UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
The Quarter Ended June 30, 1997
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 (IRS Employer
incorporation or organization) Identification Number)
160 Broadway, New York, NY 10038
(Address of principal executive offices) (Zip Code)
(212) 233-4500
(Registrant's telephone number, including area code)
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 August 14, 1997: 45,798,692
1
<PAGE>
Consolidated Technology Group, Ltd.
Index
Page
Part I: - Financial Information: ----
Item 1. Financial Statements:
Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 3-4
Consolidated Statements of Operations - Three and Six Months Ended
June 30, 1997 and 1996 5
Consolidated Statement of Shareholders' Equity - Six Months Ended
June 30, 1997 6
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1997 and 1996 7-9
Notes to Consolidated Financial Statements 10-21
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results of Operations: 22-40
Part II:
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K: 41
2
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
June 30, 1996
1997 Restated
(Unaudited) (footnote 6 & 7)
----------- ----------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 2,793,000 $ 2,748,000
Receivables, net of allowances 20,451,000 20,698,000
Inventories 2,648,000 2,752,000
Loans receivable 112,000 269,000
Prepaid expenses and other current assets 568,000 598,000
Excess of accumulated costs over related billings 904,000 938,000
------- -------
Total current assets 27,476,000 28,003,000
---------- ----------
Property, plant and equipment, net 12,405,000 13,668,000
---------- ----------
Other assets:
Net assets of discontinued segments -- 1,529,000
Capitalized software development costs 666,000 251,000
Goodwill, net 10,255,000 10,553,000
Covenants not to compete, net 275,000 886,000
Customer lists, net 10,318,000 10,775,000
Deferred offering costs 903,000 473,000
Loans receivable, long-term 1,485,000 --
Receivables, related parties 1,003,000 1,296,000
Investments in common stock, long-term 320,000 241,000
Other assets 1,153,000 1,033,000
--------- ---------
Total Other Assets 26,378,000 27,037,000
---------- ----------
Total Assets $66,259,000 $68,708,000
=========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
June 30, 1996
1997 Restated
(Unaudited) (footnote 6 & 7)
----------- ----------------
<S> <C> <C>
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable and accrued expenses $ 10,815,000 $ 9,167,000
Accrued payroll and related expenses 2,815,000 2,241,000
Accrued interest 689,000 165,000
Income taxes payable 361,000 738,000
Interim billings in excess of costs and estimated profits 1,443,000 1,444,000
Subordinated debt, related parties 924,000 924,000
Current portion of long-term debt 8,829,000 8,466,000
Current portion of subordinated debt 6,215,000 6,269,000
Current portion of capitalized lease obligations 1,351,000 1,331,000
Net current liabilities of discontinued segments 2,046,000 2,629,000
--------- ---------
Total current liabilities 35,488,000 33,374,000
---------- ----------
Long-term liabilities:
Deferred interest 320,000 568,000
Long-term debt 15,728,000 16,468,000
Capitalized lease obligations 2,352,000 2,904,000
Subordinated debt 340,000 312,000
Net liabilities of discontinued segments 4,000 --
----- --
Total long-term liabilities 18,744,000 20,252,000
---------- ----------
Minority interest 13,735,000 12,617,000
----------
Shareholders' equity:
Preferred stock 26,000 26,000
Additional paid-in-capital, preferred stock 91,000 92,000
Common stock (50,000,000 shares authorized, 45,798,692 shares issued and
outstanding as of June 30, 1997 and December 31, 1996) 458,000 458,000
Additional paid-in-capital, common stock 52,006,000 52,005,000
Accumulated deficit (54,309,000) (50,218,000)
Unrealized gain on exchange translation -- 86,000
Net unrealized gain (loss) on long-term investments in common stock 20,000 16,000
------ ------
Total shareholders' equity (1,708,000) 2,465,000
----------- ---------
Total Liabilities and Shareholders' Equity $66,259,000 $68,708,000
=========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1996
Restated Restated
1997 (footnote 6) 1997 (footnote 6)
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Revenues $31,938,000 $26,705,000 $63,148,000 $52,249,000
Direct Costs 27,263,000 20,983,000 53,632,000 41,050,000
---------- ---------- ---------- ----------
Gross Profit 4,675,000 5,722,000 9,516,000 11,199,000
Selling, General and Administrative 4,896,000 4,865,000 10,316,000 11,758,000
--------- --------- ---------- ----------
Income (Loss) from Operations (221,000) 857,000 (800,000) (559,000)
--------- ------- --------- ---------
Other Income (Expense):
Interest expense (1,129,000) (1,040,000) (2,260,000) (1,950,000)
Other income, net (85,000) 65,000 (4,000) 255,000
Gain (loss) from security sales -- 216,000 -- 253,000
--------- ------- --------- ---------
Total other expense, net (1,214,000) (759,000) (2,264,000) (1,442,000)
----------- --------- ----------- -----------
Income (Loss) from Continuing Operations Before
Income Taxes and Minority Interest (1,435,000) 98,000 (3,064,000) (2,001,000)
Income Tax Benefit (Provision) 472,000 (247,000) (6,000) (322,000)
Minority Interest in (Income) Loss of Subsidiaries 179,000 (21,000) 627,000 733,000
------- -------- ------- -------
Loss from continuing operations (784,000) (170,000) (2,443,000) (1,590,000)
Discontinued Operations (footnote 6):
Loss from operations of discontinued segments (604,000) (142,000) (1,252,000) (814,000)
Loss on disposal of segments (396,000) -- (396,000) --
--------- ------- --------- -------
Net Loss ($1,784,000) ($312,000) ($4,091,000) ($2,404,000)
============ ========== ============ ============
Loss per common share:
Loss from continuing operations ($0.02) ($0.00) ($0.05) ($0.04)
