<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
The Quarter Ended March 31, 1996
Commission File Number 0-4186
CONSOLIDATED TECHNOLOGY GROUP LTD.
(Exact name of registrant as specified in its charter)
New York 13-1948169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
160 Broadway, New York, NY 10038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 233-4500
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No____
Number of common shares outstanding as of May 8, 1996: 41,909,640
==========
<PAGE> 2
Consolidated Technology Group, Ltd.
Index
Page
----
Part I: - Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1996
and December 31, 1995. 2-3
Consolidated Statements of Operations - Three Months Ended
March 31, 1996 and 1995. 4
Consolidated Statement of Shareholders' Equity - Three Months
Ended March 31, 1996. 5-6
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995. 7-8
Notes to Consolidated Financial Statements 9-15
Item 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations. 16-23
Part II:
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 24
1
<PAGE> 3
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(dollars in 000's)
March 31, December 31,
1996 1995
----------- ------------
Assets:
Current assets:
Cash and cash equivalents $ 1,546 $ 1,636
Receivables, net of allowances 21,169 19,216
Inventories 3,636 3,701
Loans receivable 398 396
Prepaid expenses and other
current assets 810 436
Excess of accumulated costs over
related billings 1,110 1,002
Investments in common stock -- 20
------ ------
Total current assets 28,669 26,407
------ ------
Property, plant and equipment, net 11,278 11,034
------ ------
Other assets:
Capitalized software development costs 451 502
Goodwill, net 11,533 11,881
Covenant not to compete, net 1,848 2,168
Customer lists, net 11,461 11,684
Deferred offering costs 114 --
Receivables, long-term 217 219
Receivables, related parties 628 544
Trademark, net 379 383
Investments in common stock, long-term 776 405
Other Assets 1,174 1,088
------ ------
Total other assets 28,581 28,871
------ ------
Total Assets $68,528 $66,312
====== ======
See notes to consolidated financial statements.
2
<PAGE> 4
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
(dollars in 000's)
March 31, December 31,
1996 1995
----------- ------------
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable and accrued expenses $10,212 $11,095
Accrued payroll and related expenses 5,064 2,332
Accrued interest 392 284
Income taxes payable 344 269
Interim billings in excess of costs
and estimated profits 1,316 1,701
Notes payable, related parties 279 290
Current portion of long-term debt 8,367 9,080
Current portion of subordinated debt 4,589 13,354
Current portion of capitalized
lease obligations 1,286 1,362
------ ------
Total current liabilities 31,849 39,767
------ ------
Long-term liabilities:
Long-term debt 13,709 6,210
Capitalized lease obligations 1,949 2,198
Subordinated debt 7,434 5,003
------ ------
Total long-term liabilities 23,092 13,411
------ ------
Minority interest 2,361 2,087
------ ------
Shareholders' Equity:
Preferred stock 42 70
Additional paid-in capital,
preferred stock 155 266
Common stock (50,000,000 shares
authorized, 35,290,664 and 26,655,071
shares issued and outstanding as of
March 31, 1996 and December 31, 1995,
respectively) 353 267
Additional paid-in capital, common stock 51,574 51,020
Accumulated deficit (41,127) (40,648)
Unrealized gain (loss) on exchange translation 23 (17)
Net unrealized gain on long-term
investments in common stock 206 89
------ ------
Total shareholders' equity 11,226 11,047
------ ------
Total Liabilities and Shareholders' Equity $68,528 $66,312
====== ======
See notes to consolidated financial statements.
3
<PAGE> 5
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Operations
(dollars in 000's except per share data)
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
Revenues $26,513 $28,410
Direct Costs 20,699 23,327
------ ------
Gross Profit 5,814 5,083
Selling, General and Administrative 5,747 6,396
------ ------
Income (loss) from operations 67 (1,313)
------ ------
Other Income (Expense):
Interest Expense (963) (984)
Other Income 164 78
Gain (Loss) from Security Sales 37 (120)
------ ------
Total Other Expense- Net (762) (1,026)
------ ------
Loss Before Income Taxes and Minority Interest (695) (2,339)
Income Taxes (76) (44)
Minority Interest in (Gain) Loss of Subsidiaries 292 (5)
------ ------
Net Loss ($ 479) ($ 2,388)
====== ======
Loss per Common Share ($0.01) ($0.13)
====== ======
Weighted Average Number
of Common Shares 33,671,873 18,766,149
========== ==========
See notes to consolidated financial statements.
4
<PAGE> 6
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Three Months Ended March 31, 1996
(dollars in 000's)
Shares Amounts
---------- -------
Preferred stock, $1.00 par value, 6%
Series A 77,713 shares authorized:
Beginning balance 66,596 $ 67
Conversion of Series A to common stock (27,921) (28)
---------- ------
Ending balance 38,675 $ 39
========== ======
Preferred stock, $1.00 par value, $3.50 and $.10
Series B & E 8,000 shares authorized each:
Beginning balance 262 $ 1
========== ======
Ending balance 262 $ 1
========== ======
Preferred stock, $1.00 par value, $8.00
subordinated Series F, 6,000 shares authorized:
Beginning balance 2,700 $ 2
========== ======
Ending balance 2,700 $ 2
========== ======
Total preferred stock - par 41,637 $ 42
========== ======
Additional paid-in capital,
preferred stock:
Beginning balance $ 266
Conversion of Series A to common stock (111)
------
Ending balance $ 155
======
Common stock, $0.01 par value,
50,000,000 shares authorized:
Beginning balance 26,655,071 $ 267
Issuance for offerings 5,000,000 50
Conversion of Series A preferred 3,635,593 36
---------- ------
Ending balance 35,290,664 $ 353
========== ======
Additional paid-in capital, common stock:
Beginning balance $51,020
Issuance for offerings 450
Conversion of Series A preferred 104
------
Ending balance $51,574
======
(continued)
See notes to consolidated financial statements.
5
<PAGE> 7
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Shareholders' Equity for the
Three Months Ended March 31, 1996
(dollars in 000's)
Shares Amounts
---------- -------
Accumulated deficit:
Beginning balance ($40,648)
Net loss (479)
------
Ending balance ($41,127)
======
Unrealized exchange translation:
Beginning balance ($ 17)
Unrealized gain on exchange translation 40
------
Ending balance $ 23
======
Net unrealized gain (loss) on long-
term investments in common stock:
Beginning balance $ 89
Net unrealized investment security gains 117
------
Ending balance $ 206
======
Total shareholders' equity $11,226
======
(concluded)
See notes to consolidated financial statements.
6
<PAGE> 8
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Cash Flows
(dollars in 000's)
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
Cash Flows from Operating Activities:
Net loss ($ 479) ($ 2,388)
------ ------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and Amortization 1,626 1,591
Write-off goodwill 192
Loss on disposal of assets 99 --
Minority interest in loss of
consolidated subsidiaries (292) --
Bad debt expense 238 232
Option exercise expense -- 740
Noncash expenses paid with the issuance of stock -- 67
(Gain) loss on marketable securities (37) 120
Change in current assets and current liabilities:
(Increase) decrease in current assets:
Receivables (2,191) 137
Inventories 65 (11)
Prepaid expenses and other current assets (374) 314
Excess of accumulated costs over
related billings (108) --
Increase (Decrease) in current liabilities:
Accounts payable and accrued expenses (883) 686
Accrued payroll and related expenses 2,732 712
Accrued interest 108 3
Income taxes payable 75 --
Interim billings in excess of costs
and estimated profits (385) (655)
------ ------
Total adjustments 865 3,936
------ ------
Net cash provided by operating activities 386 1,548
------ ------
Cash Flows from Investing Activities:
(Increase) decrease in other assets 105 105
Capital expenditures (1,176) (174)
Investments in common stock (325) --
Proceeds from sale of marketable securities 128 165
Capitalized software development costs (1) (63)
Payments for loans made (1,011) (122)
Collections for repayment of loans made 926 77
------ ------
Net cash used in investing activities (1,354) (12)
------ ------
(continued)
See notes to consolidated financial statements.
7
<PAGE> 9
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statement of Cash Flows
(dollars in 000's)
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
Cash Flows from Financing Activities:
Deferred offering costs (114) (15)
Net payments to factor (1,179) --
Proceeds from issuance of long-term debt 9,001 --
Repayment of long-term debt (1,046) (690)
Repayment of subordinated debt (6,333) (656)
Payments on capital leases (326) (278)
Issuance of common stock 500 --
Subsidiary's issuance of common stock 375 --
Exercise of stock options -- 725
------ ------
Net cash provided by (used in)
financing activities 878 (914)
------ ------
Net Increase (Decrease) in Cash
and Cash Equivalents (90) 622
Cash and Cash Equivalents at
Beginning of Period 1,636 1,727
------ ------
Cash and Cash Equivalents at
End of Period $ 1,546 $ 2,349
====== ======
Supplemental Disclosures of Cash
Flow Information:
Cash Paid for:
Interest $ 855 $ 981
====== ======
Income Taxes $ -- $ --
====== ======
(concluded)
Supplemental Disclosures of Noncash Investing and Financing Activities:
During the three month period ended March 31, 1995:
(1) - Acquired equipment under capital lease obligations with a net present
value of $39.
(2) - Issued stock options and received exercise proceeds of $725 and
incurred noncash deferred consulting fees of $1,235 and noncash
consulting fee expenses of $740.
See notes to consolidated financial statements.
8
<PAGE> 10
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(1) In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company as
of March 31, 1996 and December 31, 1995 and the results of its operations and
changes in cash flows for the three months ended March 31, 1996 and 1995.
(2) The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the December 31, 1995 Form 10-K.
(3) The results of operations for the three months ended March 31, 1996 and
1995 are not necessarily indicative of the results to be expected for the full
year.
