<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____ to _____
Commission file number 0-4410
TELECOMM INDUSTRIES CORP.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 06-0844558
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1743 West Quincy Avenue
Naperville, Illinois 60540
----------------------------------------------------
(Address of principal executive offices)
630-369-7111
----------------------------------------------------
(Issuer's telephone number)
9310 Progress Parkway
Mentor, Ohio 44060
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: COMMON STOCK, $0.01 PAR
VALUE: 11,771,559 (AS OF SEPTEMBER 30, 1997)
Transitional Small Business Disclosure Format (check one):
Yes X No
--- ---
<PAGE>
TELECOMM INDUSTRIES CORP. AND SUBSIDIARIES
FORM 10-QSB
INDEX
PART I--FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements (unaudited) . . . . . . . . . . . . . 3
Consolidated Balance Sheet --
September 30, 1997 and December 31, 1996 . . . . . . . . . 4
Consolidated Statement of Operations --
three months ended September 30, 1997
and September 30, 1996 and nine months ended
September 30, 1997 and September 30, 1996. . . . . . . . . 5
Consolidated Statements of Cash Flows --
nine months ended September 30, 1997 and
September 30, 1996 . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Condensed Financial Statements . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . 8
PART II--OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders. . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 15
2
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The Registrant's financial statements follow this page.
3
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Telecomm Industries Corp.
Consolidated Balance Sheet
September 30,1997 and December 31, 1996
<TABLE>
<CAPTION>
Nine Months Year
ended ended
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 545,418 $ 238,312
Notes receivable - current portion - 400,000
Accounts receivable -trade 2,894,190 2,548,961
Inventories 1,438,730 616,147
Prepaid income taxes 59,557 48,260
Prepaid expenses 151,136 38,660
Employee advances 299,046 139,887
------------- ------------
Total current assets 5,388,077 4,030,227
------------- ------------
Property and equipment-at cost, net of accumulated depreciation of $387,257
and $235,679 at September 30,1997 and December 31, 1996, respectively 1,610,963 482,712
Other assets:
Accounts receivable, less current portion 1,855,159 1,013,520
Intangibles - net of accumulated amortization of $91,467 and $20,200 at
September 30, 1997 and December 31, 1996, respectively 3,145,408 81,244
------------- ------------
Total assets $ 11,999,607 $ 5,607,703
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,290,989 $ 113,384
Current portion of long-term debt 395,562 175,823
Accounts payable trade 996,421 408,848
Accrued payroll and related expenses 282,303 122,719
Other accrued expenses 90,735 56,185
Deferred income taxes 106,321 106,321
Accrued commissions and contractor fees 309,115 455,582
Income taxes payable 61,398 81,136
Accrued bonus 254,850 816,900
------------- ------------
Total current liabilities 3,787,694 2,336,898
------------- ------------
Long-term liabilities:
Long-term debt, less current portion 2,946,963 389,436
Deferred revenue 10,943 -
Deferred income taxes 952,782 402,913
------------- ------------
Total liabilities 7,698,382 3,129,247
------------- ------------
Commitments and Contingencies - -
Stockholders' equity:
Common stock $.01 par value: authorized -20,000,000 shares: issued - 12,300,746
and 9,742,791: outstanding -11,721,559 and 9,642,791, at September 30, 1997 and
December 31, 1996, respectively 122,508 96,078
Additional paid in capital 3,553,140 2,086,237
Treasury stock: 529,187 shares at cost (317,512) -
Receivables from stockholders (222,387) (44,531)
Retained earnings 1,165,476 340,672
------------- ------------
Total stockholders' equity 4,301,225 2,478,456
------------- ------------
Total liabilities and stockholders' equity $ 11,999,607 $ 5,607,703
------------- ------------
------------- ------------
</TABLE>
See notes to consolidated condensed financial statements
4
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Telecomm Industries Corp.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
------------ ------------ ------------ -----------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues $ 4,929,712 $ 2,588,107 $ 10,671,963 $ 6,834,289
Commissions,contractor fees, and related expenses 1,590,679 743,735 3,534,637 2,269,335
Selling, general and administrative expenses 2,373,924 1,571,465 5,637,867 3,826,197
------------ ----------- ------------ -----------
Operating income 965,109 272,907 1,499,459 738,757
Other income (expense):
Gain(loss) on disposal of assets (3,416) - (3,416) (870)
Interest income 5,610 10,820 8,302 38,067
Interest expense (58,159) (13,683) (127,363) (33,150)
------------ ----------- ------------ -----------
(55,965) (2,863) (122,477) 4,047
------------ ----------- ------------ -----------
Income from operations before income tax expense 909,144 270,044 1,376,982 742,804
Income tax expense 379,339 108,100 552,178 297,200
------------ ----------- ------------ -----------
Net income $ 529,805 $ 161,944 $ 824,804 $ 445,604
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Earnings per common and common equivalent share
------------ ----------- ------------ -----------
Net income 0.05 0.02 0.08 0.05
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Number of shares used in computing earnings per ------------ ----------- ------------ -----------
common and common equivelant share 10,842,483 9,607,791 10,842,483 9,607,791
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Dividends per common share - - - -
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
</TABLE>
See notes to consolidated condensed financial statements
5
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Telecomm Industries Corp.
Consolidated Statements of Cash Flows
for the nine months ended September 30,1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 824,804 $ 445,604
Adjustments to reconcile to net cash provided by
(used in) operating activities:
Expenses not requiring the use of cash:
Depreciation and amortization 265,302 91,610
Deferred revenue 10,943 -
Deferred taxes 549,869 -
Loss on sales of fixed assets 3,416 -
Changes in assets and liabilities:
Accounts receivable (345,229) (1,466,515)
Inventories (822,583) (320,027)
Prepaid income taxes (11,297) -
Prepaid expenses (112,476) 82,372
Employee advances (159,159) (11,254)
Accounts payable 587,573 410,525
Accrued expenses 34,550 18,373
Payroll taxes payable 159,584 71,885
Accrued commissions and contractor fees (146,467) (41,176)
Income taxes payable (19,738) 130,166
Accrued bonus (562,050) 239,866
------------ -------------
Total adjustments (567,762) (794,175)
------------ -------------
Net cash provided by (used in) operating activities 257,042 (348,571)
Cash flows from investing activities:
Purchases of fixed assets (1,344,872) (219,681)
Proceeds from sale of fixed assets 4,000 15,595
Purchase acquisition of Long-Tell Communications, Inc. (317,925) -
Purchase acquisition of Northeastern Communication Services, Inc. (755,611) -
Purchase acquisition of Unitel, Inc. (2,061,896) -
Issuance of / proceeds from stockholders receivables (165,356) 59,203
Increase in long-term accounts receivable (841,639) -
Decrease in notes receivable 400,000 20,641
------------ -------------
Net cash used in investing activities (5,083,299) (124,242)
------------ -------------
Cash flows from financing activities:
Payments on long-term debt (1,087,578) (105,067)
Proceeds from issuance of long-term debt 3,880,015 94,426
Purchases of treasury stock (317,512) -
Proceeds from issuance of common stock to employees 57,500 -
Proceeds from issuance of common stock for purchase acquisitions 1,423,333 -
Net borrowings under line of credit 1,177,605 280,077
------------ -------------
5,133,363 269,436
------------ -------------
Net (decrease) increase in cash 307,106 (203,377)
Cash at beginning of period 238,312 575,367
------------ -------------
Cash at end of period $ 545,418 $ 371,990
------------ -------------
------------ -------------
</TABLE>
See notes to consolidated condensed financial statements
6
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TELECOMM INDUSTRIES, CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Certain reclassifications have been made to the 1996 consolidated
financial statements to conform to the 1997 presentation.