Loss from operations of discontinued segments ($0.01) ($0.00) ($0.03) ($0.02)
Loss on disposal of segments ($0.01) -- ($0.01) --
------- -- ------- --
Net loss per common share ($0.04) ($0.01) ($0.09) ($0.06)
======= ======= ======= =======
Weighted average number of common shares 45,376,336 41,593,106 45,376,336 37,632,489
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Consolidated Statement of Shareholders Equity
for the Six Months Ended June 30, 1997
Unaudited
<TABLE>
<CAPTION>
Balance at Net
December 31, Unrealized Unrealized Balance
1996 Conversion Gain on Investment at
Restated of Series A Net Exchange Security June 30,
(footnote 7) Preferred Loss Translation Loss 1997
------------ --------- ---- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Preferred stock $1.00 par value,
6% Series A, Authorized
77,713 shares:
Shares 22,891 (22) -- -- -- 22,869
Amounts $23,000 -- -- -- -- $23,000
Preferred stock, $1.00 par value,
$3.50 and $.10, Series B and E,
8,000 shares authorized each:
Shares 262 -- -- -- -- 262
Amounts $1,000 -- -- -- -- $1,000
Preferred stock, $1.00 par value,
$8.00 subordinated Series F,
6,000 shares authorized:
Shares 2,700 -- -- -- -- 2,700
Amounts $2,000 -- -- -- -- $2,000
------ -- -- -- -- ------
Total Preferred stock, par $26,000 -- -- -- -- $26,000
Additional paid-in capital
preferred stock $92,000 ($1,000) -- -- -- $91,000
Common stock, $0.01 par value,
50,000,000 shares authorized:
Shares 45,795,828 2,864 -- -- -- 45,798,692
Amounts $458,000 -- -- -- -- $458,000
Additional paid-in capital,
common stock $52,005,000 $1,000 -- -- -- $52,006,000
Accumulated deficit ($50,218,000) -- ($4,091,000) -- -- ($54,309,000)
Unrealized exchange translation $86,000 -- -- ($86,000) -- --
Net unrealized gain on long-term
investments in common stock $16,000 -- -- -- $4,000 $20,000
------- ----- --------- ------ ----- ------
Total shareholders' equity $2,465,000 -- ($4,091,000) ($86,000) $4,000 ($1,708,000)
========== ===== ============ ========= ====== ============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996
Restated
1997 (footnote 6)
---- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Loss from continuing operations ($2,443,000) ($1,590,000)
Adjustments to reconcile loss from continuing operations to net cash
provided by (used in) continuing operations:
Depreciation and amortization 3,262,000 3,006,000
Minority interest in net loss of consolidated subsidiaries (627,000) (733,000)
Bad debt expense 977,000 500,000
Loss from equity method investments 104,000 --
Noncash expense from subsidiaries issuance of options and warrants -- 2,229,000
Value of stock issued in lieu of cash payments for services rendered -- 80,000
Consulting charges on option exercise -- 45,000
Gain from security sales -- (253,000)
(Gain) loss on disposal of fixed assets 36,000 (264,000)
Change in assets and liabilities:
(Increase) decrease in assets:
Receivables (2,215,000) (3,041,000)
Inventories 104,000 (279,000)
Prepaid expenses and other current assets 30,000 (414,000)
Excess of accumulated costs over related billings 34,000 (30,000)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,648,000 840,000
Accrued payroll taxes and related expenses 574,000 2,713,000
Accrued interest 276,000 199,000
Income taxes payable (377,000) 293,000
Interim billings in excess of costs and estimated profits (1,000) 58,000
------- ------
Net cash provided by continuing operations 1,382,000 3,359,000
--------- ---------
Loss from discontinued operations (1,648,000) (814,000)
Adjustments to reconcile loss from discontinued operations to net cash
provided by (used in) discontinued operations:
Depreciation and amortization 257,000 425,000
(Gain) loss on disposal of fixed assets -- 120,000
Loss on disposal of segments 396,000 --
Net change in assets and liabilities 82,000 (43,000)
------ --------
Net cash used in discontinued operations (913,000) (312,000)
--------- ---------
Net cash provided by operating activities 469,000 3,047,000
------- ---------
(continued)
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996
Restated
1997 (footnote 6)
---- ------------
<S> <C> <C>
Cash Flows from Investing Activities:
Increase in other assets (120,000) (102,000)
Capital expenditures (385,000) (1,387,000)
Capitalized software development costs (462,000) (280,000)
Investments in securities (82,000) (550,000)
Proceeds from sale of securities 62,000 854,000
Payments for loans made (141,000) (2,176,000)
Collections for repayment of loans made 228,000 2,078,000
------- ---------
Net cash used in investing activities (900,000) (1,563,000)
--------- -----------
Cash Flows from Financing Activities:
Deferred offering costs (430,000) (188,000)
Net advances from asset based lender 980,000 (1,512,000)
Proceeds from issuance of debt 550,000 9,665,000
Repayment of debt (1,907,000) (2,087,000)
Proceeds from issuance of subordinated debt 115,000 --
Repayment of subordinated debt (141,000) (6,940,000)
Payments on capital lease obligations (691,000) (651,000)
Issuance of common stock -- 913,000
Subsidiaries issuance of common stock 2,000,000 375,000
--------- -------
Net cash provided by (used in) financing activities 476,000 (425,000)
------- ---------
Net Increase in Cash and Cash Equivalents 45,000 1,059,000
Cash and Cash Equivalents at Beginning of Period 2,748,000 1,578,000
--------- ---------
Cash and Cash Equivalents at End of Period $2,793,000 $2,637,000
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest $1,984,000 $1,751,000
========== ==========
Income taxes $383,000 $29,000
======== =======
(concluded)
</TABLE>
See notes to consolidated financial statements
8
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Consolidated Statement of Cash Flows
Unaudited
Supplemental Disclosures of Non Cash Investing and Financing Activities:
During the Six Month Period Ended June 30, 1997:
(1) - Acquired equipment under capital lease obligations with a net present
value of $140,000.