(4) Loss Per Share - Loss per share is computed by dividing the net loss for
the period by the weighted average number of common shares outstanding. For
purposes of computing weighted average number of common shares outstanding the
Company has common stock equivalents consisting of stock options and warrants
and Series "A" Preferred Convertible Stock. The Series "A" Preferred Stock
was deemed to be a common stock equivalent when issued. The common stock
equivalents are assumed converted to common stock, when dilutive. During
periods of operations in which losses were incurred, common stock equivalents
were excluded from the weighted average number of common shares outstanding
because their inclusion would be anti-dilutive.
(5) Industry Segments:
The Company currently classifies its operations into eight business
segments: (i) Contract Engineering Services consists of subsidiaries that
provide engineers, designers and technical personnel on a temporary basis
pursuant to contracts with major corporations; (ii) Medical Diagnostics
consists of a subsidiary that performs magnetic resonance imaging and other
medical diagnostic services; (iii) Electro-Mechanical and Electro-Optical
Products Manufacturing consists of subsidiaries that manufacture and sell
products such as devices that measure distance and velocity, instrumentation
devices, debit card vending machines and industrial lighting products; (iv)
Medical Information Services consists of subsidiaries that provide medical
information database services, health care industry related software packages
and the CarteSmart medical identification cards and related software program;
(v) Telecommunications consists of a subsidiary that, among other things,
installs telephonic network systems and buys and resells local telephone
service; (vi) Three Dimensional Products and Services consists of subsidiaries
that provide three dimensional imaging services that are used in a variety of
applications, such as proto-type building and reverse engineering; (vii) Audio
Visual Manufacturing and Services consists of a subsidiary that manufactures
and sells a professional line of loudspeakers, and (viii) Business Consulting
Services consists of subsidiaries that provide a variety of financial and
business related services. Corporate and Other consists of the operating
activities of the holding company entities. Intersegment sales and sales
outside the United States are not material. Information concerning the
Company's business segments is as follows:
9
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Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(5) Industry Segments (continued):
Three Months Ended
March 31,
---------------------
Segments: 1996 1995
- -------- --------- ---------
Revenues:
Contract Engineering Services $13,471 $17,800
Medical Diagnostics 8,114 7,027
Electro-Mechanical and Electro-Optical
Products Manufacturing 649 1,171
Medical Information Services 2,561 1,427
Telecommunications 742 390
Three Dimensional Products and Services 298 589
Audio Visual Manufacturing and Services 671 --
Business Consulting Services 7 6
------ ------
Total Revenues $26,513 $28,410
====== ======
Gross Profit:
Contract Engineering Services $ 834 $ 612
Medical Diagnostics 3,841 3,393
Electro-Mechanical and Electro-Optical
Products Manufacturing 94 363
Medical Information Services 662 369
Telecommunications 40 57
Three Dimensional Products and Services 200 283
Audio Visual Manufacturing and Services 137 --
Business Consulting Services 6 6
------ ------
Total Gross Profit $ 5,814 $ 5,083
====== ======
Income (Loss) from Operations:
Contract Engineering Services ($ 254) ($ 294)
Medical Diagnostics 1,883 1,496
Electro-Mechanical and Electro-Optical
Products Manufacturing (169) (4)
Medical Information Services 202 (436)
Telecommunications (280) (214)
Three Dimensional Products and Services (450) (415)
Audio Visual Manufacturing and Services (143) --
Business Consulting Services (9) (6)
Corporate and other (713) (1,440)
------ ------
Total Income (Loss) from Operations $ 67 ($ 1,313)
====== ======
10
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Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(5) Industry Segments (continued):
Three Months Ended
March 31,
---------------------
Segments: 1996 1995
- -------- --------- ---------
Net Income (Loss):
Contract Engineering Services ($ 324) $ (574)
Medical Diagnostics 1,196 833
Electro-Mechanical and Electro-Optical
Products Manufacturing (171) (4)
Medical Information Services 88 (467)
Telecommunications (301) (222)
Three Dimensional Products and Services (218) (416)
Audio Visual Manufacturing and Services (158) --
Business Consulting Services (9) (8)
Corporate and other (582) (1,530)
------ ------
Total Net Income (Loss) ($ 479) ($ 2,388)
====== ======
Depreciation and Amortization:
Contract Engineering Services $ 114 $ 128
Medical Diagnostics 1,242 1,253
Electro-Mechanical and Electro-Optical
Products Manufacturing 16 8
Medical Information Services 109 132
Telecommunications 8 8
Three Dimensional Products and Services 90 59
Audio Visual Manufacturing and Services 41 --
Business Consulting Services 1 1
Corporate and other 5 2
------ ------
Total Depreciation and Amortization $ 1,626 $ 1,591
====== ======
Capital Expenditures:
Contract Engineering Services $ 19 $ 11
Medical Diagnostics 1,121 47
Electro-Mechanical and Electro-Optical
Products Manufacturing -- 4
Medical Information Services 20 4
Telecommunications -- --
Three Dimensional Products and Services -- 90
Audio Visual Manufacturing and Services 12 --
Business Consulting Services -- --
Corporate and other 4 18
------ ------
Total Capital Expenditures $ 1,176 $ 174
====== ======
11
<PAGE> 13
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(5) Industry Segments (continued):
At March 31,
---------------------
Segments: 1996 1995
- -------- --------- ---------
Identifiable Assets:
Contract Engineering Services $ 7,421 $10,287
Medical Diagnostics 42,362 39,989
Electro-Mechanical and Electro-Optical
Products Manufacturing 3,716 4,352
Medical Information Services 7,545 5,929
Telecommunications 1,257 1,094
Three Dimensional Products and Services 1,114 2,330
Audio Visual Manufacturing and Services 1,731 --
Business Consulting Services 257 261
Corporate and other 3,125 2,279
------ ------
Total Identifiable Assets $68,528 $66,521
====== ======
(6) Equity:
Conversion of Series A Preferred Stock - During the three months ended March
31, 1996, the Company issued 3,635,593 shares of common stock upon the
conversion of 27,921 shares of series A preferred stock.
Regulation S Offerings - Pursuant to an offering in January 1996 made under
Regulation S of the Securities Act of 1933, the Company received net proceeds
of $500 in conjunction with the issuance of 5,000,000 shares of common stock.
(7) Reverse Merger:
On May 8, 1995 SIS Capital Corp. ("SISC"), a wholly-owned subsidiary of the
Company, transferred all of its equity ownership in Trans Global Services,
Inc. ("Trans Global") to Concept Technologies Group, Inc. ("Concept"),
pursuant to an agreement dated as of March 31, 1995, among SISC, DLB, Inc.
("DLB"), Joseph G. Sicinski and Concept in exchange for a controlling interest
in Concept. Concept's common stock and warrants are traded on the Nasdaq
SmallCap Market. Trans Global's common stock was owned by SISC (91.6%), DLB
(5.0%) and Mr. Sicinski (3.4%). DLB is owned by Ms. Carol Schiller, wife of
Mr. Lewis S. Schiller, the Company's chairman of the board, president and
chief executive officer. Mr. Schiller disclaims all beneficial interest in
the securities owned by DLB. The acquisition by Concept of the Trans Global
stock in exchange for Concept's capital stock is referred to as the "Trans
Global Transaction".
Pursuant to the Trans Global Transaction:
(i) - Warrants to purchase an aggregate of 500,000 shares of Trans Global
common stock held by SISC (475,000 shares) and DLB (25,000 shares) were
12
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Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(7) Reverse Merger (continued):
exchanged for Series B Common Stock Purchase Warrants ("Series B Warrants")
to purchase an aggregate of 500,000 shares of Common Stock until May 5, 1997.
(ii) - Concept issued to SISC 850,000 shares of Common Stock, Series B
Warrants to purchase 475,000 shares of Common Stock at $3.50 per share, 23,750
shares of Series A Preferred Stock, which will be converted into 1,900,000
shares of Common Stock upon the filing of the Certificate of Amendment, 23,750
shares of each of Series B and C Preferred Stock, which are convertible into
an aggregate of 2,375,000 shares of Common Stock if certain levels of income
before income tax are met, and 25,000 shares of Concept's Series D Preferred
Stock, which is not convertible and which has a redemption price of
approximately $1,700. SISC has deferred taking the physical delivery of
400,000 of the shares of Common Stock issuable in order to provide Concept
with flexibility in issuing shares of Common Stock.
(iii) - Concept issued to DLB in respect of its Trans Global stock and
warrants, 50,000 shares of Common Stock, Series B Warrants to purchase 25,000
shares of Common Stock, 1,250 shares of Series A Preferred Stock, which are
convertible into 100,000 shares of Common Stock upon the filing of the
Certificate of Amendment, and 1,250 shares of each of Series B and C Preferred
Stock, which are convertible into an aggregate of 125,000 shares of Common
Stock if certain levels of income before income taxes are attained.
(iv) - Concept issued to Mr. Sicinski, 100,000 shares of Common Stock.
As a result of the Trans Global Transaction, SISC owned, at the closing,
approximately 32.2% of the outstanding Common Stock, and 59.3% of the voting
rights on all matters, including the election of directors, except where the
holders of Common Stock are required by law to vote as a single class. Upon
the filing of the Certificate of Amendment, based on outstanding Common Stock
as of the closing date, SISC would own 59.3% of the outstanding Common Stock.
(8) Pro Forma Results:
The following pro forma unaudited results assume that the reverse merger in
Note (7) had occurred at the beginning of the indicated periods:
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
Net revenues $ 26,513 $ 29,000
======= =======
Net income (loss) ($ 479) $ (1,987)
======= =======
Income (loss) per share ($ 0.01) $ (0.11)
======= =======
13
<PAGE> 15
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(8) Pro Forma Results (continued):
The pro forma information is not necessarily indicative of either the results
of operations that would have occurred had the acquisition been effective at
the beginning of the indicated periods or of the future results of operations.
(9) Subsequent Events
Regulation S Offerings:
Pursuant to an offering in April 1996 made under Regulation S of the
Securities Act of 1933, the Company received net proceeds of $250 in
conjunction with the issuance of 5,000,000 shares of common stock.
Conversion of Series A Preferred Stock:
From the period April 1, 1996 through May 8, 1996, the Company issued
approximately 1,418,976 shares of common stock upon the conversion of 23,650
shares of series A preferred stock.