2. The accompanying consolidated condensed interim financial statements have
been prepared in accordance with the instructions to Form 10-QSB and
Regulation S-X and do not include all of the information and note
disclosures required by generally accepted accounting principles.
Therefore, the accompanying interim financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto included in the Form 10-KSB of Telecomm Industries Corp.
("Telecomm" or the "Company") for the year ended December 31, 1996. The
statements reflect all adjustments that are, in the opinion of
management, necessary to present fairly the financial position of the
Company as of September 30, 1997 and the results of its operations.
These adjustments are of a normal and recurring nature.
3. The results of operations for the period ended September 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
4. On August 12, 1997, the Company purchased all of the assets of Unitel,
Inc., an Indiana corporation ("Unitel"), pursuant to an Asset Purchase
Agreement dated July 7, 1997 among the Company, Unitel, Paul
Satterthwaite, Jon Satterthwaite, the controlling shareholders of Unitel,
and Teleco Acquisition Corp., an Ohio corporation and wholly-owned
subsidiary of the Registrant. The purchase price for the assets consists
of (i) 2,000,000 shares of common stock, par value $0.01, of the Company
(the "Common Stock"), (ii) a convertible promissory note in the principal
amount of $1,000,000, and (iii) the assumption of Unitel's liabilities,
including a bank loan with a current balance of $1,345,000, and
obligations to trade creditors of Unitel in an amount not to exceed
$1,200,000. The consideration paid in the acquisition was determined by
negotiation between the Company and Unitel, based in part on the trading
price of the Common Stock.
The consolidated condensed financial statements include the financial
position of Unitel as of September 30, 1997 and the results of its
operations since the acquisition date.
5. On July 30, 1997, the Company purchased 529,187 shares of the Company's
common stock at $0.60 per share from former employees of the Company.
7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Telecomm Industries Corp. ("Telecomm" or the "Company") was incorporated
on December 13, 1967, and until December 1993, its name was Scoto Data Com.,
Inc. The Company has three wholly owned subsidiaries, Centel Corporation
d/b/a Teleco ("Teleco"), Authorized Network Distributors, Inc. ("AND"), and
Teleco Acquisition Corp. ("Unitel"). The operations of Teleco were primarily
acquired in April 1994 and AND was acquired in September 1995. AND was
acquired by merger, in a stock-for-stock exchange. AND acquired Seraphim
Information Systems, Inc. ("Seraphim") by merger in January 1996, in a
stock-for-stock exchange. The results of AND for 1995 and Seraphim for 1996
have been pooled with the results of Teleco. Unitel was acquired pursuant to
an Asset Purchase Agreement in August 1997. The consolidated condensed
financial statements include the financial position of Unitel as of
September 30, 1997 and the results of its operations since the acquisition
date.
Teleco distributes telecommunications services in the major metropolitan
markets of the State of Ohio for Ameritech Corporation ("Ameritech") and
sells telecommunication equipment and provides related installation,
maintenance and repair services. AND distributes telecommunication services
in Illinois, Indiana and Ohio for Ameritech. Unitel operates as a telephone
and computer systems integrator and a distributor of Ameritech and BellSouth
products and services.
Because of a change in Ameritech's commission payment structure, the
Company adopted a new compensation plan for its sales force in 1996.
Previous to June 1996, Ameritech paid 100% of the commissions earned at the
time the service was installed. After June 1996, Ameritech began paying
Telecomm 60% of the commissions earned at the time the service was installed
and the remaining 40% over the life of the contract. The Company adopted an
aggressive commission policy which enabled it to adjust to the new method of
payment from Ameritech, while continuing to actively attract and maintain
skilled, experienced salespeople.
In addition, in the third quarter of 1996, Ameritech implemented a new
billing and customer record system in an effort to consolidate and
standardize its five non-standard billing systems. The combined effect on
the Company of the change in timing of commission payments and the new system
implementation is a lengthened collection period for receivables, which
adversely affects the Company's working capital and cash flow.
THIRD QUARTER OF 1997 COMPARED TO THIRD QUARTER OF 1996
The Company's net revenues increased 90% to $4.9 million for the third
quarter of 1997 from $2.6 million in the comparable 1996 period. Sales of
network services in the third quarter of 1997 were $2.7 million, equipment
sales and services were $2.1 million, and long distance and other services
were $.1 million compared to $1.8 million in network services and $.8 million
in equipment sales and services in the third quarter of 1996. The increase
in network services was primarily
8
<PAGE>
attributable to sales from the acquisition of Unitel in August 1997 of $.3
million and achievement of bonus accelerators of $.3 million during the third
quarter of 1997. Ameritech sets product sales targets by state. When these
targets are exceeded, an additional accelerator bonus of a maximum between
20% to 25% of base commissions earned is paid depending on the products sold.
Concurrently, the Company earns promotional and co-op advertising dollars to
be spent in the subsequent year, as these targets are met and exceeded, as
well as five star status and recognition as a distributor. The increase in
equipment sales and services was primarily attributable to $1.1 million of
voice equipment and services sold, including $.7 million sold by Unitel, and
$.2 million of data hardware and services sold during the third quarter of
1997. For the third quarter ended September 30, 1997, sales of equipment and
related services represented 42% of net revenues, sales of network services
represent 56% of net revenues, and sales of long-distance and other services
represented 2% of net revenue compared to 28% equipment sales and services
and 72% network sales and services in the comparable 1996 period. Revenues
attributed to network services related to data transmission increased 29% to
$.6 million from $.5 million in the comparable 1996 period, and sales of
voice transmission services increased 61% to $2.1 million from $1.3 million
in the comparable period in 1996.