During the Six Month Period Ended June 30, 1996:
(1) - A subsidiary of the Company, operating in the Medical Information Services
segment, incurred noncash compensation expense from the issuance of stock
options and warrants to purchase stock with a value of $2,229,000.
(2) - Acquired equipment under capital lease obligations with a net present
value of $340,000.
(3) - Issued stock options and incurred noncash consulting fees of $45,000.
(4) - A subsidiary of the Company issued common stock with a value of $80,000
in lieu of cash payments for services performed.
See notes to consolidated financial statements
9
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Unaudited Footnotes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) Basis of Presentation - 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
Consolidated Technology Group, Ltd. and Subsidiaries, (the "Company"), as of
June 30, 1997 and December 31, 1996, the statement of changes in shareholders'
equity for the six months ended June 30, 1997, the results of its operations for
the three and six months ended June 30, 1997 and 1996 and the changes in cash
flows for the six months ended June 30, 1997 and 1996.
(2) Accounting Policies - The accounting policies followed by the Company are
set forth in Note 1 to the Company's financial statements in the December 31,
1996 Form 10-K.
(3) Interim Results - The results of operations for the three and six months
ended June 30, 1997 and 1996 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 - During the six months ended June 30, 1997, the Company
discontinued two of its operating subsidiaries, Three Dimensional Products and
Services and Audio Products Manufacturing (see footnote 6), and as a result,
currently classifies its continuing operations into six 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 imaging
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, prepaid telephone calling cards and finger print identification
products; (iv) Medical Information Services consists of subsidiaries that
provide medical information database services, health care industry related
software packages and the SmartCard 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 and
long-distance telephone service and (vi) 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. Intercompany transactions represent the consulting
fees that the Business Consulting Services segment charges to the other
segments. Intercompany balances represents amounts that are due the Company and
the Business Consulting Services segment from the business segments for advances
that have been made to the segments and for unpaid consulting fees. Certain
reclassifications have been made from the prior year presentation whereby the
holding company of Trans Global Services, Inc. is presented as a part of the
Contract Engineering Services segment and in the prior year it was included with
corporate and other. Additionally, the prior period segment information has been
restated to reflect the discontinuation of the Three Dimensional Products and
Services and Audio Products Manufacturing segments. Inter segment sales (other
than those with the Business Consulting services segment) and sales outside the
United States are not material. Information concerning the Company's business
segments is as follows:
10
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Unaudited Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(5) Industry Segments:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1996
Restated Restated
1997 (footnote 6) 1997 (footnote 6)
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Revenues:
Contract Engineering Services $19,641,000 $14,996,000 $38,890,000 $28,468,000
Medical Diagnostics 7,444,000 7,579,000 15,144,000 15,692,000
Electro-Mechanical and Electro-Optical
Products Manufacturing 818,000 733,000 1,522,000 1,382,000
Medical Information Services 1,741,000 2,375,000 3,313,000 4,936,000
Telecommunications 2,287,000 1,016,000 4,266,000 1,758,000
Business Consulting Services 127,000 82,000 254,000 164,000
Intercompany Transactions (120,000) (76,000) (241,000) (151,000)
---------- ---------- ---------- ----------
Total Revenues $31,938,000 $26,705,000 $63,148,000 $52,249,000
=========== =========== =========== ===========
Gross Profit (Loss):
Contract Engineering Services $1,604,000 $1,460,000 $3,021,000 $2,293,000
Medical Diagnostics 2,649,000 3,256,000 5,677,000 7,097,000
Electro-Mechanical and Electro-Optical
Products Manufacturing (58,000) 142,000 (56,000) 221,000
Medical Information Services 265,000 650,000 422,000 1,312,000
Telecommunications 194,000 193,000 408,000 232,000
Business Consulting Services 127,000 82,000 254,000 164,000
Intercompany Transactions (106,000) (61,000) (210,000) (120,000)
--------- --------- --------- ----------
Total Gross Profits $4,675,000 $5,722,000 $9,516,000 $11,199,000
========== ========== ========== ===========
Income (Loss) from Operations:
Contract Engineering Services $422,000 $207,000 $478,000 ($280,000)
Medical Diagnostics 635,000 1,395,000 1,533,000 3,277,000
Electro-Mechanical and Electro-Optical
Products Manufacturing (359,000) (138,000) (659,000) (352,000)
Medical Information Services (458,000) 11,000 (985,000) (1,861,000)
Telecommunications (280,000) (179,000) (646,000) (451,000)
Business Consulting Services 100,000 66,000 194,000 133,000
Corporate and Other (282,000) (505,000) (715,000) (1,025,000)
--------- --------- --------- -----------
Total Loss from Operations ($222,000) $857,000 ($800,000) ($559,000)
========== ======== ========== ==========
</TABLE>
11
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Unaudited Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) Industry Segments:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1996
Restated Restated
1997 (footnote 6) 1997 (footnote 6)
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Net Income (Loss):
Contract Engineering Services $256,000 $58,000 $158,000 ($494,000)
Medical Diagnostics (66,000) (218,000) 41,000 329,000
Electro-Mechanical and Electro-Optical
