, the Employee
shall be subject to certain Company or executive-wide operational
policies and procedures, which policies and procedures may be
implemented, amended or terminated by the Company at any time.
2. Compensation and Benefits.
For the services to be rendered by the Employee pursuant to this
Agreement, the Employee will be entitled to the following
compensation and benefits during the Term:
2.01 Base Salary. The Company will pay to the Employee a salary
at a rate of not less than Ninety-Three Thousand Five Hundred Dollars
($93,500) per annum, payable in equal semi-monthly installments,
subject to reduction for lawful withholding. Such salary is
hereinafter referred to as the Employee's "Base Salary." Such salary
normally will be reviewed by the Company once at the beginning of
each calendar year. The Board, in its discretion, may increase the
amount of the Employee's Base Salary.
2.02 Bonuses. In addition to his Base Salary, the Employee
shall be entitled to receive such additional compensation, including
grants of stock options or other equity of the Company pursuant to
Company plans or otherwise, as shall be determined by the Board, or a
committee thereof, in its discretion, based upon the reasonable value
of his services to the Company.
Moreover, the Employee will also be entitled to receive
from the Company bonus compensation in accordance with any long-term
and/or annual incentive compensation plans as may be maintained by
the Company for the benefit of its executives and to participate in
any other bonus plans maintained by the Company for the benefit of
its executives.
2.03 Stock Options. To the extent that Employee receives any
stock option(s), the exercise of which would give rise to
compensation income pursuant to Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code"), and the compensation element
of such option(s) would not qualify as "performance based
compensation" within the meaning of Code Section 162(m)(4)(C), then:
(i) notwithstanding anything to the contrary, in any fiscal
year, Employee shall not be entitled to exercise any stock
options, whether granted hereunder or otherwise, to the
extent that, following such exercise, Employee's aggregate
total compensation from the Company during such fiscal year
(including Employee's Base Salary and any bonuses, fringe
benefits or other compensation which would constitute
"applicable employee remuneration" for purposes of Section
162(m) of the Code) would exceed One Million Dollars
($1,000,000) and any of such applicable employee
remuneration would not be deductible to the Company as a
result of the application of Code Section 162(m); and
(ii) in the event that, pursuant to Section 2.03(i) above,
Employee is not permitted to exercise any fully vested
stock options in any fiscal year in which such stock
options would otherwise be exercisable and are due to
expire, then the term of such options shall be extended
until such time as such options may be exercised by
Employee without resulting in applicable employee
remuneration which would not be deductible to the Company
as a result of the application of Code Section 162(m);
provided, however, that the limitations set forth in
Section 2.03(i) above shall continue to apply to the
Employee's exercise of such stock options.
2.04 Fringe Benefits. The Employee will be entitled to
participate in any (i) pension or profit sharing or other retirement
plans, (ii) life, health, hospitalization or disability insurance
plans, or (iii) other benefit plans that are provided by the Company
for its employees generally or for its executives. The Employee
will be entitled to twenty-five (25) working days' paid vacation for
each calendar year, and a pro rata number of working days paid
vacation for any partial calendar year.
2.05 Reimbursement. The Company will promptly reimburse the
Employee for all reasonable business expenses incurred by him in
connection with his performance of his duties to the Company, upon
substantiation of such expenses in accordance with the policies of
the Company.
3. Proprietary Information.
3.01 Access to Information. The Employee recognizes that his
relationship with the Company is one of high trust and confidence by
reason of his access to and contact with the confidential,
proprietary or secret information owned, possessed, or used by the
Company and/or its affiliates (collectively, "Proprietary
Information"). By way of illustration, but not limitation,
Proprietary Information includes creative ideas and concepts;
contemplated or planned advertising or public relations plans,
methods or techniques; slogans, copy, names, layout, formulas,
compositions, projects, developments, media or marketing plans;
research data, personnel data, computer programs, whether or not
copyrightable, trademarkable or licensable; trade secrets, processes,
forecasts, unpublished financial statements, budgets, and licenses;
and information concerning prices, costs, employees, customers and
suppliers.
3.02 Nondisclosure. The Employee will not at any time, either
during his employment with the Company or thereafter, disclose to
others, or use for his own benefit or the benefit of others, any
Proprietary Information.