Commissions, contractor fees and related expenses increased $.8 million
to $1.6 million in the third quarter of 1997, a 113% increase from such
expenses of $.7 million in the third quarter of 1996. The increase was due
in part to $.5 million attributable to the acquisition of Unitel and $.3
million in increased costs of equipment and labor to support additional
hardware sales generated in the third quarter of 1997. As a percentage of
net revenues these expenses increased to 32% during the third quarter of
1997, from 29% during the third quarter of 1996, primarily due to a shift in
revenue to more hardware and related service sales. The costs of hardware
and labor represented 47% of sales generated by Unitel compared to similar
total costs of 32% in the third quarter of 1997.
Selling, general and administrative expenses ("SG&A") increased $.8
million to $2.4 million in the third quarter of 1997, a 51% increase from
SG&A expenses of $1.6 million in the comparable 1996 period. As a percentage
of net revenues, these expenses decreased to 48% during the third quarter of
1997, from 61% during the third quarter of 1996. The increased SG&A costs
attributable to the acquisition of Unitel in the third quarter of 1997 were
$.5 million, and the remaining $.3 million were due to increases in
administrative labor, rent, legal fees, and amortization due primarily to
growth and acquisitions experienced during the third quarter of 1997.
Interest income decreased by $5,210 to $5,610 in the third quarter of
1997, primarily due to the use of short-term investments to meet operating
expenses. Interest expense increased by $44,476 to $58,159 in the third
quarter of 1997 from $13,683, primarily due to increased borrowing by the
Company under its line of credit facilities and issuance of new notes in
connection with the acquisitions of NCS and Long-Tell Communications, Inc.
("LTI"), also acquired in January 1997, and Unitel, acquired in August of
1997.
Income from operations before income taxes increased by $.6 million to
$.9 million in the third quarter of 1997, an increase of 236% from $.2
million in the comparable 1996 period, primarily for the reasons stated
above.
9
<PAGE>
The provision for income taxes increased by $.3 million to $.4 million in
the third quarter of 1997 compared to $.1 million in the third quarter of
1996, due to higher earnings.
As a result of the foregoing, net income for the third quarter of 1997
was $.5 million, an increase of 150%, compared to net income for the third
quarter of 1996 of $.2 million.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
The Company's net revenues increased 56% to $10.7 million for the first
nine months of 1997 from $6.8 million in the comparable 1996 period. Sales
of network services for the first nine months of 1997 were $6 million,
equipment sales and services were $4.5 million, and long distance and other
services were $.2 million compared to $4.7 million in network services and
$2.1 million in equipment sales and services in the first nine months of
1996. The increase in network services was primarily attributable to
increased sales of voice and usage products sold through Unitel, acquired in
August of 1997, and NCS, acquired in January of 1997, of $.5 million,
accelerator bonuses of $.3 million, and data & voice services of $.4 million.
Net revenues from equipment sales and services increased 100% or $2.4
million, including $1.1 million of voice equipment sales and services
generated by Unitel, $.5 million generated by NCS, and $.7 million generated
in data hardware equipment and services. For the nine months ended September
30, 1997, sales of equipment and related services represented 42% of net
revenues, sales of network services represent 56% of net revenues, and sales
of long-distance and other services represented 2% of net revenue compared to
30% equipment sales and services and 70% network sales and services for the
comparable 1996 period. Revenues attributed to network services related to
data transmission increased 13% to $1.2 million from $1.1 million in the
comparable 1996 period, and sales of voice transmission services increased
30% to $4.7 million from $3.6 million for the comparable period in 1996.
Commissions, contractor fees and related expenses increased $1.2 million
to $3.5 million in the first nine months of 1997, a 56% increase from such
expenses of $2.2 million in the first nine months of 1996. The increase was
due in part to $.5 million attributable to the acquisition of Unitel, $.6
million in increased equipment costs to support increased revenues, and $.1
million in indirect support costs to maintain and service an increasing
customer base. As a percentage of net revenues these expenses remained at
33% during the first nine months of 1997 and 1996 primarily due to the
acquisition of Unitel and the percentage increase in equipment sales offset
by increased network sales.
Selling, general and administrative expenses ("SG&A") increased $1.8
million to $5.6 million in the first nine months of 1997, a 47% increase from
SG&A expenses of $3.8 million in the comparable 1996 period. The increase in
SG&A costs were attributable to $.5 million incurred in the acquisition of
Unitel, $.8 million increase in sales and administrative salaries, and $.3
million increases in rent, legal fees, and amortization of purchased
acquisitions due primarily to growth and acquisitions experienced during the
first nine months of 1997. As a percentage of net revenues, these expenses
decreased to 53% during the first six months of 1997, from 56% during the
first nine months of 1996.
10
<PAGE>
Interest income decreased by $29,765 to $8,302 in the first nine months
of 1997 compared to $38,067 in the first nine months of 1996, primarily due
to the use of short-term investments to meet operating expenses. Interest
expense increased by $94,213 to $127,363 in the first nine months of 1997
from $33,150, primarily due to increased borrowing by the Company under its
line of credit facilities and issuance of new notes in connection with the
acquisitions of NCS, LTI, and Unitel.
Income from continuing operations before income taxes increased by $.7
million to $1.4 million in the first nine months of 1997, an increase of 100%
from $.7 million in the comparable 1996 period, primarily for the reasons
stated above.
The provision for income taxes increased by $.2 million to $.5 million in
the first nine months of 1997 compared to $.3 million in the first nine
months of 1996, due to higher earnings.
As a result of the foregoing, net income for the first nine months of
1997 was $.8 million, an increase of 100%, from net income for the first nine
months of 1996 of $.4 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund its growth,
including working capital, acquisitions of other companies, and the purchase
of equipment. The Company uses cash generated from operations, borrowings
under its credit facilities, the sale of equity in private placements and
vendor trade credit to fund these requirements.
Cash at September 30, 1997 increased $307,000, or 77%, since December 31,
1996. Net cash provided by operating activities was $257,000 in the first
nine months of 1997 compared to cash used in operating activities of $349,000
in the first nine months of 1996. Cash of $.5 million was used in operating
activities attributable to the purchase of the assets of Unitel acquired in
August of 1997. Cash of $.8 million was generated from operating activities,
primarily from net income, resulting in an increase of cash of $.3 million at
September 30, 1997. Accounts receivable and inventory purchased in the
acquisition of Unitel increased $1.7 million offset by $.6 million reduction
of receivables as a result of improvements in Ameritech's implementation of
their billing and record system compared to an increase in receivables of
$1.4 million in the comparable period of 1996. Cash of $1.0 million was used
primarily to decrease accounts payable and accrued commissions and bonuses in
the first nine months of 1996 offset in part by $1.1 million assumption of
Unitel's liabilities compared to increases in accounts payable and accrued
bonuses of $.6 million in the comparable first nine months of 1996 which was
a result of the combined effect on the Company of Ameritech's change in
timing of commission payments and its implementation of a new billing and
customer record system in the first nine months of 1996.