Products Manufacturing (402,000) (217,000) (751,000) (421,000)
Medical Information Services (586,000) (127,000) (1,240,000) (2,125,000)
Telecommunications (348,000) (209,000) (783,000) (509,000)
Business Consulting Services 100,000 68,000 194,000 134,000
Corporate and Other (134,000) 475,000 (458,000) 1,496,000
Discontinued Segments (604,000) (142,000) (1,252,000) (814,000)
--------- --------- ----------- ---------
Total Net Loss ($1,784,000) ($312,000) ($4,091,000) ($2,404,000)
============ ========== ============ ============
Depreciation and Amortization:
Contract Engineering Services $94,000 $120,000 $218,000 $235,000
Medical Diagnostics 1,347,000 1,255,000 2,683,000 2,498,000
Electro-Mechanical and Electro-Optical
Products Manufacturing 20,000 16,000 37,000 32,000
Medical Information Services 150,000 111,000 278,000 220,000
Telecommunications 20,000 8,000 37,000 16,000
Business Consulting Services -- 1,000 1,000 1,000
Corporate and Other 4,000 -- 8,000 4,000
----- -- ----- -----
Total Depreciation and Amortization $1,635,000 $1,511,000 $3,262,000 $3,006,000
========== ========== ========== ==========
</TABLE>
12
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
Unaudited Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) Industry Segments:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1996
Restated Restated
1997 (footnote 6) 1997 (footnote 6)
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Capital Expenditures:
Contract Engineering Services $87,000 $23,000 $104,000 $41,000
Medical Diagnostics 39,000 183,000 185,000 1,304,000
Electro-Mechanical and Electro-Optical
Products Manufacturing -- -- 7,000 --
Medical Information Services 35,000 15,000 83,000 35,000
Telecommunications -- -- 1,000 --
Business Consulting Services -- -- -- --
Corporate and Other 4,000 2,000 5,000 7,000
----- ----- ----- -----
Total Capital Expenditures $165,000 $223,000 $385,000 $1,387,000
======== ======== ======== ==========
December 31,
1996
June 30, Restated
1997 (footnote 6 & 7)
---- ----------------
Identifiable Assets:
Contract Engineering Services $14,264,000 $13,181,000
Medical Diagnostics 42,654,000 44,638,000
Electro-Mechanical and Electro-Optical
Products Manufacturing 3,456,000 3,389,000
Medical Information Services 7,573,000 8,258,000
Telecommunications 2,706,000 1,655,000
Business Consulting Services 1,948,000 1,754,000
Corporate and Other 44,466,000 49,437,000
Discontinued Segments -- 3,516,000
Intercompany Balances (50,808,000) (57,120,000)
------------ ------------
Total Identifiable Assets: $66,259,000 $68,708,000
=========== ===========
</TABLE>
13
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Unaudited Footnotes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) Discontinued Operations - During the six months ended June 30, 1997, the
Company discontinued the Three Dimensional Products and Services and Audio
Products Manufacturing segments.
(a) Audio Products Manufacturing - On May 20, 1997, pursuant to a Comprehensive
Agreement, (the "WWR Agreement") by and among Mr. Donald L. Shamsie and Malco
Theatres, (the "Purchasers") and WWR Acquisition Corp., a majority owned holding
company of the Company which owned all of the capital stock of WWR Technology,
Inc., ("WWR"), (the "Seller"), the Company sold all of the issued and
outstanding capital stock of WWR, the subsidiary in which all of the operations
of the Audio Products Manufacturing segment operating activities were conducted,
to the Seller for $100,000. As a part of the WWR agreement, the Company was
released as a guarantor on approximately $394,000 in debt obligations owed by
WWR to two lenders. As a result of the sale, the Company received net proceeds
of approximately $62,000 and recorded a gain of approximately $129,000 on the
disposal. The operations of WWR up to the date of the WWR Agreement are
classified as loss from the operations of a discontinued segment. As of December
31, 1996 the assets and liabilities of the Audio Products Manufacturing segment
included in the Company's consolidated balance sheet consisted of the following:
Cash $ 50,000
Accounts receivable, net 336,000
Inventories 386,000
Prepaid and other current assets 10,000
Property, plant and equipment 309,000
Receivables, long-term 7,000
Trademark, net 368,000
Other assets 13,000
------
Total assets 1,479,000
---------
Accounts payable and accrued expenses 1,010,000
Accrued payroll and related expenses 146,000
Accrued interest 4,000
Current portion of long-term debt 541,000
Current portion of capitalized lease obligations 4,000
Capitalized lease obligations 10,000
------
Total liabilities 1,715,000
---------
Net liabilities disposed of $ 236,000
============
Presented in the balance sheet as follows:
Net assets of discontinued segment $687,000
Net current liabilities of discontinued segment 923,000
-------
Net liabilities disposed of $236,000
=======
(b) - Three Dimensional Products and Services - Effective June 30, 1997, (the
Measurement Date"), the Company formulated a plan to discontinue the operations
of all of the subsidiaries operating in the Three Dimensional Products and
Services segment. As a result of the plan, it is estimated that the Company will
incur an additional $250,000 loss from the operations of such the Three
Dimensional Products and Services subsidiaries until the plan is completed,
which is not expected to take longer than one year. The Company has written-off
all assets of the Three Dimensional Products and Services subsidiaries,
consisting primarily of capitalized product development costs and property,
plant and equipment, and has recorded the remaining liabilities, including the
estimated loss to be incurred until the plan is complete, as net liabilities of
a discontinued segment. As a result of the plan, the Company has record a loss
of approximately $525,000 on the planned disposal. The operations of the Three
Dimensional Products and Services segment up to the Measure Date, have been
restated to present the operations of the Three Dimensional Products and
Services segment as a discontinued segment.