Non-Employee Directors, Consultants and Advisors Stock Options:
On August 20, 1993, the Company authorized a stock option plan for
Non-Employee Directors, Consultants and Advisors to provide compensation for
services rendered to the Company in lieu of cash payments. Pursuant to the
plan during April 1996, 200,000 shares were issued for no cash consideration,
resulting in $45 of consulting costs computed as follows:
Shares 200,000
Value of stock at date of grant $0.28125
-------
Full value of stock 56
20% discount (11)
-------
Discounted value of stock 45
Exercise proceeds --
-------
Total consulting costs 45
=======
Sale of Common Stock Investments to an Officer:
During April 1996, the chief executive officer of the Company exercised an
option to purchase common stock investments held by the Company at 110% of the
book value of such investments. The purchase of such investments was
consummated in a noncash transaction and such officer is to issue a note in
favor of the Company without interest and payable within five years from the
date of the purchase. Total receivables outstanding under such sale
approximates $445 of which $72 relates to such exercises that occurred during
the year ended December 31, 1995.
14
<PAGE> 16
Consolidated Technology Group, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(dollars in 000's)
- --------------------------------------------------------------------------------
(9) Subsequent Events (continued):
Restated Employment Agreement:
During May 1996, the chief executive officer's ("CEO") employment contract was
restated, effective as of January 1996, and supersedes the contract dated
October 1, 1994. Per the terms of the amended contract the CEO shall receive
a salary of $250 per year through the year 2000, the expiration date of the
contract. The annual compensation may be increased from time to time by the
Board of Director's of the Company and commencing January 1, 1996 and on each
January 1 thereafter during the term of the contract, the CEO shall receive an
increase in annual compensation equal to the greater of (A) 5% of his salary
in effect prior to the increase or (B) the cost of living increase as
determined per the Consumers Price Index as published by the Bureau of Labor
Statistics of the United States Department of Labor. In addition, the CEO is
entitled to a bonus equal to 10% of the amount by which the greater of (A) the
Company's consolidated income before taxes, determined in accordance with
generally accepted accounting principles or (B) the Company's consolidated net
cash flow exceeds $350. Net cash flow is calculated as consolidated net
income, plus depreciation, amortization and other noncash items of expense,
minus payments of principal amounts of indebtedness, all determined in
accordance with generally accepted accounting principles. Additional benefits
to be received by the CEO include: (a) four weeks paid vacation; (b)
disability insurance providing for the payment to the CEO of a minimum of 60%
of his salary; (c) life insurance with a face value of $2,000, payable to the
CEO's designated beneficiary; (d) health, vision and dental insurance; and (e)
an automobile to be provided to the CEO by the Company. Furthermore, the
restated employment agreement confirms the grant to the CEO of option to
purchase 10% of any equity interest now held by the Company or any of its
subsidiaries. The option shall be exercisable during the 5 year period
commencing on the later of the date of this agreement or the date the Company
acquires the securities. The exercise price of the option shall be equal to
110% of the Company's cost of such securities as determined i accordance with
generally accepted accounting principles. Payment of the option exercise
price shall be made by the CEO within 5 years from the date of the exercise,
without interest.
........................................
15
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in 000's)
FINANCIAL CONDITION
LIQUIDITY:
As of December 31, 1995, it was determined that the ability of the Company to
continue as a going concern was dependent upon the success of the Company's
subsidiary's marketing efforts and their efforts to obtain sufficient funding
to enable them to continue operations. Management believes that the Company
has made progress in achieving these goals during the quarter based on the
following:
Improved Operating Results:
The Company has a significant reduction in loss for the 1996 quarter compared
to 1995 in six of the eight segments and also shows a significant reduction in
corporate and other expenses. On an overall basis, the net loss for the
quarter was $1,909 less than in the prior comparable period.
Debt Refinancing:
In January 1996, the Company refinanced a significant portion of the current
subordinated debt that was to be paid in 1996. Such financing consisted of a
term loan of $2,000, a revolver loan of $6,000 and the extension of
approximately $7,600 of subordinated balloon payments from a 1996 due date to
a 2001 due date. At the time of the refinancing, the effect was a reduction
of current debt of approximately $8,363.
Improved Working Capital Condition:
As of December 31, 1995, the Company had a working capital deficit of $13,360.
As of March 31, 1996, this working capital deficit has been reduced to $3,180,
in large part to the aforementioned debt refinancing. The Company's continued
ability to reduce the working capital deficit relies primarily on the success
of continuing efforts to increase the profitability of the underlying
subsidiaries and a proposed additional refinancing of current debt which would
result in a shift $4,000 of current debt, due in September 1996, to a
long-term maturity in the Medical Diagnostics segment. As further explained
in the following "Sources of Cash" discussion, restrictions exist with regards
to the Company's use of the Medical Diagnostics segment's cash.
Proposed Equity Offerings:
The Company currently has filed a registration statement for the sale of
securities of a subsidiary in the medical services segment. Such subsidiary
received a loan of $500 during the quarter with respect to a proposed offering
which is payable in January of 1997 or earlier at the completion of the
offering. Additionally, a subsidiary operating in the contract engineering
services segment (which is already publicly held), has received a letter of
intent to raise additional capital. No assurances can be given, however, that
such offerings will be ultimately consummated.
16
<PAGE> 18
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in 000's)
FINANCIAL CONDITION:
LIQUIDITY (continued):
CAPITAL RESOURCES:
Sources of Cash:
The Company's principal working capital consists of cash and cash equivalents.
Cash and cash equivalents were $1,546 at March 31, 1996 compared to $1,636 at
December 31, 1995. During the three months ended March 31, 1996, the
Company's operations generated $386 of cash from operations of which the
medical diagnostics segment company, International Magnetic Imaging, ("IMI")
generated approximately $275 from operations while the remaining segments
generated approximately $111 from operations. Pursuant to an IMI financing
agreement with a creditor, restrictions exist on the distributions of IMI
funds whereby IMI may not make payments out of the ordinary course of IMI
operations and specifically, not to the parent company, (Consolidated), or any
subsidiary or affiliate. The other segments are thereby required to operate
on their own cash flows and as of March 31, 1996 the most significant impact
from these restrictions is on the Three Dimensional Products and Services
segment which is currently unable to operate without cash infusions from the
parent company, (Consolidated). It is imperative that this segment obtain
alternative sources of funding (i.e. equity offerings, creditor financing or
increased volume), in order to continue as an operating segment. The
remaining segments were relatively unaffected by the restrictions on IMI's
cash since they operated substantially with their own cash flows. Other
significant sources of cash includes proceeds from the issuance of long-term
debt of $9,001, proceeds from the issuance of stock of $875, collections on
repayments of notes receivable of $926 and proceeds from the sale of
marketable securities of $128.
Uses of Cash:
Uses of cash includes the repayment of long-term and subordinated debt of
$7,379, capital expenditures of $1,176, payments on capital leases of $326,
advances on notes receivables of $1,011, purchases of investments of $325 and
net repayments to factors of $1,179. Other net sources and uses of cash
amounted to $10.
Changes in Other Working Capital Assets and Liabilities:
The other significant changes in working capital includes an increase in
accounts receivable of $2,191 (primarily from increased revenues of the
medical diagnostics segment) and an increase in accounts payable, accrued
expenses and accrued payroll and related expenses of approximately $1,849
(primarily from an increase in payroll and payroll related obligations of the
contract engineering services segment).
17
<PAGE> 19
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in 000's)
FINANCIAL CONDITION:
CAPITAL RESOURCES (continued):
Effect of Loan Defaults:
The Company is in default on loans approximating $1,000 as of March 31, 1996.
Such defaults have not had, and are not expected to have a significant impact
on the operations of the related segments. The creditors have not called such
loans and are working under extended repayment terms.
RESULTS OF OPERATIONS:
Consolidated operating profits increased by $1,380 from an operating loss of
$1,313 for the 1995 quarter to operating income of $67 for the 1996 quarter.
This improvement in operating results was achieved by an increase in overall
gross margins of $731 and a reduction in operating costs of $649. Such
advances in profitability were achieved in spite of a $1,897 decrease in
revenues. The decrease in revenues is attributed to the contract engineering
services segment which on January 1, 1996 lost a contract with one of its
significant customers. By the end of the quarter this segment had recovered
approximately 60% of such lost revenues with new customers. This segments
decline in revenues was partially offset by revenues in the audio visual
manufacturing and services segment which was not a part of the Company's
operations in the 1995 quarter. On an overall basis, the consolidated net
loss for the 1996 quarter compared to 1995 decreased by $1,909 or 80%.
The percentage of relative contribution to revenues, gross profit, and selling
general and administrative expenses by industry segment is shown in the
following tables. Changes within the individual industry segments themselves
is discussed further within the respective industry segment discussions.
18
<PAGE> 20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in 000's)
RESULTS OF OPERATIONS (continued):
---------------------
Three Months Ended
March 31,
Segments 1996 1995
- -------- --------- ---------
Revenues:
Contract Engineering Services 50% 62%
Medical Diagnostics 30% 25%
Electro-Mechanical and Electro-Optical
Products Manufacturing 2% 4%
Medical Information Services 10% 5%
Telecommunications 3% 1%
Three Dimensional Products and Services 1% 2%
Audio Visual Manufacturing and Services 3% --
Business Consulting Services 1% 1%
---------------------
---------------------
Three Months Ended
March 31,
Segments 1996 1995
- -------- --------- ---------
Gross Profit:
Contract Engineering Services 14% 12%
Medical Diagnostics 66% 66%
Electro-Mechanical and Electro-Optical
Products Manufacturing 2% 7%
Medical Information Services 11% 7%
Telecommunications 1% 1%
Three Dimensional Products and Services 3% 6%
Audio Visual Manufacturing and Services 2% --
Business Consulting Services 1% 1%
---------------------
---------------------
Three Months Ended
March 31,
Segments 1996 1995
- -------- --------- ---------
Selling, General and Administrative Expenses:
Contract Engineering Services 19% 14%
Medical Diagnostics 34% 29%
Electro-Mechanical and Electro-Optical
Products Manufacturing 5% 6%
Medical Information Services 8% 13%
Telecommunications 6% 4%
Three Dimensional Products and Services 11% 10%
Audio Visual Manufacturing and Services 5% --
Business Consulting Services 1% 1%
Corporate and Other 11% 23%
---------------------
19
<PAGE> 21
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in 000's)
RESULTS OF OPERATIONS (continued):
Discussion of Operations by Segment:
(References to 1996 and 1995 correspond to the three month periods then ended)
Contract Engineering Services - This segment is engaged in the business of
providing engineers, designers and technical personnel on a temporary basis to
major corporations. Comparing 1996 to 1995, revenues decreased 24% while
gross margins increased 36%. The decrease in revenues is attributed to the
loss of a contract on January 1, 1996, from one of the segment's significant
customers. By the end of the quarter, the segment had recovered approximately
60% of the lost revenue. The increase in the gross margin is due to the fact
that the remaining customers, as well as the newly acquired customers,
generated higher margins than the significant customer that was lost.