Net cash used in investing activities increased to $5.1 million in the
first nine months of 1997 compared to net cash used in investing activities
of $124,000 in the comparable 1996 period, primarily as a result of the
acquisitions of NCS and LTI in the first quarter of 1997, the acquisition of
Unitel in the third quarter of 1997, and net increases of long-term
receivables due from Ameritech.
11
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In connection with its acquisition of Unitel in August 1997, Telecomm
negotiated a $2 million term loan and a $2 million line of credit with Key
Bank, N.A. The new loans consolidate and replace several short and long-term
credit facilities of Telecomm and Unitel with other banks. The term loan is
payable in fifty-nine (59) equal monthly installments of $30,000 plus
interest on the unpaid balance at prime plus 0.5% per annum. Final payment
of $230,000 plus interest is due on August 18, 2002. The line of credit is
for the lesser of $2,000,000 or the borrowing base of eligible collateral,
bears interest at the rate of prime plus 0.25% per annum, is subject to
various customary restrictions and is payable on demand. The loans are
secured by a lien on all the assets of Telecomm and its subsidiaries.
On September 24, 1997, Telecomm re-negotiated a $2 million term loan and
a $2 million line of credit with Peoples Bank, N.A. The new loans
consolidate and replace short and long-term credit facilities of Telecomm
with Key Bank, N.A.. The term loan is payable in fifty-nine (59) equal
monthly installments of $41,740 including interest on the unpaid balance at a
fixed rate of 9.23% per annum. Final payment plus interest is due on
November 1, 2002. The line of credit is for the lesser of $2,000,000 or the
borrowing base of eligible collateral, bears interest at the rate of prime
plus 0.25% per annum, is subject to various customary restrictions and is
payable on demand. The loans are secured by a lien on all the assets of
Telecomm and its subsidiaries.
Cash flow from financing activities was $5.1 million in the first nine
months of 1997 compared to $269,000 in the first nine months of 1996
primarily because of increased long-term debt and common stock issued to fund
acquisitions in 1997. In connection with the acquisition of NCS the Company
borrowed $400,000, bearing interest at an annual rate equal to .5% in excess
of the prime rate in affect from time to time, payable in 36 equal monthly
installments, commencing January 10, 1997 and maturing on January 10, 2000.
This loan was replaced by the new loans with Key Bank, N.A. and subsequently
Peoples Bank, N.A..
Michael J. Toth, then Chairman of the Board and Chief Executive Officer
and currently a director of the Company, held 50% of the shares of LTI. In
the acquisition of LTI, he received $25,000 in cash and the $200,000
promissory note from the Company, bearing interest at 9% per annum payable in
monthly installments of interest only, with the principal payable on January
3, 2002. The promissory note is unsecured and subordinate to all future
borrowings by Telecomm.
Short-term trade credit represents a significant source of financing for
inventory. Trade credit arises from the willingness of the Company's
creditors to grant payment terms for inventory purchases. Inventory levels
increased $.8 million from December 31, 1996 to September 30, 1997, of which
$.8 million was acquired as a result of the Unitel acquisition, primarily to
support the Company's completion of increased sales. Although the Company
has negotiated what it believes to be favorable payment terms from its
primary vendors, there is no assurance that the Company will be able to
obtain these terms in the future.
Approximately $500,000 in unused borrowing availability existed under the
credit line of the Company's credit facilities at September 30, 1997. As of
September 24, 1997, the Company has negotiated a new line of credit not to
exceed two million dollars and subject to certain borrowing base
12
<PAGE>
criteria. The new line of credit replaces all previously held lines of
credit of both the Company and Unitel combined. The Company believes its
cash reserves and funds available from the line of credit will be sufficient
to provide the liquidity necessary to fund its anticipated capital and
operational requirements over the next twelve months. The Company may also
seek to obtain additional sources of funding, including additional debt or
equity financings as it continues to grow. There is no assurance that the
Company will be able to obtain any further increases in its line of credit or
additional debt or equity financing to support its continued growth.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not historical facts
are forward-looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward-looking statements. These risks and uncertainties
include, but are not limited to, the dependance of the Company on one
principal supplier, Ameritech, for a significant portion of its revenues;
changes in Ameritech's commission payment plan and its billing and record
system, adversely affecting the Company's working capital and cash flow
resulting in potential decreases in long-term accounts receivable; changes
arising from greater competition in local telephone service attributable to
passage of the Telecommunications Act; the introduction of competitors into
the market including competitors with financial and other reserves
significantly greater than those of Telecomm; the ability of the Company to
integrate the operations of NCS and Unitel into the Company; the availability
of other acquisitions and the integration of the operations of those
acquisitions, if completed, into the Company; the ability of Telecomm to
continue to grow its sales force internally and to expand its product menu,
particularly in light of the increased competition in the telecommunication
markets in which Telecomm operates; and general economic conditions, and
other risk factors discussed herein. In addition, any of the risks detailed
above may have an impact on the Company's ability to access any or all of the
new line of credit. These risks must be considered by an investor or
potential investor in the Company.
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 12, 1997, the Registrant purchased all of the assets of Unitel,
Inc., an Indiana corporation ("Unitel"), pursuant to an Asset Purchase
Agreement (the "Agreement") dated July 7, 1997 among the Registrant; Unitel;
Paul Satterthwaite and Jon Satterthwaite, the controlling shareholders of
Unitel (the "Shareholders"); and Teleco Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of the Registrant ("Buyer"). Unitel
operates as a telephone and computer systems integrator and a distributor of
Ameritech and BellSouth products and services. The purchase price for the
assets consisted of (i) 2,000,000 shares of common stock, par value $0.01, of
the Registrant (the "Common Stock"), (ii) a convertible promissory note in
the principal amount of $1,000,000, and (iii) the assumption of Unitel's
liabilities, including a bank loan with a current balance of $1,345,000,
and obligations to trade creditors of Unitel in an amount not to
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exceed $1,200,000. The consideration paid in the acquisition was determined
by negotiation between the Registrant and Unitel, based in part on the
trading price of the Registrant's common stock.