As of June 30, 1997 and December 31, 1996 the assets and liabilities of the
Three Dimensional Products and
14
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Consolidated Technology Group Ltd. and Subsidiaries
Unaudited Footnotes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Services segment included in the Company's consolidated balance sheet consisted
of the following.
<TABLE>
<CAPTION>
December 31,
June 30, 1997 1996
------------- ----
<S> <C> <C>
Cash $ 48,000
Accounts receivable, net 100,000
Prepaid and other current assets 11,000
Property, plant and equipment 444,000
Deferred offering costs 115,000
Other assets 350,000
-------
Total assets 1,068,000
---------
Accounts payable and accrued expenses $1,224,000 1,007,000
Accrued payroll and related expenses 283,000 343,000
Accrued interest 20,000 1,000
Interim billings in excess of costs and estimated profits 57,000 --
Notes payable, related parties 279,000 295,000
Current portion of long-term debt 175,000 175,000
Current portion of capitalized lease obligations 8,000 43,000
Capitalized lease obligations 4,000 68,000
--------- ---------
Total liabilities 2,050,000 1,932,000
--------- ---------
Net liabilities to be disposed of $2,050,000 $ 864,000
========= ============
Presented in the balance sheet as follows:
Net assets of discontinued segment -- $ 842,000
Net current liabilities of discontinued segment $2,046,000 1,706,000
Net long-term liabilities of discontinued segment 4,000 --
--------- -----------
Net liabilities to be disposed of $2,050,000 $ 864,000
========= ==========
</TABLE>
(7) Lafayette Settlement Agreement - On December 20, 1996, SIS Capital Corp., a
wholly-owned subsidiary of the Company ("SISC"), entered into an agreement among
SISC, DLB, Inc. ("DLB") and Lafayette Industries, Inc., ("Lafayette"), pursuant
to which SISC and DLB transferred to Lafayette all of the issued and outstanding
common stock of SES Holdings, Corp. ("SESH"), in exchange for a controlling
interest in Lafayette. At the date of the acquisition, SESH was an 80% owned
subsidiary of SISC. Lafayette issued to SISC 1,000 shares of Class A preferred
stock which is convertible at a ratio that will give SISC a 65% ownership of
Lafayette's fully diluted common stock upon stockholder approval of an increase
in the authorized number of common shares of Lafayette. Contemporaneously with
the reverse acquisition, Lafayette issued 1,000 shares of Class B preferred
stock which has a redemption value of $6,750,000. The Series B preferred stock
was issued as payment to SISC for $4,000,000 of subordinated debt due to SISC
and in exchange for the cancellation of $2,750,000 of preferred stock of the
underlying entities of SESH which was held by SISC. Lafayette's prior principal
business, which was principally the manufacture and sale of store fixtures, has
been discontinued.
Lafayette's Form 10-KSB for its year ended December 31, 1996, filed April 15,
1997, included a disclaimer of opinion by Lafayette's independent certified
public accountants. This report disclosed that there was substantial doubt with
respect to Lafayette's ability to continue as a going concern. In addition,
Lafayette's accountants reported that they were unable to obtain written
representations from Lafayette's counsel regarding litigation relating, among
other things, to financial guarantees. Because of material uncertainties on the
part of the Company and SISC with respect to Lafayette's guarantees, pending
litigation, the accuracy of representations and warranties made by Lafayette in
the December 20, 1996 Stock Purchase Agreement with SISC, DLB, Inc. ("DLB") and
Lewis S. Schiller ("LSS") (the "Agreement"), the accuracy and completeness of
Lafayette's financial statements with respect to material liabilities,
Lafayette's financial condition and other matters, all of which were brought to
the attention of Lafayette by SISC following the discovery thereof, SISC's and
Lafayette's respective boards of directors determined that, in order to avoid
costly and time consuming litigation, Lafayette and SISC would enter into an
agreement providing for, among other things, the following: (a) Lafayette's
transfer to SPECTEC, Inc.,
15
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Consolidated Technology Group Ltd. and Subsidiaries
Unaudited Footnotes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
("SPECTEC"), a majority owned subsidiary of SISC, and to DLB and LSS, as their
respective interest appear, of all of Lafayette's interest in SES Holdings Corp.