Selling, general and administrative expenses increased 20%. This increase
primarily resulted from $250 in accrued penalties on late payroll tax
withholding obligations and $80 of noncash expenses associated with the
issuance of stock for consulting services. Other income and expense items
decreased 75% as a result of lower interest expense from more favorable
financing terms than those that existed in the prior period. Management
believes that with this segment's current selling, general and administrative
structure, it can improve its operating results through revenue growth.
However, such growth is inherently dependent upon its ability to obtain
adequate funding and accordingly, no assurance can be given about the ultimate
profitability of this segment.
Medical Diagnostics - This segment is engaged in the business of performing
MRI and other diagnostic modality procedures in the health industry.
Comparing 1996 to 1995 revenues and gross margins increased 16% and 13%,
respectively. The increase in revenues is due to increases in scan procedure
volume which was partially offset by decreasing reimbursement rates.
Selling, general and administrative expenses remained relatively level,
increasing only 3%. Other income and expense items remained relatively level
and net income increased by 44% as a result of maintaining level operating
costs while revenues were increasing. Typically, this segment has its
greatest revenue activity in the first quarter and management anticipates that
revenues and gross margin in the remaining quarters of 1996 will be moderately
less while operating expenses will remain relatively level, which is
consistent with the past performance of this segment.
Electro-Mechanical and Electro-Optical Products Manufacturing - This segment
consists of three companies, Sequential Electronic Systems, ("Sequential"),
which manufactures optical encoders, encoded motors and limit programmers,
S-Tech, which manufactures debit card vending machines and various avionics
instrumentation devices and Televend which markets telephone debit cards and
certain products manufactured by S-Tech. Comparing 1996 and 1995, revenues
and gross profit decreased 44% and 74%, respectively. The significant
decrease in revenues and gross margins is attributed to the government
shutdown that effected the 1996 quarter which resulted in the segment not
being able to ship orders to defense department customers. Gross margins went
from 30% of revenues in 1995 to 15% of revenues in 1996 which was primarily a
result of decreased volume from the government shutdown that occurred in the
second half of 1995 which impacted shipments in 1996, while certain inherent
20
<PAGE> 22
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in 000's)
RESULTS OF OPERATIONS (continued):
fixed costs were still incurred. Selling, general and administrative expenses
decreased 28% which was the result of planned cutbacks in such costs. Net
losses increased from $4 for 1995 to $171 for 1996, which again is primarily
attributed to the decrease to government sector sales. Management has placed
more emphasis on sales to the private sector through the marketing of the
debit card vending machines and the telemarketing efforts of Televend.
Management anticipates that revenues and profitability will improve in the
remaining quarters of 1996 if the proper financing is found, but is currently
unable to estimate the amount of such improvement.
Medical Information Services - This segment is engaged in developing,
marketing and supporting computer software designed to enable health service
as well as financial related organizations to provide a range of services in a
network computing environment. This segment has developed proprietary network
technology utilizing smart cards in financial network systems. Comparing 1996
to 1995, revenues and gross margins increased 79% and 80%, respectively, while
selling, general and administrative expenses decreased 43%. During the prior
period this segment had relied primarily on revenues of previously existing
customers and software programs and services. During 1996, the segment has
increased its revenues and gross margins through contracts with new customers
using the new technologies that it has spent significant amounts of money in
the past developing. These positive developments resulted in income from
operations of $202 in 1996 compared to operating losses of $467 in 1995.
These gains in operating profitability were partially offset by an increase in
interest expense of $83 which is due to additional debt, of which $500 was
incurred during 1996. Although no assurances can be made that profitable
operations will continue in this segment, management currently estimates that
this segment will continue to outperform the prior years operating results.
Telecommunications - This segment is engaged in the business of marketing a
wide range of telecommunications services including the design and
implementation of telecommunications programs in addition to reselling local
line service. Comparing 1996 to 1995, revenues increased 90% while gross
margins decreased 30%. During 1996, this segment's revenues consisted of a
greater proportion of network installations which generate lower margins than
the reselling of phone services. Selling, general and administrative expenses
remained relatively level while net losses increased $80. The
telecommunications segment operates in a highly competitive industry and
management believes that in order for this segment to become profitable, it
will have to distinguish itself from other telecommunications service
companies. Additionally, this segment needs to significantly increase its
volume in order to cover its operating costs. This segment currently has a
backlog of approximately $4,000, and management estimates that revenues will
increase throughout the remainder of the year, and if operating costs are
maintained at the current level, this segment could breakeven during the
fourth quarter.
Three Dimensional Products and Services - This segment is engaged in the
business of developing and marketing products and services in the three
dimensional imaging and digitizing technology which the segment categorizes in
three primary market groups: 1) surfacer imaging products, 2) CAD/CAM software
21
<PAGE> 23
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in 000's)
RESULTS OF OPERATIONS (continued):
products and services and 3) laser scanning products. Comparing 1996 to 1995,
revenues and gross margins decreased 49% and 30%, respectively. The primary
reason for such decreases is due to the closure of one of the companies
operating in this segment which produced revenues and gross margins in 1995 of
$185 and $35, respectively. The decision to close such operations was based
on the fact that such companies operations did not align with the planned
future for this segment and was not producing margins at a level sufficient to
cover its operating costs. Selling, general and administrative expenses
remained relatively level, however, the 1996 expenses includes $192 in noncash
expense for the write-off of goodwill that could not be supported by the
segment's current cash flow under generally accepted accounting principles.
Excluding the goodwill write-off, ongoing expenses decreased approximately
$221 because of planned expense cut backs as well as a decrease in product
development costs. On an overall basis, the net loss for 1996 was $218 which
is an improvement of $198 from 1995. Management currently anticipates that
revenues and operating profits will significantly improve for this segment if
the proper financing can be obtained which would allow this segment to acquire
a European partner to market and expand its existing product lines. However,
no assurances can be made that such financing will be obtained and the
ultimate profitability of this segment is significantly dependent on the
success of such financing.
Audio Visual Manufacturing and Services - This segment is engaged in the
business of manufacturing and marketing a professional line of loudspeakers.
This segment was acquired during the second quarter of 1995 and therefore
there is no comparable period. During 1996 this segment generated $671 in
revenues of which $481 were from domestic sales and $190 were from European
and Far East sales. Gross margins were $137 or 20% of revenues compared to
10% for the time period from acquisition in the second quarter of 1995 through
December 31, 1995. This increase in gross margin percentage is due primarily
to increased sales volume which reduced the idle capacity related to the
manufacturing process. This segment continually evaluates and improves its
product line and management believes that if this segment is able to find an
appropriate financing package, it will be able to significantly increase its
revenues and overall profitability during 1996.
Business Consulting Services operations were not significant for 1996 or 1995
and management anticipates that consulting revenues and related expenses will
not be a significant portion of the Company's future operations in the near
term.
Corporate and Other selling, general and administrative expenses for 1996
compared to 1995 decreased 50%. Such decrease is due primarily to noncash
expense from the exercise of stock options for payment of consulting services
which amounted to $740 in 1995. Included in selling, general and
administrative expenses was approximately $80 in a bonus paid to the Company's
Chief Financial Officer as a part of renegotiating the subordinated debt of
the Medical Diagnostics segment. Corporate and other selling, general and
administrative expense, other than that related to the exercise of stock
options remained relatively level and it is currently anticipated that such
costs will remain level throughout 1996. However, in the event that the
22
<PAGE> 24
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in 000's)
RESULTS OF OPERATIONS (continued):
Company negotiates additional acquisitions, such costs would increase
accordingly.
Discussion of Other Significant Financial Line Items
Interest Expense for 1996 remained relatively level compared to 1995. The
Company's debt financing activity during 1996 was primarily refinancing
activity which effectively extended current debt to long-term and relatively
the same interest rates and therefore there was not a significant impact on
the level of interest expense.
Gains and (Losses) on Investment Securities - During 1996 the Company's
investment purchasing and sales activity was not significant while in 1995 the
Company incurred losses on investments of $120 which consisted primarily of
the recognition of investments that were determined to have a permanent
decline in market value and as such, the decline was recognized in that
period. Security sales vary from period to period based on, among other
things, market activity and cash needs, and management cannot estimate the
amount of future security sales gains or losses, if any, that will be
generated from such transactions.
Impact of Inflation
The Company is subject to normal inflationary trends and anticipates that any
increased costs would be passed on to its customers.
........................................
23
<PAGE> 25
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. EX-10.1 Restated Employment Agreement Dated January 1996 between the
Company and Mr. Lewis S. Schiller.
2. EX-11.1 Calculation of earnings per share.
3. EX-27 Financial Data Schedule
........................................
24
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSOLIDATED TECHNOLOGY GROUP, LTD.