The shares of the Common Stock were not registered under the Securities
Act of 1933, as amended (the "Act"), because they were issued to two
stockholders of Unitel in a transaction exempt from the registration
requirements of the Act. The certificates representing the shares of Common
Stock contain a legend restricting transfer without compliance with the Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 16, 1997, the Registrant held its Annual Meeting of
Stockholders. The following matters were voted upon at the meeting:
The following persons, all of whom were incumbent Directors, were elected
as Directors of the Corporation, receiving the votes set forth below:
Name Shares For Shares Against Shares Abstain
- ---- ---------- -------------- --------------
James M. Lowery 9,435,101 -0- 12,000
Rita Koridek 9,434,641 -0- 12,460
Peter Olk 9,434,641 -0- 12,460
Paul Satterthwaite 9,287,140 -0- 159,961
Paul Stoyanoff 9,287,600 -0- 159,501
Raymond W. Sheets. Jr. 9,434,641 -0- 12,460
Steven W. Smith 9,434,641 -0- 12,460
Michael J. Toth 9,435,101 -0- 12,000
The 1997 Stock Option and Award Plan was adopted, receiving the votes set forth
below:
Shares For Shares Against Shares Abstain
---------- -------------- --------------
7,978,686 81,537 22,125
The appointment of Coopers & Lybrand L.L.P. as the Registrant's independent
public accountants for the year ending December 31, 1997 was ratified with
the following vote:
Shares For Shares Against Shares Abstain
---------- -------------- --------------
9,439,676 5,600 1,825
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ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
10.1 Telecomm Industries Corp. 1997 Stock Option and Award Plan
11 Computation of Earnings Per Share
27 Financial Data Schedule
B. REPORTS ON FORM 8-K
On October 21, 1997, the Company filed a Current Report on Form 8-K for
the purpose of filing the audited financial statements of Unitel, Inc. and
the pro-forma financial statements of the Registrant showing the effect of
the acquisition of Unitel, Inc. in August 1997.
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SIGNATURES
In accordance with the Exchange Act, the Registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
TELECOMM INDUSTRIES CORP.
Date: November 12, 1997 By: /s/ Eric Getzin
-------------------
Eric Getzin
Chief Financial Officer
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EXHIBIT 10.1
TELECOMM INDUSTRIES CORP.
1997 STOCK OPTION AND AWARD PLAN
1. PURPOSE. The purpose of the 1997 Stock Option and Award Plan
(the "Plan") is to attract and retain officers and key employees for TELECOMM
INDUSTRIES CORP (the "Corporation") and its Subsidiaries and to provide to
such persons incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
"Annual Meeting" means the annual meeting of shareholders of the
Corporation.
"Appreciation Right" means a right granted pursuant to Section 5 of this
Plan, including a Free-Standing Appreciation Right or a Tandem
Appreciation Right.
"Base Price" means the price to be used as the basis for determining the
Spread upon the exercise of a Free-standing Appreciation Right.
"Board" means the Board of Directors of the Corporation.
"Change in Control" shall have the meaning provided in Section 12 of this
Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the committee (or a subcommittee) described in Section
17 of this Plan.
"Common Shares" means shares of common stock, $.01 par value per share,
of the Corporation or any security into which such Common Shares may
bechanged by reason of any transaction or event of the type referred to
in Section11 of this Plan.
"Covered Employee" means a Participant who is, or is determined by the
Committee to be likely to become, a "covered employee" within the meaning
of Section 162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Committee onwhich a grant
of Option Rights, Appreciation Rights, Performance Shares, Performance
Units, or Other Stock-Based Awards, or a grant or sale of Restricted
Shares or Deferred Shares shall become effective
"Deferral Period" means the period of time during which Deferred Shares
are subject to deferral limitations under Section 7 of this Plan.
"Deferred Shares" means an award made pursuant to Section 7 of this Plan
of the right to receive Common Shares at the end of a specified Deferral
Period.
"Designated Subsidiary" means a Subsidiary that is (i) not a corporation
or (ii) a corporation in which at the time the Corporation owns or
controls, directly or indirectly, less than eighty (80) percent of the
total combined voting power represented by all classes of stock issued by
such corporation.
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, asamended, and
the rules and regulations thereunder, as such law, rules and regulations
may be amended from time to time.
"Free-standing Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an
Option Right or similar right.
"Incentive Stock Options" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have
received grants of Performance Shares or Performance Units or, when
sodetermined by the Committee, Option Rights, Appreciation Rights,
Restricted Shares and dividend credits, or Other Stock-Based Awards
pursuant to this Plan. Management Objectives may be described in terms of
Corporation-wide objectivesor objectives that are related to the
performance of the individual Participantor of the Subsidiary, division,
department, region or function within theCorporation or Subsidiary in
which the Participant is employed. The Management Objectives may be made
relative to the performance of other corporations. The Management
Objectives applicable to any award to a Covered Employee shall be based
on specified levels of growth or improvement in one or more of the
following criteria:
1. earnings;
2. earnings per share (earnings per share will be calculated
without regard to any change in accounting standards that may
be required by the Financial Accounting Standards Board after
the goal is established);
3. share price;
4. shareholder return;
5. return on invested capital, equity, or assets;
6. operating earnings;
7. sales;
8. productivity;
9. cash flow;
10. market share;
11. profit margin;
12. customer service; and/or
13. economic value added.
If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Corporation, or the
manner in which it conducts its business, or other events or
circumstances render the Management Objectives unsuitable, the Committee
may in its discretion modify such Management Objectives or the related
minimum acceptable level of achievement, in whole or in part, as the
Committee deems appropriate and equitable, except in the case of a
Covered Employee where such action would result in the loss of the
otherwise available exemption of the award under Section 162(m) of the
Code. In such case, the Committee shall not make any modification of the
Management Objectives or minimum acceptable level of achievement.
"Market Value per Share" means, as of any particular date, the average of
the highest and lowest quoted selling prices for Common Shares on the
relevant date, or (if there were no sales on such
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date) the weighted average of the means between the highest and lowest
quoted selling prices on the nearest day before and the nearest day after
the relevant date.
"Non-Employee Director" shall mean a member of the Board who: (i) is not
an Officer or employee of the Company or any Subsidiary; (ii) does not
(A) receive compensation, directly or indirectly, from the Company or any
Subsidiary for services rendered as a consultant or in any other capacity
other than as a Director, except for an amount that does not exceed the
dollar amount for which disclosure would be required under Item 404(a) of
Regulation S-K, 17 C.F.R. Section 229.404(a), or (B) possess an interest
in any transaction for which disclosure would be required under Item
404(a) of Regulation S-K, 17 C.F.R. Section 229.404(a); and (iii) is not
engaged in a business relationship for which disclosure would be required
under Item 404(b) of Regulation S-K, 17 C.F.R. Section 229.404(b).