("SESH") acquired by Lafayette pursuant to the Agreement; (b) SISC's transfer
(or the transfer to Lafayette by any other holder) of all of the Class A
Convertible Preferred Stock and Series B Redeemable Preferred Stock of Lafayette
issued by Lafayette in consideration of the purchase of the capital stock of
SESH under the Agreement; (c) DLB's and LSS's waiver of their respective rights,
as provided for in the Agreement, to receive any shares of Lafayette Common
Stock; (d) the cancellation of all obligations for loans and/or advances by
Lafayette to SESH or subsidiaries of SESH and the treatment of the amount of any
such loans and/or advances as additional contributions to capital; (e) the
indemnification by SPECTEC of Lafayette, on a limited basis, from and against
any losses or damages resulting from claims by those investors who purchased
from Lafayette 8,000,000 shares of Lafayette's capital stock in private
transactions between December 20, 1996 and April 21, 1997; and (f) the delivery
by SPECTEC to Lafayette of any of such securities purchased by such investors
which were delivered to such investors by Lafayette. A Settlement Agreement
containing the foregoing provisions was consummated between Lafayette, SISC.,
DLB, Lewis S. Schiller and SPECTEC as of April 21, 1997.
At the time of the reverse acquisition, Lafayette's prior operations were
discontinued and the statement of operations for the year ended December 31,
1996 and the three and six months ended June 30, 1997 do not include any
operating activity related to Lafayette. As of December 31, 1996, the assets and
liabilities of Lafayette included in the Company's consolidated balance sheet
consisted of the following
Cash $1,020,000
Loans receivable 49,000
Prepaid and other current assets 24,000
Receivables, long-term 441,000
Receivables, related parties 85,000
Other assets 469,000
-------
Total assets 2,088,000
---------
Accounts payable and accrued expenses 1,202,000
Notes payable, related parties 690,000
Current portion of long-term debt 458,000
Convertible debentures 700,000
Current portion of capitalized lease obligations 99,000
------
Total liabilities 3,149,000
Net liabilities disposed of $1,061,000
As of December 31, 1996, the Company's investment in Lafayette was in excess of
Lafayette's equity resulting in a reduction in the Company's additional paid-in
capital of $1,061,000. The December 31, 1996 balance sheet has been restated to
conform with the current period presentation whereby the above assets and
liabilities and the decrease in additional paid-in capital were reversed.
(8) - Concentrations of Credit Risk - The Company's segments extend credit to
customers which result in accounts receivable arising from their normal business
activities and do not require its customers to collateralize their payables. The
Company's segments routinely assess the financial strength of its customer and
believe that their accounts receivable credit risk exposure is limited. Such
estimate of the financial strength of such customers may be subject to change in
the near future. Trans Global Services, Inc., (TGS"), which operates in the
Contract Engineering Services segment, has five clients, which when combined,
account for approximately 81% of the total revenues of the segment for the six
months ended June 30, 1997. These same clients account for approximately 80% of
the outstanding accounts receivable of TGS. TGS's revenues for the six months
ended June 30, 1997 amount to $38,890,000, or 62%, of the Company's consolidated
revenues. TGS's outstanding accounts receivable amounts to $5,964,000, or 29%,
of the Company's consolidated accounts receivable as of June 30, 1997. Netsmart
Technologies, Inc., ("Netsmart"), which operates in the Medical Information
Services segment, cumulatively, from 1995 through June 30, 1997 has derived
approximately $2.5 million, or 13%, of its revenue from one contract and as of
June 30, 1997 such contract is complete and no further revenue is anticipated
from this contract. As of June 30, 1997, the receivable balance due from such
contract represents 15% of Netsmart's outstanding receivables. Netsmart's
outstanding receivables as of June 30, 1997 amounts to $2,432,000, or 12%, of
the Company's
16
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Unaudited Footnotes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
consolidated accounts receivable as of June 30, 1997. Overall, between these two
segments, six customers represent approximately 50% of the Company's
consolidated revenue for the six months ended June 30, 1997 and approximately
25% of the Company's consolidated accounts receivable balance at June 30, 1997.
(9) - Employment Agreements
Chief Executive Officer
During the six months ended June 30, 1997, the Company entered into a restated
employment agreement, (the "CEO's Agreement"), with the Company's chief
executive officer, (the "CEO"), whereby the Board of Directors of the Company,
(the "Board"), and the CEO agreed that the prior employment agreements,
(original employment agreement dated January 1988, and certain restated
employment agreements entered into in, September 1993, October 1994 and January
1996 did not accurately and properly reflect the intent and prior understanding
and agreement of the parties as to certain matters.
Term of CEO's Agreement:
The term of the CEO's Agreement commenced January 1988, the date of the original
employment agreement and expires on December 31, 2000. The CEO's Agreement is
subject to termination prior to December 31, 2000 pursuant to certain
termination provisions contained within the agreement.
CEO's Compensation:
Effective September 1996, the CEO's annual salary is $500,000 and shall increase
annually by the greater of 5% or the increase in cost of living index. A bonus
for each year is payable in an amount equal to 10% of the amount by which the
greater of (A) the Company's consolidated net income before taxes, or, (B) the
Company's consolidated net cash flow calculated as the Company's net income plus
depreciation, amortization and other non-cash items of expense, minus payments
of all principal amounts of outstanding debt, exceeds $600,000..
CEO's Benefits:
The CEO is entitled to four weeks paid vacation and fifteen paid sick days
during each year. The Company will pay for and maintain for the CEO disability
insurance providing for payment to the CEO of a minimum of 60% of his salary.