3.03 Return of Information. Upon the termination of the
Employee's employment with the Company for any reason, or at any
other time upon the request of the Company, the Employee will
promptly deliver to the Company all letters, notes, memoranda, data,
notebooks, sketches, drawings, records, reports, files and other
written, photographic or other tangible material (and all copies or
reproductions of such materials) in his possession or under his
control, whether prepared by him or others, which contain Proprietary
Information. The Employee acknowledges that this material is the
sole property of the Company and is to be used by the Employee only
for the Company's benefit in the performance of his duties to the
Company.
3.04 Remedies. The restrictions contained in this Section 3 are
necessary for the protection of the business of the Company and are
considered by the Employee to be reasonable for this purpose. The
Employee agrees that any breach of this Section 3 will cause the
Company substantial and irrevocable damage and, therefore in the
event of any such breach, in addition to such other remedies as may
be available, the Company will have the right to seek specific
performance and injunctive relief. The Employee further agrees that
his obligations and the Company's rights under this Section 3 shall
survive the termination of this Agreement. The Employee also
acknowledges that in the event that this Agreement is terminated in
circumstances in which payments are made to the Employee in
accordance with Section 6, such payments shall constitute additional
consideration for the Employee's agreement to and compliance with
this Section 3 and that such payments shall terminate immediately in
the event that the Employee shall breach any of his covenants
contained in this Section 3.
4. Inventions and Patents.
4.01 Disclosure of Developments. The Employee will make full
and prompt disclosure to the Company of all inventions, improvements,
ideas, concepts, discoveries, methods, developments, software, and
works of authorship, whether or not copyrightable, trademarkable or
licensable, which are created, made, conceived or reduced to practice
either by the Employee, under his direction or jointly with others
during his employment with the Company, whether or not during normal
working hours or on the premises of the Company (all of which are
collectively referred to in this Agreement as "Developments"). All
Developments shall be the sole property of the Company, and the
Employee hereby assigns to the Company, without further compensation,
all his right, title and interest in and to such Developments and any
and all related patents, patent applications, copyrights, copyright
applications, trademarks, and trade names in the United States and
elsewhere.
4.02 Assistance in Obtaining Patents. The Employee will assist
the Company in obtaining, maintaining and enforcing patent, copyright
and other forms of legal protection for intellectual property in any
country. Upon the request of the Company, the Employee will sign all
applications, assignments, instruments and papers and perform all
acts necessary or desired by the Company in order to protect its
rights and interests in any Developments.
During his employment with the Company, the Employee will
perform his obligations under this subsection 4.02 without further
compensation, except for reimbursement of expenses incurred at the
request of the Company. If the Employee is not employed by the
Company as an employee at the time he is requested to perform any
obligations under this subsection 4.02, he will receive for such
performance a reasonable per diem fee, as well as reimbursement of
any expenses incurred at the request of the Company.
4.03 Remedies. The Employee agrees that any breach of this
Section 4 will cause irreparable damage to the Company and that, in
the event of such breach, the Company will have, in addition to any
and all remedies of law, including rights which the Company may have
to damages, the right to equitable relief including, as appropriate,
all injunctive relief or specific performance or other equitable
relief.
5. Non-Competition.
5.01 Subsequent Employment. The Employee agrees that, for a
period of twenty-four (24) months following the termination of his
employment with the Company, he will not, whether personally or as
agent for another or as an employee, partner, joint venturer,
principal, consultant, lender, guarantor or owner of five percent or
more of any Organization, engage, directly or indirectly, anywhere in
the United States, in competition with any service or product made,
sold or provided by the Company, without the express written consent
of the Company. If any restriction set forth in this subsection 5.01
is found by any court of competent jurisdiction to be unenforceable
because it extends for too long a period of time or over too great a
range of activities or in too broad a geographic area, it shall be
interpreted to extend only over the maximum period of time, range of
activities or geographic areas to which it may be enforceable.
"Organization" shall mean any firm, association, syndicate,
corporation or other business entity.
5.02 No Solicitation. The Employee agrees that, during his
employment with the Company and during the twenty-four (24) month
period following the termination of his employment with the Company,
he will not directly or indirectly:
(i) recruit employees or other agents of the Company or
its affiliates or take any steps to induce any such
employees or agents to terminate their employment or
other association with the Company; or
(ii) contact, solicit, or sell to any of the customers or
prospective customers of the Company or its affiliates
which the Employee had contact with while employed by
the Company, with respect to any product or service
which is competitive with any product or service sold
by the Company or its affiliates or planned to be sold
by the Company or its affiliates during his employment
with the Company or during the twenty-four (24) month
period following the termination of his employment.