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
"Option Price" means the purchase price payable on exercise of an Option
Right.
"Option Right" means the right to purchase Common Shares upon exercise
of an option granted pursuant to Section 4 or Section 9 of this Plan.
"Other Stock-Based Awards" means those awards referred to in Section 9 of
this Plan.
"Participant" means a person who is selected by the Committee to receive
benefits under this Plan and who is at the time an officer, or other key
employee of the Corporation or any one or more of its Subsidiaries, or
who has agreed to commence serving in any of such capacities within 90
days of the Date of Grant.
"Performance Period" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of
this Plan within which the Management Objectives relating to such
Performance Share or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the equivalent
of one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
"Reload Option Rights" means additional Option Rights granted
automatically to an Optionee upon the exercise of Option Rights pursuant
to Section 4(f) of this Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 or Section 9 of this Plan as to which neither the substantial
risk of forfeiture nor the prohibition on transfers referred to in such
Section 6 has expired.
"Rule l6b-3" means Rule 16b-3 of the Securities and Exchange Commission
(or any successor rule to the same effect) as in effect from time to time.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder, as such law, rules and regulations may
be amended from time to time.
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"Spread" means the excess of the Market Value per Share of the Common
Shares on the date when an Appreciation Right is exercised, or on the
date when Option Rights are surrendered in payment of the Option Price of
other Option Rights, over the Option Price provided for in the related
Option Right.
"Subsidiary" means a corporation, company or other entity
(i) more than 50 percent of whose outstanding shares of securities
(representing the right to vote for the election of directors or
other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may
be the case in a partnership, joint venture or unincorporated
association), but more than 50 percent of whose ownership interest
representing the right generally to make decisions for such other
entity is, now or hereafter, owned or controlled, directly or
indirectly, by the Corporation except that for purposes of
determining whether any person may be a Participant for purposes of
any grant of Incentive Stock Options, "Subsidiary" means any
corporation in which at the time the Corporation owns or controls,
directly or indirectly, more than 50 percent of the total combined
voting power represented by all classes of stock issued by such
corporation.
38
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<PAGE>
"Tandem Appreciation Right" means an Appreciation Right granted pursuant to
Section 5 of this Plan that is granted in tandem with an Option Right or
any similar right granted under any other plan of the Corporation.
"Voting Shares" means at any time, the then-outstanding securities
entitled to vote generally in the election of directors of the Corporation.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment
as provided in Section 11 of this Plan, the number of Common Shares that may
be issued or transferred (i) upon the exercise of Option Rights or
Appreciation Rights, (ii) as Restricted Shares and released from substantial
risks of forfeiture thereof, (iii) as Deferred Shares, (iv) in payment of
Performance Shares or Performance Units that have been earned, (v) as Other
Stock-Based Awards, (vi) in payment of dividend equivalents paid with respect
to awards made under the Plan shall not exceed in the aggregate 1,000,000
shares plus any shares specified in paragraph (b) of this Section 3. Such
shares may be shares of original issuance or treasury shares or a combination
of the foregoing. Upon the payment of any Option Price by the transfer to the
Corporation of Common Shares or upon satisfaction of any withholding amount
by means of transfer or relinquishment of Common Shares, there shall be
deemed to have been issued or transferred under this Plan only the net number
of Common Shares actually issued or transferred by the Corporation.
(b) Total shares available under the plan shall also include (i) any
shares relating to awards that expire or are forfeited or cancelled and (ii)
the number of shares repurchased by the Corporation after July 1, 1997 in the
open market or otherwise and having an aggregate purchase price no greater
than the amount of cash proceeds received by the Corporation from the sale of
Common Shares under the Plan.
(c) Upon payment in cash of the benefit provided by any award granted
under this Plan, any shares that were covered by that award shall again be
available for issue or transfer hereunder.
(d) Notwithstanding anything in this Section 3, or elsewhere in this
Plan, to the contrary, the aggregate number of Common Shares actually issued
or transferred by the Corporation upon the exercise of Incentive Stock
Options shall not exceed 1,000,000 shares, subject to adjustments as provided
in Section 11 of this Plan.
(e) Notwithstanding any other provision of this Plan to the contrary, no
Participant shall be granted Option Rights for more than 200,000 Common
Shares during any calendar year, subject to adjustments as provided in
Section 11 of this Plan. Further, in no event shall any Participant in any
calendar year receive more than 200,000 Appreciation Rights, subject to
adjustments as provided in Section 11 of this plan.
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(f) Notwithstanding any other provision of this Plan to the contrary, in
no event shall any Participant in any calendar year receive an award of
Performance Shares, Performance Units, Restricted Shares or Other Stock-Based
Awards that specify Management Objectives having an aggregate maximum value
as of their respective Dates of Grant in excess of $1,000,000.
4. OPTION RIGHTS. The Committee may, from time to time and upon
such terms and conditions as it may determine, authorize the granting to
Participants of options to purchase Common Shares. Each such grant may
utilize any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:
(a) Each grant shall specify the number of Common Shares to which it
pertains subject to the limitations set forth in Section 3 of this plan.
(b) Each grant shall specify an Option Price per share, which shall not
be less than 100 percent of the Market Value per Share on the Date of Grant.
(c) Each grant shall specify whether the Option Price shall be payable
(i) in cash or by check acceptable to the Corporation, (ii) by the actual or
constructive transfer to the Corporation of nonforfeitable, unrestricted
Common Shares owned by the Optionee (or other consideration authorized
pursuant to subsection (d) below) having a value at the time of exercise
equal to the total Option Price, or (iii) by a combination of such methods of
payment.
(d) The Committee may determine, at or after the Date of Grant, that
payment of the Option Price of any option (other than an Incentive Stock
Option) may also be made in whole or in part in the form of Restricted Shares
or other Common Shares that are forfeitable or subject to restrictions on
transfer, Deferred Shares, Performance Shares (based, in each case, on the
Market Value per Share on the date of exercise), other Option Rights (based
on the Spread on the date of exercise) or Performance Units. Unless otherwise
determined by the Committee at or after the Date of Grant, whenever any
Option Price is paid in whole or in part by means of any of the forms of
consideration specified in this paragraph, the Common Shares received upon
the exercise of the Option Rights shall be subject to such risks of
forfeiture or restrictions on transfer as may correspond to any that apply to
the consideration surrendered, but only to the extent of (i) the number of
shares or Performance Shares, (ii) the Spread of any unexercisable portion of
Option Rights, or (iii) the stated value of Performance Units surrendered.