The Company is also required to pay and maintain for the CEO major medical,
hospitalization, dental and vision insurance and life insurance having a face
value of not less than $2,000,000, the proceeds of which shall be payable to
such beneficiaries as designated by the CEO. The Company will maintain such
disability, medical, dental, and vision insurance, at the Company's expense for
a period of 10 years after the expiration or termination of the CEO's Agreement.
The Company provides the CEO with a vehicle and reimburses the CEO for all costs
incurred by the CEO in connection therewith.
CEO's Severance:
In addition to any salary or bonus payable pursuant to the CEO's Agreement, the
CEO is entitled to severance compensation under the following circumstances:
(i) - In the event of the death of the CEO, the Company shall pay to the CEO's
beneficiary the face value of the life insurance policy to be maintained by the
Company.
(ii) - In the event of the permanent disability of the CEO, the Company shall
pay to the CEO, 60% of his then salary for 10 years. In the event of a temporary
disability, (generally 6 months), the Company shall pay to the CEO 100% of his
salary and bonus for the period of the disability.
17
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Unaudited Footnotes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(iii) - The CEO will continue to receive his salary for 10 years, if the CEO's
Agreement is terminated due to any of the following events, (1) upon notice to
the Company by the CEO of the termination of the agreement for any breach or
default by the Company of any of its obligations or covenants under the CEO's
Agreement, provided that any such breach or default is not cured within 30 days
from notice; (2) in the event of a change of control, the CEO may terminate the
CEO's Agreement upon 90 days notice; wherein change of control is defined as the
date on which the Company sells all or substantially all of its assets or sells
more than 50% of the outstanding capital stock of any one or more subsidiaries,
the aggregate gross revenues of which constitute 33.33% or more of the aggregate
gross revenues of the Company on a consolidated basis, merges with or into or
consolidates with any entity, issues to an independent, non-affiliated third
party such number of shares of its outstanding capital stock (or equity or debt
instruments securities convertible into or exchangeable for shares of the
Company's capital stock) as shall equal 25% or more of its total issued and
outstanding shares of capital stock, or the CEO is removed from the Board,
without cause, provided, however, that a change of control shall not be deemed
to occur as a result of or in conjunction with any recapitalization or public
offering of the Company's securities or the occurrence of any of the foregoing
transactions which is approved by the CEO; (3) upon 30 days notice from the CEO
if the CEO is removed from the Board without cause; or (4) upon seven days
notice from the CEO in the event of the entry by a court of competent
jurisdiction of a decree or order for relief in respect of the Company in an
involuntary case under any applicable bankruptcy, insolvency, or similar law
then in effect or the appointment of a receiver, liquidator, assignee,
custodian, trustee, or sequestrator of the Company or any substantial part of
its property or an order by any such court for the wind-up or liquidation of the
Company's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against the Company and is
pending for 60 days without a stay or dismissal; or the Company commences a
voluntary case under any such bankruptcy, insolvency, or similar law then in
effect, or makes any general assignment for the benefit of its creditors or
fails generally to pay its debts as such debts become due or takes corporate
action in furtherance of any of the foregoing.
CEO's Retirement:
In the event of the retirement of the CEO, the CEO or his beneficiary will
continue to receive monthly retirement compensation equal to one-twelfth of the
greater of, (A) the CEO's then salary; or (B) the average of the salary and
bonus of the CEO for each of the five years preceding the year of retirement,
for a period of 20 months from the date of retirement. Retirement shall be
deemed to have occurred at the expiration of the CEO's Agreement, or any renewal
of the CEO's Agreement, or at the mutual consent of the CEO and the Company.
CEO's Participation in the Future Expansion of the Company:
During the term of the CEO's Agreement, the CEO or his designees shall have the
right to participate in the future expansion of the Company whereby, if the
Company, or any subsidiary of the Company proposes to form a subsidiary for any
purpose, the CEO shall have the right to form or cause to be formed, at the
CEO's sole cost and expense, such subsidiary and, in consideration of the CEO
bearing such cost and expense, the CEO shall receive 10% of the authorized
securities of each class and series of such newly formed subsidiary and the CEO
will be deemed to have equitable and beneficial ownership of 10%of such
securities. If subsequent to the formation of such subsidiary, the subsidiary
issues any securities as a dividend, stock split or any other recapitalization,
the CEO shall be entitled to receive his proportionate share of such securities
issued.
CEO's Purchase of 10% of SIS Capital Corp.:
SIS Capital Corp., ("SISC"), is a wholly owned subsidiary of the Company.
Substantially all of the operating subsidiaries of the Company are owned by
SISC. The CEO may, at any time during the term of the CEO's Agreement, upon 10
days notice, purchase up to 10% of the equity securities of SISC (on a fully
diluted basis) for a purchase price equal to the then fair market value of such
securities. The purchase price for such securities shall be payable by delivery
of the CEO's 10 year recourse promissory note, bearing interest at the lowest
rate necessary to avoid imputed interest under the Internal Revenue Code of
1986.
CEO's Profit Sharing Bonus:
18
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Unaudited Footnotes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In the event of the sale of any subsidiary or the business thereof or any
business combination including any subsidiary or of any securities purchased or
acquired by the Company or any subsidiary thereof as investment securities, the
CEO shall be entitled to a profit-sharing bonus equal to 20% of the gross
profit, if any received as a result of the sale or business combination.