5.03 Remedies. The restrictions contained in this Section 5 are
necessary for the protection of the business and goodwill of the
Company and are considered by the Employee to be reasonable for this
purpose. The Employee agrees that any breach of this Section 5 will
cause the Company substantial and irrevocable damage and, therefore,
in the event of any such breach, in addition to such other remedies
as may be available, the Company will have the right to seek specific
performance and injunctive relief. The Employee further agrees that
his obligations and the Company's rights under this Section 5 shall
survive the termination of this Agreement. The Employee also
acknowledges that in the event that this Agreement is terminated in
circumstances in which payments are made to Employee in accordance
with Section 6, such payments shall constitute additional
consideration for the Employee's agreement to and compliance with
this Section 5 and that such payments shall terminate immediately in
the event that the Employee shall breach any of his covenants
contained in this Section 5.
6. Termination.
6.01 Termination Upon Death or Disability. If the Employee dies
while still employed by the Company, his employment will terminate as
of the date of his death. If the Employee, by virtue of ill health
or other disability, is unable to perform substantially and
continuously the duties assigned to him for a period in excess of one
hundred twenty (120) consecutive or non-consecutive days during any
twelve (12) month period, the Company shall have the right to
terminate his employment upon notice in writing to the Employee.
6.02 Termination for Cause. If the Employee has (i) engaged in
wilful or repeated breach of his duties hereunder, or (ii) committed
any act of gross negligence, fraud, misappropriation, embezzlement or
dishonesty in the performance of his duties hereunder, or (iii) been
convicted of, or entered a plea of guilty or nolo contendre to, a
felony (all of which are collectively referred to in this Agreement
as "Cause"), the Company may, by written notice to the Employee,
immediately terminate his employment.
6.03 Termination Without Cause or Upon a Change in Control. The
Company may, by written notice to the Employee, terminate his
employment at any time without Cause. Further, any "Constructive
Termination" will constitute termination without Cause. For purposes
of this Agreement, "Constructive Termination" shall mean the removal
of the Employee from, or appointment of the Employee to lesser
positions than, the position set forth in Section 1; material
diminution in the nature or scope of the authorities, powers,
functions, duties or responsibilities attached to the position
described in Section 1; or material reduction in the compensation or
benefits provided to the Employee in violation of Section 2. In
addition, the employment of the Employee shall be deemed to have been
terminated without Cause if, within ninety (90) days of a Change of
Control (as defined below in this subsection), he resigns or the
Company terminates his employment for any reason, including Cause.
A "Change of Control" shall be deemed to have taken place
upon the occurrence of any of the following events:
(i) a majority of the directors elected at any annual
or special meeting of stockholders or by
stockholder consent are not individuals nominated
by the Company's incumbent Board of Directors; or
(ii) the acquisition of beneficial ownership (as such
term is defined in Rule 13d-3 as promulgated
under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) by any "person" (as
such term is used in Section 13(d) and 14(d) of
the Exchange Act), other than (w) the Company,
(x) the Employee, (y) any group of which the
Employee is a member (within the meaning of Rule
13d-1(f) promulgated under the Exchange Act) or
(z) any person who is a member of the Board of
Directors as of June 1, 1997, directly or
indirectly, of securities representing 30% or
more of the total number of votes that may be
cast for the election of directors of the
Company; provided, that the acquisition by the
Company of another company or the assets thereof
or a similar transaction in which the Company
issues securities representing 30% or more of the
total number of votes that may be cast for the
election of directors of the Company shall not
constitute a "Change in Control" if (1) the
Company is the surviving corporation (2) the
Chairman of the Board of Directors, the President
and the Chief Executive Officer of the Company
immediately preceding the signing of the
acquisition (or similar) agreement relating to
such transaction shall serve as such immediately
after the closing of such transaction and (3) the
Board of Directors of the Company shall not
change, in connection with such transaction, by
more than 30%.
6.04 Termination upon the Employee's Resignation. The Employee
may, by giving at least two (2) months' written notice to the
Company, terminate his employment.
6.05 Payments Upon Termination.
In the event that the Employee's employment is terminated
pursuant to subsection 6.02 or 6.04 above, the Employee will be
entitled only to compensation and benefits accrued pursuant to
Section 2 to the date of the termination of his employment.