(e) Any grant may provide for deferred payment of the Option Price from
the proceeds of sale through a broker on a date satisfactory to the
Corporation of some or all of the shares to which such exercise relates.
(f) Any grant may, at or after the Date of Grant, provide for
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the automatic grant of Reload Option Rights to an Optionee upon the exercise
of Option Rights (including Reload Option Rights) using Common Shares or
other consideration specified in paragraph (d) above. Reload Option Rights
shall cover up to the number of Common Shares, Deferred Shares, Option Rights
or Performance Shares (or the number of Common Shares having a value equal to
the value of any Performance Units) surrendered to the Corporation upon any
such exercise in payment of the Option Price or to meet any withholding
obligations. Reload Options shall specify an Option Price per share, which
shall not be less than 100 percent of the Market Value per Share on the Date
of Grant of the Reload Option Right, and shall be on such other terms as may
be specified by the Committee, which may be the same as or different from
those of the original Option Rights.
(g) Successive grants may be made to the same Participant whether or not
any Option Rights previously granted to such Participant remain unexercised.
(h) Each grant shall specify the period or periods of continuous service
by the Optionee with the Corporation or any Subsidiary which is necessary
before the Option Rights or installments thereof will become exercisable and
may provide for the earlier exercise of such Option Rights in the event of a
Change in Control, retirement, death or disability of the Optionee or other
similar transaction or event.
(i) Any grant of Option Rights may specify Management Objectives that
must be achieved as a condition to the exercise of such rights.
(j) Option Rights granted under this Plan may be (i) options, including,
without limitation, Incentive Stock Options, that are intended to qualify
under particular provisions of the Code, (ii) options that are not intended
so to qualify, or (iii) combinations of the foregoing.
(k) The Committee may, at or after the Date of Grant of any Option
Rights (other than Incentive Stock Options), provide for the payment of
dividend equivalents to the Optionee on either a current or deferred or
contingent basis or may provide that such equivalents shall be credited
against the Option Price.
(l) The exercise of an Option Right shall result in the cancellation on
a share-for-share basis of any related Appreciation Right authorized under
Section 5 of this Plan.
(m) Each grant shall specify the term of the Option Right; provided,
however, that no Option Right shall be exercisable more than 10 years from
the Date of Grant.
(n) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Corporation by an officer and delivered to the
Optionee and containing such terms and provisions, consistent with this Plan,
as the Committee may approve.
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<PAGE>
6. RESTRICTED SHARES. The Committee may also authorize the grant or
sale to Participants of Restricted Shares. Each such grant or sale may
utilize any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of
the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional consideration
or in consideration of a payment by such Participant that is less than Market
Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the Restricted Shares
covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period of not
less than one (1) year to be determined by the Committee at the Date of
Grant, and any grant or sale may provide for the earlier termination of such
period in the event of a Change in Control, retirement, or death or
disability of the Optionee or other similar transaction or event as approved
by the Committee.
(d) Each such grant or sale shall provide that during the period for
which such substantial risk of forfeiture is to continue, the transferability
of the Restricted Shares shall be prohibited or restricted in the manner and
to the extent prescribed by the Committee at the Date of Grant (which
restrictions may include, without limitation, rights of repurchase or first
refusal in the Corporation or provisions subjecting the Restricted Shares to
a continuing substantial risk of forfeiture in the hands of any transferee).
(e) Any grant of Restricted Shares may specify Management Objectives
which, if achieved, will result in termination or early termination of the
restrictions applicable to such shares and each grant may specify in respect
of such specified Management Objectives, a minimum acceptable level of
achievement and may set forth a formula for determining the number of
Restricted Shares on which restrictions will terminate if performance is at
or above the minimum level, but falls short of full achievement of the
specified Management Objectives.
(f) Any such grant or sale of Restricted Shares may require that any or
all dividends or other distributions paid thereon during the period of such
restrictions be automatically deferred and reinvested in additional
Restricted Shares, which may be Subject to the same restrictions as the
underlying award.
(g) Each grant or sale of Restricted Shares shall be evidenced by an
agreement executed on behalf of the Corporation by any officer and delivered
to and accepted by the Participant and shall contain such terms and
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provisions, consistent with this Plan, as the Committee may approve. Unless
otherwise directed by the Committee, all certificates representing Restricted
Shares shall be held in custody by the Corporation until all restrictions
thereon shall have lapsed, together with a stock power executed by the
Participant in whose name such certificates are registered, endorsed in blank
and covering such Shares.
10. TRANSFERABILITY. (a) Except as otherwise determined by the
Committee, no Option Right, Appreciation Right or other derivative security
granted under the Plan shall be transferable by an Optionee other than by
will or the laws of descent and distribution. Except as otherwise determined
by the Committee, Option Rights and Appreciation Rights shall be exercisable
during the Optionee's lifetime only by him or her or by his or her guardian
or legal representative.
(b) The Committee may specify at the Date of Grant that part or all of
the Common Shares that are (i) to be issued or transferred by the Corporation
upon the exercise of Option Rights or Appreciation Rights, upon the
termination of the Deferral Period applicable to Deferred Shares or upon
payment under any grant of Performance Shares, Performance Units or Other
Stock-Based Awards or (ii) no longer subject to the substantial risk of
forfeiture and restrictions on transfer referred to in Section 6 of this
Plan, shall be subject to further restrictions on transfer.
11. ADJUSTMENTS. The Committee may make or provide for such
adjustments in the numbers of Common Shares covered by outstanding Option
Rights, Appreciation Rights, Deferred Shares, Performance Shares and Other
Stock-Based Awards granted hereunder, in the prices per share applicable to
such Option Rights and Appreciation Rights and in the kind of shares covered
thereby, as the Committee, in its sole discretion, exercised in good faith,
may determine is equitably required to prevent dilution or enlargement of the
rights of Participants or Optionees that otherwise would result from (a) any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Corporation, or (b) any merger,
consolidation, spin-off, split-off, spin-out, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
rights or warrants to purchase securities, or (c) any other corporate
transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the Committee, in
its discretion, may provide in substitution for any or all outstanding awards
under this Plan such alternative consideration as it, in good faith, may
determine to be equitable in the circumstances and may require in connection
therewith the surrender of all awards so replaced. The Committee may also
make or provide for such adjustments in the numbers of shares specified in
Section 3 of this Plan as the Committee in its sole discretion, exercised in
good faith, may determine is appropriate to reflect any transaction or event
described in this Section 11.
12. CHANGE IN CONTROL. For purposes of this Plan, a "Change in
Control" shall mean if at any time any of the following events shall have
occurred:
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(a) Any sale of all or substantially all of the Corporation's assets to
any person or entity (a "Person");
(b) Any sale or series of related sales which, in the aggregate,
transfer fifty percent (50%) or more of the voting shares of the Corporation
to any Person or group of Persons (as the term "group" is defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended); or
(c) Any merger of the Corporation with any other Person following which
the Corporation is not the surviving entity.