/S/ President and Director May 10, 1996
- -------------------- (Principal Executive
Lewis S. Schiller Officer)
/S/ Chief Financial Officer May 10, 1996
- -------------------- (Principal Financial and
George W. Mahoney Accounting Officer)
<PAGE> 27
Consolidated Technology Group Ltd. and Subsidiaries
Index to Exhibits
March 31, 1996
1. EX-10.1 Restated Employment Agreement Dated January 1996 between the
Company and Mr. Lewis S. Schiller.
2. EX-11.1 Calculation of earnings per share.
3. EX-27 Financial Data Schedule
(filed in electronic format only with the SEC)
<PAGE> 28
Consolidated Technology Group, Ltd.
March 31, 1996
Exhibit EX-10.1
- --------------------------------------------------------------------------------
RESTATED EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the first day of January, 1996, by and
between LEWIS S. SCHILLER, an individual residing at 208 West 11th Street, New
York, New York 10014, ("Executive"), and CONSOLIDATED TECHNOLOGY GROUP LTD., a
New York corporation with its principal offices at 160 Broadway, New York, New
York 10038 (the "Company").
W I T N E S S E T H:
WHEREAS, the Company, through its wholly-owned or controlled subsidiaries, is
engaged in a variety of businesses, including medical diagnostic services,
contract engineering services, manufacturing, medical information systems,
three-dimensional products and services, telecommunications and financial
advisory and business consulting services; and
WHEREAS, Executive and the Company are parties to a Restated Employment
Agreement dated as of October 1, 1994 (the "Prior Employment Agreement"), and
the Company's Board of Directors (the "Board") has approved an amendment and
restatement of Executive's employment agreement;
WHEREAS, Executive is willing to continue to serve as the Company's chief
executive officer on the terms set forth in this Agreement;
WHEREFORE, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as its Chief Executive
Officer for the Term, as defined in Paragraph 3 of this Agreement. Executive
shall also serve as an executive officer of such of its wholly-owned or
controlled subsidiaries (collectively, "Subsidiaries") to which he may be
elected by the board of directors of any such Subsidiaries. He shall also
serve in such other positions, not inconsistent with his position as Chief
Executive Officer of the Company, to which he may be elected by the board of
directors of the Company or any of the Subsidiaries or to which he may be
assigned from time to time during the Term. In addition, the Company shall,
subject to Executive's consent, cause Executive to be nominated and elected to
the Board and to the boards of directors of such of the Subsidiaries as the
Company may determine. Executive hereby agrees to accept such employment upon
and subject to the terms of this Agreement.
2. Executive's Duties and Responsibilities.
(a) Executive will perform all of the services customarily associated with
the position of Chief Executive Officer during the Term, including, without
limitation, such services on behalf of any Subsidiary to which he may be
elected, subject to the policies established by and at the direction of the
Board.
(b) Executive agrees to devote substantially all of his business time,
attention and energy to the performance of his duties under this Agreement
during the Term and shall perform such duties diligently, in good faith and in
a manner consistent with the best interests of the Company. Executive further
agrees to use his best efforts at all times during the Term to preserve,
protect, enhance and maintain the trade, business and goodwill of the Company.
Executive shall perform his services wherever his services are reasonably
<PAGE> 29
required but principally at the principal offices of the Company, which are
presently at 160 Broadway, New York, New York 10038.
3. Term; Severance.
(a) The term of Executive's employment pursuant to this Agreement (the "Term")
commenced on October 1, 1994 and shall expire on December 31, 2000, subject to
earlier termination as provided in Paragraph 3(b) of this Agreement. The
"Stated Term" shall mean the period commencing October 1, 1994 and ending
December 31, 2000.
(b) This Agreement shall terminate prior to December 31, 2000 upon the
occurrence of any of the following events:
(i) The death of Executive;
(ii) The Permanent Disability, as hereinafter defined, of Executive, subject
to the provisions of Paragraph 7 of this Agreement;
(iii) The breach or default by Executive in the performance or observance of
any of the provisions of Paragraph 8 of this Agreement;
(iv) Any repeated or deliberate misconduct by Executive, upon thirty (30)
days notice from the Company to Executive provided that Executive does not
cure any such breach within such thirty (30) day period;
(v) Any repeated breach of trust or other repeated action by which Executive
obtains personal gain at the expense or to the detriment of the Company;
(vi) The failure of Executive to perform the customary duties of his
position; provided, however, that Executive is furnished with notice of such
breach from the Company and Executive fails to cure any such breach within
thirty (30) days of such notice;
(vii) The delivery of notice to the Company by the Executive of the
termination of this Agreement for any breach or default by the Company of any
of its obligations or covenants under this Agreement, including any change in
Executive's duties without his consent so he is no longer Chief Executive
Officer of the Company, provided that any such breach or default is not cured
within thirty (30) days after such notice from Executive;
(viii) In the event of a Change of Control, as hereinafter defined, during
the Term, the Executive may terminate this Agreement upon ninety (90) days
notice to the Company. For purposes of this Agreement, the term "Change of
Control" shall mean the date on which the Company sells all, or substantially
all, of its assets or issues to an independent non-affiliated third party such
number of shares of its capital stock as shall equal thirty three percent
(33%) or more of its total issued and outstanding shares of capital stock,
provided, that a Change of Control shall not be deemed to occur as a result of
or in connection with any recapitalization or public offering of the Company's
securities or a merger transaction approved by Executive. A merger
transaction shall mean the merger or consolidation of the Company with or into
another corporation or entity.
(c) In the event of a Change of Control of any Subsidiary to which Executive
renders services pursuant to this Agreement, Executive shall have the right to
resign as an officer and/or director of such Subsidiary; provided, however,
that such resignation shall not affect the compensation and other benefits
payable to Executive pursuant to this Agreement.
4. Compensation. In consideration of the performance of the Executive's
services under this Agreement during the Term, the Company shall pay Executive
the following compensation:
(a) (i) A salary (the "Salary") of two hundred fifty thousand dollars
($250,000) per annum, such rate of compensation to be effective as of October
<PAGE> 30
1, 1994. The Salary shall be paid to Executive in equal weekly installments
(after the deduction of all applicable withholding and other required payroll
deductions), in arrears, during the Term. The Salary may be increased from
time to time by the Board. Commencing January 1, 1996 and on each January 1
thereafter during the Term, Executive shall receive an increase in Salary
equal to the greater of (A) five percent (5%) of his Salary in effect prior to
such increase or (B) the cost of living increase.
(ii) The cost of living increase shall be computed as follows:
(A) The cost of living index, as hereinafter defined, for each December,
commencing December 1995, shall be compared with the cost of living index for
December of the previous year. The cost of living increase shall mean the
percentage increase in the cost of living index from the previous December to
the December as of which the computation is made. Such determination shall be
made as soon as possible after release of the cost of living index for the
December as of which the computation is being made, and the Company shall, on
the next payroll date following the release of such cost of living increase,
pay to the Executive any additional Salary accrued but not paid pending
determination of the cost of living increase.
(B) The cost of living index shall mean the "Consumers Price Index for Urban
Wage Earners and Clerical Workers (Revised Series) - New York Metropolitan
Area," published by the Bureau of Labor Statistics of the United States
Department of Labor. If the said cost of living index in its form as of the
date of this Agreement or the calculation basis thereof shall be revised
therefrom or discontinued, the parties shall attempt in good faith to modify
the provisions of this Paragraph 4(a)(ii).
(b) (i) The Company shall also pay Executive, in addition to the Salary, a
bonus (the "Bonus") for each calendar year during the Term of this Agreement
commencing with the year ending December 31, 1995, equal to ten percent (10%)
of the amount by which the greater of (A) the Company's consolidated income
before income taxes, determined in accordance with generally accepted
accounting principles consistently applied, or (B) the Company's consolidated
net cash flow, as hereinafter defined, exceeds three hundred fifty thousand
dollars ($350,000). Net cash flow shall mean (A) consolidated net income,
plus (B) depreciation, amortization and other non-cash items of expense, minus
(C) payments of principal amounts of indebtedness, all determined in
accordance with generally accounting principles consistently applied. The
determination of consolidated income before income taxes and net cash flow
shall be made in a manner consistent with the financial statements included in
the Company's Form 10-K Annual Report for the year with respect to which the
Bonus is computed; provided, however, that such determination shall be
exclusive of the Bonus payable to Executive pursuant to this Paragraph 4(b).
Such determination shall be made by the Company's independent auditors, whose
determination shall be final, binding and conclusive on the parties.
(ii) The Bonus shall be payable to Executive within thirty (30) days
following the completion of the audited financial statements of the Company,
but in any event, not later than May 1 of each such year or within ten (10)
days after the final resolution of any disagreement with respect to the
calculation of income before income taxes or cash flow from operating
activities pursuant to Paragraph 4(b)(iii) of this Agreement. In the event of
any termination of the Term prior to the expiration of the Stated Term, the
Company shall pay Executive (or his beneficiary, as hereinafter defined, in
the case of any earlier termination due to Executive's death), with respect to
the year in which the Term ends, a fraction of the Bonus provided for in
<PAGE> 31
Paragraph 4(b)(i) of this Agreement for such year, the numerator of which
equals the number of active months in such year prior to the termination of
the Term, and the denominator of which is twelve (12), unless such termination
results from an event or occurrence described in Paragraph 3(b)(iii), (iv),
(v) or (vi) of this Agreement, in which case, notwithstanding any provision of
this Agreement to the contrary, the Company shall have no obligation to make
any payment of the Bonus to Executive for such year. An active month is a
month during which Executive performed services for the Company for at least
ten (10) days. As used in this Agreement, the term "beneficiary" shall mean
the person designated by Executive by an instrument signed by Executive,
acknowledged before a notary public and delivered to the Company. In the
event that Executive fails to designate a beneficiary as provided in the
previous sentence, his estate shall be deemed to be his beneficiary.