In the event that the Employee's employment is terminated
pursuant to Section 6.03 following a Change in Control, then (i) the
Company shall pay the Employee his Base Salary as in effect at the
time of the termination of his employment as well as all bonus
compensation accrued through the date of the termination of his
employment and (ii) in lieu of all salary and bonus compensation
payments which the Employee would have earned under this Agreement
but for his early termination, the Company shall pay to the Employee
as liquidated damages a lump sum amount equal to 2.99 multiplied by
the sum of (x) the Employee's annual Base Salary in effect as of the
date of the termination of his employment and (y) all bonus
compensation paid or payable to the Employee for the most recent
year. All such payments will be made on or before the fifth day
following the date of the termination of his employment.
In all other events, upon the early termination of the
Employee's employment hereunder, the Employee (or, in the event of
his death, his Estate) (i) will continue to receive (x) his Base
Salary as in effect at the time of the termination of his employment
and (y) his fringe benefits as set forth in subsection 2.04 to the
extent permitted by law and any contracts related to such benefits,
until the later of (a) twelve (12) months from the date of the
termination of his employment, or (b) the Expiration Date and (ii)
will receive, with respect to the period beginning on the date the
Employee's employment is terminated and ending on the later of (A)
the date that is twelve (12) months from the date of said termination
or (B) the Expiration Date, an additional bonus amount for each
twelve (12) month portion of said period equal to the highest
annualized bonus paid to the Employee by the Company during the Term
(or prorated portion of such annualized bonus in the event such
additional bonus amount is paid with respect to a portion of said
period equal to less than twelve (12) months). If the employment of
the Employee is terminated as a result of a Constructive Termination
relating to a reduction in his compensation, then for purposes of
calculating the foregoing payments, the Employee's Base Salary shall
be his Base Salary in effect immediately prior to such reduction.
The Company may, in its sole discretion, accelerate the
payment of any amount payable under this Section 6.
7. Indemnification. Unless otherwise prohibited by law, if the
Employee is a party or is threatened to be made party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the
fact that the Employee is or was a director, executive, employee or
agent of the Company, the Company will indemnify the Employee against
expenses (including reasonable attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the
Employee in connection with such action; provided, however, that the
Employee will not be entitled to any indemnification hereunder for
any claim which is determined by a nonappealable court order to have
resulted from the gross negligence or willful misconduct of the
Employee.
8. Notices. All notices required or permitted hereunder shall be
in writing (including facsimile or similar writing) and shall be
deemed to have been duly given (i) on the date of service if
personally served, (ii) on the third day after mailing if mailed to
the party to whom notice is to be given, by first class mail,
registered, return receipt requested, postage prepaid, or (iii) on
the date sent if sent by facsimile, to the parties at the following
addresses or facsimile numbers (or at such other address or facsimile
number for a party as shall be specified by like notice):
Richard C. Becker Pamet Systems, Inc.
________________ 1000 Main Street
________________ Acton, MA 01720
Fax: Fax:
9. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement. Further, a
court shall have authority to reform any invalid or unenforceable
provision so it will be valid and enforceable.
10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties, supersedes all prior agreements,
communications and understandings, whether oral or written, relating
to the subject matter of this Agreement, and shall not be amended or
modified except by a further written agreement signed by the Company
and the Employee.
11. Waiver. The waiver by the Company of the Employee's breach of
any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach thereof.
12. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the internal laws of
the Commonwealth of Massachusetts.
13. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the
same instrument.
14. Successors. This Agreement is not assignable by the
Employee and will be binding upon any successors or assigns of
the Company.
15. Independent Legal Advice. The Employee acknowledges that
he has been afforded the opportunity to obtain independent legal
advice in connection with this Agreement and further
acknowledges that he has read, understands and agrees to be
bound by all of the terms and conditions contained herein.
IN WITNESS WHEREOF, the undersigned parties have executed
this Agreement as of the date first above written.
PAMET SYSTEMS, INC.
By _______________________
David McKay
Title _______________________
President
_____________________________
Richard C. Becker
<PAGE>
Exhibit 23
Consent of Independent Auditors
-------------------------------
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-41029) pertaining to the Pamet Sytsems,
Inc. 1990 Stock Option Plan of our report dated March 27, 1998,
with respect to the financial statements of Pamet Systems, Inc.
included in its Annual Report (Form 10-KSB) for the year ended
December 31, 1997, filed with Securities and Exchange Commission.
Carlin, Charron & Rosen LLP
Worcester, Massachusetts
March 27, 1998
</TABLE>
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