(d) Notwithstanding the foregoing, "Change in Control" shall not include
any sale, merger or consolidation with or to any Person in which the
shareholders of the Corporation immediately prior to such sale, merger or
consolidation own or obtain controlling voting power of such Person
immediately following such transaction.
13. FRACTIONAL SHARES. The Corporation shall not be required to issue
any fractional Common Shares pursuant to this Plan. The Committee may provide
for the elimination of fractions or for the settlement of fractions in cash
based on Market Value per Share on the date of settlement.
14. WITHHOLDING TAXES. To the extent that the Corporation is required
to withhold federal, state, local or foreign taxes in connection with any
payment made or benefit realized by a Participant or other person under this
Plan, and the amounts available to the Corporation for such withholding are
insufficient, it shall be a condition to the receipt of such payment or the
realization of such benefit that the Participant or such other person make
arrangements satisfactory to the Corporation for payment of the balance of
such taxes required to be withheld, which arrangements (in the discretion of
the Committee) may include relinquishment of a portion of such benefit. The
Corporation and a Participant or such other person may also make similar
arrangements with respect to the payment of any taxes with respect to which
withholding is not required.
17. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered
by a Committee of the Board (or subcommittee thereof), consisting of not less
than three Non-Employee Directors appointed by the Board. To the extent of
such delegation, references in the Plan to the Board shall also refer to the
appropriate committee. A majority of the Committee (or subcommittee thereof)
shall constitute a quorum, and the action of the members of the Committee (or
subcommittee thereof) present at any meeting at which a quorum is present, or
acts unanimously approved in writing, shall be the acts of the committee (or
subcommittee thereof). Until subsequent action of the Board, the Committee
shall be the Compensation Committee of the Board.
(b) The interpretation and construction by the Committee of any
provision of this Plan or of any agreement, notification or document
evidencing the grant of Option Rights, Appreciation Rights, Restricted
Shares, Deferred
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Shares, Performance Shares or Performance Units and any determination by the
Committee pursuant to any provision of this Plan or of any such agreement,
notification or document shall be final and conclusive. No member of the
Committee shall be liable for any such action or determination made in good
faith.
18. AMENDMENTS, ETC. (a) The Committee may at any time and from time
to time amend the Plan in whole or in part; provided, however, that any
amendment which must be approved by the shareholders of the Corporation in
order to comply with applicable law or the rules of the principal national
securities exchange upon which the Common Shares are traded or quoted shall
not be effective unless and until such approval has been obtained.
Presentation of this Plan or any amendment hereof for shareholder approval
shall not be construed to limit the Corporation's authority to offer similar
or dissimilar benefits under plans that do not require shareholder approval.
(b) The Committee may, with the concurrence of affected Optionee, cancel
any agreement evidencing Option Rights or any other award granted under this
Plan. In the event of such cancellation, the Committee may authorize the
granting of new Option Rights or other awards hereunder (which may or may not
cover the same number of Common Shares which had been the subject of the
prior award) in such manner, at such option price, and subject to such other
terms, conditions and discretion as would have been applicable under this
Plan had the cancelled Option Rights or other award not been granted.
(c) The Committee also may permit Participants to elect to defer the
issuance of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for
purposes of this Plan. The Committee also may provide that deferred
settlements include the payment or crediting of dividend equivalents or
interest on the deferral amounts.
(d) The Committee may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other compensation
otherwise payable by the Corporation or a Subsidiary to the Participant.
(e) In case of termination of employment by reason of death, disability
or normal or early retirement, or in the case of hardship or other special
circumstances, of a Participant who holds an Option Right or Appreciation
Right not immediately exercisable in full, or any Restricted Shares as to
which the substantial risk of forfeiture or the prohibition or restriction on
transfer has not lapsed, or any Deferred Shares as to which the Deferral
Period has not been completed, or any Performance Shares or Performance Units
or Other Stock-Based Awards which have not been fully earned, or who holds
Common Shares subject to any transfer restriction imposed pursuant to Section
10(b) of this Plan, the Committee may, in its sole discretion, accelerate the
time at which such Option Right or Appreciation Right may be exercised or the
time at which such substantial risk of forfeiture or prohibition or
restriction on
-11-
<PAGE>
transfer will lapse or the time when such Deferral Period will end or the
time at which such Performance Shares or Performance Units will be deemed to
have been fully earned or the time when such transfer restriction will
terminate or may waive any other limitation or requirement under any such
award.
(f) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Corporation or
any Subsidiary, nor shall it interfere in any way with any right the
Corporation or any Subsidiary would otherwise have to terminate such
Participant's employment or other service at any time.
(g) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision shall be null and void with respect to
such Option Right. Such provision, however, shall remain in effect for other
Option Rights and there shall be no further effect on any provision of this
Plan.
19. TERMINATION. No grant (other than an automatic grant of Reload
Option Rights) shall be made under this Plan more than 10 years after the
date on which this Plan is first approved by the shareholders of the
Corporation, but all grants made on or prior to such date shall continue in
effect thereafter subject to the terms thereof and of this Plan.
-12-
<PAGE>
EXHIBIT 11
EX-11. Computation of Earnings Per Share
% DAYS WEIGHTED
ISSUED SHARES OUTSTANDING AVERAGE
------ ---------- ----------- ----------
Dec-96 10,200,746 100% 10,200,746
Aug-97 2,000,000 42% 838,356
Jun-97 50,000 50% 25,205
Aug-97 (529,187) 42% (221,824)
---------- ----------
11,721,559 10,842,483
---------- ----------
---------- ----------
Number of shares used in computing earnings per common and common equivalent
share
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 545,418
<SECURITIES> 0
<RECEIVABLES> 4,749,348
<ALLOWANCES> 0
<INVENTORY> 1,438,730
<CURRENT-ASSETS> 5,388,077
<PP&E> 1,998,220
<DEPRECIATION> 387,257
<TOTAL-ASSETS> 11,999,607
<CURRENT-LIABILITIES> 3,787,694
<BONDS> 0
0
0
<COMMON> 122,508
<OTHER-SE> 4,178,717
<TOTAL-LIABILITY-AND-EQUITY> 4,301,225
<SALES> 0
<TOTAL-REVENUES> 10,671,963
<CGS> 0
<TOTAL-COSTS> 9,172,504
<OTHER-EXPENSES> 122,477
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,376,982
<INCOME-TAX> 552,178
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 824,804
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
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