(iii) The Company shall deliver to Executive with each Bonus payment a report
setting forth the calculation of income before income taxes and cash flow from
operating activities for the year computed in accordance with Paragraph
4(b)(i) of this Agreement. Unless Executive notifies the Company within
fifteen (15) business days after receipt of said calculations of his
disagreement therewith (which notice shall state with reasonable specificity
the reasons for any such disagreement and the amounts in dispute), said
calculations will be final, binding and conclusive on Executive. If there is
a disagreement, and the disagreement cannot be resolved by the Company and the
Executive within sixty (60) days following the delivery of such calculations,
the items in dispute may be submitted by either the Company or the Executive
to the Company's independent auditors (with a copy being furnished to the
other party). After affording each of the Company and the Executive the
opportunity to present their respective positions (which opportunity shall not
extend for more than ten (10) business days following the submission of such
disputed items to such auditors), the independent auditors shall determine
what, if any, changes are required in the calculations, and such determination
shall be final, binding and conclusive on the Company and Executive. The
fees, costs and expenses of such independent auditors shall be borne by the
Company.
(iv) In the event that for any year, a Bonus is earned but the Company has a
negative net cash flow or would, as a result of the payment of the Bonus, have
a negative net cash flow, the Bonus shall be paid in thirty six (36) monthly
installments, the first such installment to be due on the date the Bonus would
be payable pursuant to Paragraph 4(b)(ii) of this Agreement, with the
remaining installments being due on the first day of each of the thirty five
(35) following calendar months; provided, however, that the Company shall have
the right to prepay the deferred installments from the proceeds of the public
or private sale of its equity (including convertible debt) securities or from
the sale of securities owned by the Company or its Subsidiaries.
(v) Executive shall have the right, at Executive's sole expense, upon
reasonable advance notice and during normal business hours at the Company's
offices, to examine and copy the books and records of the Company relating to
its financial statements.
(c) In the event of a termination of the Term pursuant to Paragraph 3(b)(i),
(ii), (vii) or (viii) of this Agreement, Executive shall be entitled to
receive from the Company, in addition to any Salary or Bonus payable pursuant
to this Paragraph 4, and the Company shall pay to Executive, severance
payments as follows:
(i) In the event of any termination of the Term pursuant to Paragraph 3(b)(i)
of this Agreement, the Company shall pay Executive's beneficiary the face
<PAGE> 32
value of the life insurance policy to be maintained by the Company pursuant to
Paragraph 5(b) of this Agreement. In the event the Company fails to maintain
such insurance, unless such failure results from a lack of sufficient funds by
the Company to pay the premiums therefor, Executive's failure to pay such
premiums, Executive's failure to pass an insurance physical or Executive's
being otherwise uninsurable, the Company shall pay an amount equal to the face
value of such policy to the Executive's beneficiary, in forty-eight (48) equal
installments, the first of which shall be payable on the first day of the
first month following the month in which Executive's death occurs. In the
event that the Company shall not have maintained the insurance provided for in
said Paragraph 5(b) and such failure shall have resulted from a lack of
sufficient funds by the Company to pay such premiums, from Executive's failure
to pay such premiums, from Executive's failure to pass an insurance physical
or from Executive's being otherwise uninsurable, the Company shall pay to
Executive's beneficiary the principal amount of life insurance required to be
obtained pursuant to Paragraph 5(b) of this Agreement in one hundred twenty
(120) equal monthly installments on the first day of each calendar month,
commencing with the month following the month in which Executive's death
occurs.
(ii) In the event of the termination of this Term pursuant to Paragraph
3(b)(ii) of this Agreement, Executive shall be entitled to receive payments as
provided in Paragraph 7(b) of this Agreement.
(iii) In the event of the termination of the Term pursuant to Paragraph
3(b)(vii) or (viii) of this Agreement, Executive, his legal representative or
his beneficiary, as the case may be, shall continue to receive his Salary at
the rate provided in Paragraph 4(a) of this Agreement for a period of one
hundred twenty (120) months from the date of termination.
5. Executive Benefits. In addition to the Salary and Bonus, Executive shall
receive the following benefits:
(a) Executive shall be entitled to four (4) weeks paid vacation and fifteen
(15) paid sick days during each calendar year of the Term commencing with
1994. Executive shall take such vacation at such times as will not
unreasonably interfere with significant activities of the Company and upon
reasonable advance notice to the Company. Any unused vacation shall be paid
to Executive by the Company at the end of each year of the Term.
(b) The Company shall pay for and maintain for Executive during the Term of
this Agreement, disability insurance providing for the payment to Executive of
a minimum of sixty percent (60%) of his Salary for any "disability" as defined
in such disability insurance policy. The Company shall also pay and maintain
for Executive during the Term, major medical, hospitalization, dental and
vision insurance (which insurance will cover Executive and members of his
immediate family, as defined in the applicable insurance policies) and life
insurance upon the life of Executive in the face value of two million dollars
($2,000,000), the proceeds of which shall be payable to such beneficiary(ies)
as shall be designated by Executive from time to time during the Term. The
Company shall maintain such disability, medical, dental, and vision insurance
in effect, at the Company's cost, for a period of one hundred twenty (120)
months after the expiration or termination of the Term unless this Agreement
shall be terminated pursuant to Paragraphs 3(b)(iii), (iv) or (vi) of this
Agreement, in which case the Company shall not be obligated to maintain such
insurance. During the Term, any such life insurance policy shall remain the
property of the Company; however, upon the expiration of the Term, Executive
shall have the right to have such life insurance policy assigned to him;
<PAGE> 33
provided, that the Company shall continue to pay all costs therefor. The
Company may, at its election at any time during the Term, obtain and maintain
at its cost, a key man life insurance policy on the Executive's life with the
Company as the beneficiary thereof, and Executive will cooperate with the
Company and its insurer with respect thereto.
(c) The Company shall provide Executive with an automobile during the Term of
this Agreement. In addition, the Company shall pay or reimburse Executive for
the cost of insurance, gasoline, service and maintenance of the automobile
upon presentation of bills or other evidences of payment.
(d) The Company agrees that nothing contained in this Agreement is intended
to, or shall be deemed to be granted to the Executive in lieu of, or as a
limitation upon, any rights and privileges which the Executive may otherwise
be entitled to as an executive employee of the Company under any retirement,
pension, profit sharing, insurance, hospitalization or other employee benefit
plan of any type (including, without limitation, any incentive, profit
sharing, bonus or stock option plan), which may now be in effect or which may
hereafter be adopted by the Company or any Subsidiary of which Executive is an
officer or director, it being understood that the Executive shall have the
same rights and privileges to participate in such Company (including the
Subsidiaries) benefit plans as any other officer or executive employee of the
Company or such Subsidiary.
(e) (i) The Company hereby grants, and reconfirms the grant pursuant to the
Prior Employment Agreement, to Executive of an option (the "Equity Option") to
purchase ten percent (10%) of any equity interest, whether in the form of
common or preferred stock, options, warrants, rights, convertible debt or
other securities (collectively, the "Option Securities"), now held by the
Company or SIS Capital Corp., a Delaware corporation and wholly-owned
subsidiary of the Company ("SISC"), in the Company's operating Subsidiaries or
acquired by the Company or SISC (including any entities formed or acquired to
operate subsidiaries during the Term). Operating Subsidiaries include
Subsidiaries the business of which is making passive investments or holding
investments including securities received for consulting or other services,
except that, for purpose of this Agreement, the Option Security shall mean the
security held by the Subsidiary. The Equity Option shall be exercisable, as
to each Option Security, during the five (5) year period commencing on the
later to occur of the date of this Agreement or the date the Company or SISC
acquires the Option Security, subject to Paragraph 5(e)(x) of this Agreement.
The exercise price of the Equity Option, with respect to each Option Security,
shall be equal to one hundred ten percent (110%) of the Company's or SISC's
cost of such Option Security. The Company's or SISC's cost of each Option
Security shall be determined in accordance with generally accepted accounting
principles consistently applied as reflected in the Company's audited
financial statements included in its Form 10-K Annual Report as filed with the
Securities and Exchange Commission; provided, however, that there shall be
excluded from the computation of the Company's or SISC's cost any overhead,
salary or similar expenses which were included in determining SISC's cost of
such Option Securities under generally accepted accounting principles;
provided, however, that the cost of any Option Securities received in exchange
for shares of the Company's capital stock shall be deemed to be the par value
of the capital stock of the Company which was so issued. In determining the
Company's or SISC's cost, loans made by or on behalf of SISC or the Company
shall not be deemed part of the cost. In the event that an acquisition or
other transaction is structured on Consolidated's or SISC's books as loan or
advance or as a preferred stock and if, in connection with a financing or
acquisition or other transaction, the Company or SISC agrees, in order to
<PAGE> 34
enable a financing, acquisition or other transaction to be consummated, to
treat such loan, advance or preferred stock as common stock, for purposes of
computing the Company's cost of the common stock, the amount which had been
allocated to the loan or advance or preferred stock shall be excluded in
computing the Company's or SISC's cost. Attached to this Agreement as Exhibit
A is a schedule setting forth the Option Securities, the Company's cost and
the exercise price with respect thereto. Such Exhibit A shall be updated
periodically by a new Exhibit A which sets forth the date as of which it is
prepared and is signed by the Company and Executive. The most recent Exhibit
shall be binding and conclusive on the parties as to the Option Securities set
forth in such Exhibit.
(ii) The Equity Option may be exercised in whole at any time or in part from
time to time during the period in which it is exercisable with respect to each
Option Security. Exercise of the Equity Option shall be made by notice (the
"Exercise Notice") to the Company setting forth the Option Securities as to
which the Equity Option is being exercised. Within forty five (45) days of
receipt of the Exercise Notice with respect to any Option Security, the
Company shall advise Executive by written notice (the "Price Notice") of the
exercise price. The Price Notice shall be accompanied by a reasonably
detailed computation of the exercise price with respect to each Option
Security as to which the Equity Option is being exercised. If Executive shall
not have objected to the computation of the exercise price with respect to any
Option Security within forty five (45) days after receipt of the Price Notice,
then the exercise price shall be as set forth in the Price Notice. If
Executive disputes the computation of the exercise price, he shall give notice
(the "Dispute Notice") to the Company. The Dispute Notice shall set forth
Executive's computation of the exercise price, and, if the Company and
Executive shall not have agreed upon an exercise price within thirty (30) days
after the Company's receipt of the Dispute Notice, the matter shall be
submitted to binding arbitration with the Company's regularly engaged
independent auditors, whose decision shall be final, binding and conclusive on
all parties. Pending the determination by said auditors, payment of the
exercise price shall be made based on the exercise price set forth by
Executive in the Dispute Notice, with an adjustment to be made in the event
that the exercise price is determined to be higher than that set forth in the
Dispute Notice. The fees of said auditors shall be paid by the Company.
(iii) Payment of the exercise price with respect to any Option Security shall
be made within five (5) years from the date of purchase, without interest.
(iv) Payment of the exercise price may be made in cash and/or shares of the
Company's Common Stock or shares of any publicly traded company, including
affiliates of the Company and SISC, any such stock to be valued at the fair
market value thereof at the date such stock is tendered in payment of the
exercise price without any discount for the restricted nature of any shares
which may have been tendered as payment. The fair market value of any
publicly traded stock shall mean the closing price on the principal stock
exchange on which such stock is traded (if the stock is traded on the New York
or American Stock Exchange) or The Nasdaq Stock Market or, if there are no
sales on such date or if the stock is not so listed, the average of the
closing bid and asked prices, as reported by Nasdaq, the National Quotation
Bureau, Inc. or similar entity selected by the Company's board of directors.
In the event that Executive tenders securities not publicly traded but which
are convertible into securities which are publicly traded, the tendered
securities shall be valued in the same manner as if they were fully converted,
even if, on the date tendered, the securities are not then convertible.
<PAGE> 35
(v) The exercise of the Equity Option with respect to any Option Securities
shall be accompanied by Executive's non-recourse promissory note (the
"Executive's Note") for the unpaid balance of the exercise price. If
Executive fails to pay any Executive's Note, (a) Executive shall be entitled
to retain such percentage of the Option Securities transferred upon exercise
of such Equity Option as equals the percentage of the exercise price as has
been paid by Executive, (b) the remaining Option Securities shall be returned
to the Company without any payment by the Company, (c) the Company shall
return Executive's Note to Executive for cancellation, and (d) Executive shall
have no further Equity Option with respect to the Option Securities of such
entity.
(vi) Provided that the Exercise Notice is given during the exercise period
with respect to an Option Security, the Equity Option shall be deemed to be
timely exercised with respect to such Option Security, even if some or all of
the payments of the exercise price are made subsequent to the expiration of
such exercise period.
(vii) For purposes of this Paragraph 5(e), references to SISC shall include
any other Subsidiary which is wholly-owned or controlled by the Company whose
principal purpose is to hold the Company's equity position in an operating
Subsidiary.
(viii) If SISC owns stock in a Subsidiary which itself owns stock in one or
more operating Subsidiaries, the Equity Option shall, unless the parties
otherwise agree, relate only to SISC's interest in its first-tier subsidiary,
and the Company's cost of the Option Securities of such Subsidiary shall
include both its cost of the securities of the first-tier Subsidiary and the
cost to the Company, on a consolidated basis, of the Subsidiaries of such
first-tier Subsidiary. For example, SISC owns stock of Concept Technologies
Group, Inc. ("Concept"), which owns all of the stock of Trans Global Services,
Inc. ("TGS"), which owns all of the stock of Resource Management
International, Inc. ("RMI") and Avionics Research Holdings, Inc. ("Holdings").
Holdings owns all of the stock of Avionics Research Corp. and Avionics
Research Corp. of Florida (collectively, "Avionics"). The Equity Option shall
relate to SISC's interest in Concept, but not its interest in TGS, RMI,
Holdings or Avionics. SISC's cost of Equity Securities of TGS shall include
the cost of the equity securities of TGS, RMI, Holdings and Avionics.
(ix) Notwithstanding any other provisions of this Paragraph 5(e), in the
event (A) that any corporation or other entity in which the Company or SISC
has a direct or indirect interest effects a public offering of its securities,
the Equity Option shall relate to the Company's or SISC's direct or indirect
interest in the securities of such entity, (B) in the event that the Company,
SISC or any entity controlled by them receives equity securities as a fee or
purchases such shares in a private transaction, the Equity Option shall relate
to such securities, and (C) in the event that any securities referred to in
clause (B) of this Paragraph 5(e)(ix) of this Agreement are sold prior to the
expiration of the Equity Option with respect thereto, the Company shall pay to
Executive the amount by which the proceeds allocable to the securities subject
to the Equity Option exceeded the exercise price therefor, such payment to be
made not later than March 15 of the calendar year following the year in which
the transaction occurred.
(x) To the extent that the Term expires prior to the expiration of the Stated
Term pursuant to Paragraph 3(b)(iii), (iv), (v) or (vi) of this Agreement, the
Equity Option shall, to the extent that it has not been exercised, terminate
immediately.
<PAGE> 36
(xi) The Equity Option may be transferred by Executive by will or by the laws
of descent and distribution or in a private transaction which is exempt from
the registration requirements of the Securities Act of 1933, as amended or in
a transaction which otherwise complies with such Act. Option Securities
issued upon exercise of any Equity Option may be transferred by Executive in
the manner set forth in the preceding sentence, provided, that such Option
Securities shall be subject to reconveyance to the Company in the manner
provided in Paragraph 5(e)(v) of this Agreement, provided, further, that it
shall be a condition to any such transfer that the transferee agree to be
bound by such provisions and that the stock certificates bear an appropriate
legend.
6. Expenses.
(a) The Company shall reimburse Executive for all ordinary and necessary
out-of-pocket expenses incurred by him in the performance of his services
under this Agreement, subject to and upon receipt by the Company of invoices
or other supporting documentation in accordance with the Company's expense
reimbursement policies, as in effect form time to time.
(b) In the event that the Company moves its corporate headquarters from the
New York metropolitan area, the Company shall pay Executive's reasonable
moving expenses, including temporary living accommodations for up to six
months; provided, that the Company cannot require Executive to relocate.
(c) In the event that the Company establishes dual offices and Executive is
required to spend any significant part of his time at both offices, the
Company shall pay to Executive a housing allowance of three thousand five
hundred dollars ($3,500) per month for as long as such dual offices are
maintained, provided, however, that following the closing of any such office,
the Company shall reimburse Executive for any costs incurred by him in moving
and in terminating any lease obligations and similar expenses.
7. Disability.
(a) In the event Executive suffers any illness, injury or other incapacity
which causes him to become temporarily disabled during the Term, he shall
continue to receive one hundred (100%) percent of the Salary and Bonus to
which he was entitled at the time he became so disabled for any period of
disability not in excess of six (6) consecutive calendar months. The term
"Permanent Disability" as used in this Agreement shall mean any disability of
Executive for a period in excess of six (6) consecutive calendar months. For
the purpose of this Paragraph 7(a), the terms "disabled" and "disability"
shall mean any physical or mental illness, injury or other incapacity which,
in the opinion of a doctor reasonably satisfactory to the Company and
Executive or his legal representative, renders the Executive unable to perform
his duties under this Agreement, and shall include a judicial determination of
incompetence. The date that any such disability shall be deemed to have
commenced shall be the date Executive first absents himself from work during a
continuous period of disability as so determined by the doctor referred to in
this Paragraph 7(a) or the date of judicial determination of incompetence, as
the case may be.
(b) Upon any Permanent Disability, the Company shall pay to Executive, as
disability benefits during the one hundred twenty (120) months following the
termination of this Agreement as a result of a Permanent Disability, the
average Salary paid by the Company to Executive during the five (5) calendar
years (or such shorter period subsequent to December 31, 1994 as this
<PAGE> 37
Agreement shall have been in effect) preceding the year in which such
termination as a result of a Permanent Disability occurs. Such payment shall
be reduced by all payments which Executive either (i) may receive under any
disability policy maintained by the Company or (ii) would have received had
the disability policy provided for in Paragraph 5(b) of this Agreement been
issued.
8. Confidentiality and Non-Disclosure Covenant.
(a) Executive hereby acknowledges that, in the performance of his duties
pursuant to this Agreement, he may obtain and be entrusted with unpublished
confidential and proprietary information relating to the Company's and its
Subsidiaries' present and proposed business and operations, including, without
limitation, financial information relating to the Company's and its
Subsidiaries' present and proposed business and operations, the cost and
pricing of the Company's and its Subsidiaries' services, the sales and
marketing plans and strategies of the Company and its Subsidiaries, proposed
acquisitions by the Company and its Subsidiaries, the names and addresses of
the Company's and its Subsidiaries' accounts and the terms of all material
agreements to which the Company or any Subsidiary is a party. All of such
information that may be obtained by Executive shall, for purposes hereof, be
referred to as "Confidential Information." Executive hereby agrees that,
unless the Confidential Information becomes publicly known through legitimate
origin not involving any improper act or omission of Executive, neither he,
nor any entity or person owned or controlled directly or indirectly by him,
shall, during or after the Term, use for his own benefit or for the benefit of
others for any purpose and in any manner whatsoever, divulge to any person,
firm, corporation or other entity or otherwise publish or disclose any
Confidential Information, except as necessary in connection with the
performance of Executive's services under this Agreement. Notwithstanding the
foregoing, Executive shall not be in breach of this covenant with respect to
any use or disclosure of any Confidential Information by him which is required
as a result of any legal process served upon him in any judicial or
administrative proceeding (provided that the Company shall be given notice in
time to enable it to object to such disclosure) or was obtained by Executive
from a third party without such third party's breach of agreement or
obligation of trust. The term "entity or person owned or controlled directly
or indirectly by" Executive or words of like import shall not include the
Company or any Subsidiaries.
(b) Executive agrees that his violation or threatened violation of any of the
provisions of this Paragraph 8 shall cause immediate and irreparable harm to
the Company. In the event of any breach or threatened breach of said
provisions, Executive consents to the entry of preliminary and permanent
injunctions by a court of competent jurisdiction prohibiting him from any
violation or threatened violation of these provisions and compelling Executive
to comply with these provisions. This Paragraph 8 shall not affect or limit,
and the injunctive relief provided in this Paragraph 8(b) shall be in addition
to, any other remedies available to the Company at law or in equity. The
provisions of this Paragraph 8 shall survive the termination or expiration of
the Term.
9. Representations and Warranties of Executive. Executive represents and
warrants to the Company as follows:
(a) All action on the part of Executive necessary for the authorization,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, has been taken and this Agreement
<PAGE> 38
constitutes a valid and legally binding obligation of Executive, enforceable
in accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other laws affecting generally the
enforcement of creditors' rights and by general principles of equity.
(b) The authorization, execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, will not result
in any violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, a default under any provision of any
instrument, judgment, order, writ, decree or agreement to which Executive is a
party or by which he is bound.
(c) There is no action, suit, proceeding, or investigation pending, or to the
knowledge of Executive, currently threatened against Executive, in any way
relating to the validity of this Agreement or the right of Executive to enter
into or to consummate this Agreement and the transactions contemplated hereby.
10. Arbitration. Except for any action under this Agreement for injunctive
or other equitable relief and except as otherwise expressly provided in
Paragraphs 4(b) and 5(e) of this Agreement, all disputes, controversies and
differences between the parties hereto arising under this Agreement which the
parties hereto are unable to settle amicably shall be resolved in New York,
New York, by binding arbitration in accordance with the Rules then in force of
the American Arbitration Association. The arbitration shall be held before
three arbitrators one of which shall be selected by each of Executive and the
Company and one of which shall be selected by the other two arbitrators, and
the decision of such arbitrators shall be deemed to be final, and judgment
upon any award or decision rendered thereby may be entered in any court,
domestic or foreign, having jurisdiction thereof. The arbitrators shall not,
except as provided in Paragraph 12(f) of this Agreement, have any authority to
modify or amend any express provisions of this Agreement.
11. Agreements with Affiliates. Executive may enter into employment
agreements ("Affiliate Agreements") with affiliates of the Company. To the
extent that, for any year, the salary paid pursuant to the Affiliate
Agreements does not exceed the Salary payable pursuant to this Agreement, such
salary shall reduce the Salary payable pursuant to this Agreement on a dollar
for dollar basis. If, for any year, the salary paid pursuant to the Affiliate
Agreements exceeds the Salary payable pursuant to this Agreement, no Salary
shall be paid to Executive pursuant to this Agreement for such year; provided,
that Executive shall not be required to refund any Salary (or salary pursuant
to any Affiliate Agreement) paid to him during such year. Any bonuses paid
pursuant to the Affiliate Agreements shall not affect the Salary or Bonus
payable pursuant to this Agreement. 12. Miscellaneous.
(a) This Agreement constitutes the entire agreement of the Company and
Executive as to the subject matter hereof, superseding all prior written or
prior or contemporaneous oral understanding or agreements, including the Prior
Employment Agreement and any other employment agreements, or understandings
with respect to the subject matter covered in this Agreement. This Agreement
may not be modified or amended, nor may any right be waived, except by a
writing which expressly refers to this Agreement, states that it is intended
to be a modification, amendment or waiver and is signed by both parties in the
case of a modification or amendment or by the party granting the waiver. No
course of conduct or dealing between the parties and no custom or trade usage
shall be relied upon to vary the terms of this Agreement. The failure of a
party to insist upon strict adherence to any term of this Agreement on any
occasion shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.
<PAGE> 39
(b) Any notice, demand or other communication (collectively, "notice") under
the provisions of this Agreement shall be given in writing and delivered by
hand, overnight courier or messenger service, against a signed receipt or
acknowledgment of receipt, or mailed by registered or certified mail, return
receipt requested, or sent by telecopier or similar means of communication if
receipt is acknowledged or if transmission is confirmed by mail as provided in
this Paragraph 12(b), to the parties at their respective addresses set forth
at the beginning of this Agreement or by telecopier to Executive at (212)
675-4720 or to the Company at (212) 233-5023, with notice to the Company being
sent to the attention of the individual who executed this Agreement on behalf
of the Company. Either party may, by like notice, change the person, address
or telecopier number to which notice should be sent. All such notices shall
be deemed given when personally delivered or transmitted as aforesaid, or, if
mailed as aforesaid, on the fifth (5th) business day after mailing or on the
day actually received, if earlier, except for a notice of a change of person,
address or telecopier number which shall be effective only upon receipt.
(c) Neither party hereto may assign this Agreement or his or its rights,
benefits or obligations hereunder without the written consent of the other
party. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors, heirs, personal representatives,
administrators, executors and permitted assigns. Nothing contained herein is
intended to confer upon any person or entity, other than the parties hereto,
and their respective successors, heirs, personal representatives,
administrators, executors or permitted assigns, any rights, benefits,
obligations, remedies or liabilities under or by reason of this Agreement.
Notwithstanding the foregoing, in the event of a Change of Control, the
Company shall have the right to assign this Agreement, subject to and
conditioned upon receipt of Executive's written consent thereto and to the
rights of Executive under Paragraph 3(b)(viii) of this Agreement, to the
person or entity acquiring the stock or assets of the Company provided that
any such person or entity agrees in writing to assume and be bound by all of
the terms and provisions of this Agreement.
(d) This Agreement shall be governed by and construed in accordance with the
laws of the State of New York with respect to contracts made and to be fully
performed therein, without regard to the conflicts of laws principles thereof.
By his execution hereof, Executive hereby consents and irrevocably submits to
the in personam jurisdiction of the American Arbitration Association tribunal
located in the City, County and State of New York or, with respect to
Paragraph 8, the Federal or state courts situated in New York County, New
York, which shall have sole jurisdiction as to such matters, and agrees that
any process in any action commenced in such tribunal or court under this
Agreement may be served upon him personally, by certified or registered mail,
return receipt requested, or by Federal Express or other courier service, with
the same full force and effect as if personally served upon him in New York
City. Each of the parties hereto hereby waives any claim that the
jurisdiction of any such tribunal is not a convenient forum for any such
action and any defense of lack of in personam jurisdiction with respect
thereto. In the event of any such arbitration proceeding, the arbitrator
shall have the right to assess reasonable counsel fees and disbursements.
(e) The parties hereto hereby agree that, at any time and from time to time
during the Term hereof, upon the reasonable request of the other party hereto,
they shall do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, such further acts, deeds, assignments,
transfers, conveyances and assurances as may be reasonably required to more
effectively consummate this Agreement and the transactions contemplated
<PAGE> 40
thereby or to confirm or otherwise effectuate the provisions of this
Agreement.
(f) If any term or provision of this Agreement, or the application thereof to
any person or circumstance, is finally determined by a court or arbitration
tribunal to any extent to be illegal, invalid or unenforceable, the remainder
of this Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held illegal, invalid or
unenforceable, shall not be affected thereby and each term and provision of
this Agreement shall be valid and shall be enforced to the fullest extent
permitted hereunder and by law.
(g) During and after the Term, the Company shall defend, indemnify and hold
Executive harmless from any claims, causes of action, liabilities, damages,
costs or expenses incurred by Executive based upon or in connection with the
performance of his services under this Agreement to the fullest extent
permitted by the laws of the State of New York (and, with respect to
indemnification by a Subsidiary, the laws of the jurisdiction of incorporation
of any Subsidiary) and of the By-Laws of the Company or any such Subsidiary,
as the case may be. In the event that, under applicable law, the Company may
not defend Executive or pay the costs of defense as provided in this Paragraph
12(g) unless Executive undertakes to reimburse the Company in the event that
any payment is unlawful, then, in such event, the Company may condition such
defense or payment on receipt of an appropriate reimbursement agreement from
Executive. This provision will survive the expiration or termination of the
Term.
(h) Executive shall not participate in any determination by the Board as to a
matter referred to in this Agreement, other than those referred to in
Paragraphs 1 and 2 of this Agreement.
(i) The headings in this Agreement are for convenience of reference only and
shall not affect in any way the construction or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date and year first aforesaid.
CONSOLIDATED TECHNOLOGY GROUP LTD.
By /S/
---------------------------
George W. Mahoney
Chief Financial Officer
/S/
---------------------------
Lewis S. Schiller
SIS Capital Corp. hereby consents to, and agrees to be bound by, the
provisions of Paragraphs 5(e), 10 and 12 of this Agreement.
SIS CAPITAL CORP.
By /S/
---------------------------
George W. Mahoney
Chief Financial Officer
<PAGE> 41
Consolidated Technology Group, Ltd. and Subsidiaries
March 31, 1996
EX-11.1 Calculation of Earnings per Share
- ----------------------------------------------------------------------------
For the Three Months Ended March 31, 1996:
Net Loss ($ 479,061)
=========
Loss per Share:
Loss per share - Note 1 $(0.01)
====
Loss per Share - assuming full
dilution - Note 2 $(0.01)
====
Note 1:
Computed by dividing the net loss for the period by the weighted average
number of common shares outstanding (33,671,843). No stock options, warrants
or preferred convertible stock are assumed to be exercised because they are
anti-dilutive for the period. The weighted average number of common shares
outstanding is calculated by weighting common shares issued during the period
by the actual number of days that such shares are outstanding during the
period.
Note 2:
(i) Assumes that a warrant to purchase 1,000,000 common shares at $0.75 per
share was exercised at the beginning of the year, and that all proceeds from
such exercise were used to purchase treasury stock at a price equal to the
average market price of the Company's common shares for the period as quoted
on the NASD.
(ii) Assumes that the current year conversions of preferred stock into
3,635,593 shares of common stock occurred at the beginning of the year.
(iii)Assumes that at the beginning of the year, the 38,675 remaining shares of
preferred convertible shares were converted to common shares at the conversion
rate of 130.2083 shares of common for each share of convertible preferred
stock.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS
FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,546,000
<SECURITIES> 776,000
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0
42,000
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<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