CEO's Expense Reimbursement:
The Company is obligated to reimburse the CEO for all ordinary and necessary
expenses incurred in the performance of his services. In the event that the
Company moves its headquarters from the New York metropolitan area, and the CEO
elects to move, the Company will pay the CEO's moving costs, or if the CEO
elects not to moves, the Company will provide the CEO with an office and a staff
in the New York metropolitan area. In the event that the Company establishes
multiple offices, the Company will pay the CEO a housing allowance of $3,500 per
month for as long as more than one office is maintained.
Corporate Secretary
On August 14, 1997, the Company entered into an employment agreement, (the
"Secretary's Agreement"), with the Company's Corporate Secretary. Such agreement
includes the following terms:
Term of Secretary's Agreement:
The term of the Secretary's Agreement is from the date of commencement until
December 31, 2002 and at the option of the Secretary may be extended for five
more years. The Secretary's Agreement is subject to termination prior to
December 31, 2002 pursuant to certain termination provisions contained within
the agreement.
Secretary's Compensation:
For 1997 the Secretary's annual salary is $200,000 and shall increase annually
by the greater of 5% or the increase in the cost of living index. A bonus for
each year is payable in an amount equal to 0.5% of the amount by which the
greater of (A) the Company's consolidated net income before taxes, or, (B) the
Company's consolidated net cash flow calculated as the Company's net income plus
depreciation, amortization and other non-cash items of expense, minus payments
of all principal amounts of outstanding debt, exceeds $600,000.
Secretary's Benefits:
The Secretary is entitled to three weeks paid vacation and fifteen paid sick
days during each year. The Company will pay for and maintain for the Secretary
disability insurance providing for payment to the Secretary of a minimum of 60%
of her salary. The Company is required to pay and maintain for the Secretary
major medical, hospitalization, dental and vision insurance and life insurance
having a face value of not less than $400,000, the proceeds of which shall be
payable to such beneficiaries designated by the Secretary. The Company will
maintain such disability, medical, dental, and vision insurance, at the
Company's expense for a period of 10 years after the expiration or termination
of the Secretary's Agreement.
Secretary's Severance:
In addition to any salary or bonus payable pursuant to the Secretary's
Agreement, the Secretary is entitled to severance compensation under the
following circumstances:
(i) - In the event of the death of the Secretary, the Company shall pay to the
Secretary's beneficiary the face value of the life insurance policy to be
maintained by the Company.
(ii) - In the event of the permanent disability of the Secretary, the Company
shall pay to the Secretary, 60% of her then salary for 10 years. In the event of
a temporary disability, (generally 6 months), the Company shall pay to the
19
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Unaudited Footnotes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Secretary 100% of her salary and bonus for the period of the disability.
(iii) - The Secretary will continue to receive her salary for 10 years, if the
Secretary's Agreement is terminated due to any of the following events, (1) upon
notice to the Company by the Secretary of the termination of the agreement for
any breach or default by the Company of any of its obligations or covenants
under the Secretary's Agreement, provided that any such breach or default is not
cured within 30 days from notice; (2) in the event of a change of control, the
Secretary may terminate the Secretary's Agreement upon 90 days notice; wherein
change of control is defined as the date on which the Company sells all or
substantially all of its assets or sells more than 50% of the outstanding
capital stock of any one or more subsidiaries, the aggregate gross revenues of
which constitute 33.33% or more of the aggregate gross revenues of the Company
on a consolidated basis, merges with or into or consolidates with any entity,
issues to an independent, non-affiliated third party such number of shares of
its outstanding capital stock (or equity or debt instruments securities
convertible into or exchangeable for shares of the Company's capital stock) as
shall equal 25% or more of its total issued and outstanding shares of capital
stock, or the Secretary is removed from the Board, without cause, provided,
however, that a change of control shall not be deemed to occur as a result of or
in conjunction with any recapitalization or public offering of the Company's
securities or the occurrence of any of the foregoing transactions which is
approved by the Secretary; (3) upon 30 days notice from the Secretary if the
Secretary is removed from the Board without cause; or (4) upon seven days notice
from the Secretary in the event of the entry by a court of competent
jurisdiction of a decree or order for relief in respect of the Company in an
involuntary case under any applicable bankruptcy, insolvency, or similar law
then in effect or the appointment of a receiver, liquidator, assignee,
custodian, trustee, or sequestrator of the Company or any substantial part of
its property or an order by any such court for the wind-up or liquidation of the
Company's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against the Company and is
pending for 60 days without a stay or dismissal; or the Company commences a
voluntary case under any such bankruptcy, insolvency, or similar law then in
effect, or makes any general assignment for the benefit of its creditors or
fails generally to pay its debts as such debts become due or takes corporate
action in furtherance of any of the foregoing.
Secretary's Retirement:
In the event of the retirement of the Secretary, the Secretary or her
beneficiary will continue to receive monthly retirement compensation equal to
one-twelfth of the greater of, (A) the Secretary's then salary; or (B) the
average of the salary and bonus of the Secretary for each of the five years
preceding the year of retirement, for a period of 10 years from the date of
retirement. Retirement shall be deemed to have occurred at the expiration of the
Secretary's Agreement, or any renewal of the Secretary's Agreement, or at the
mutual consent of the Secretary and the Company.
Secretary's Participation in the Future Expansion of the Company:
During the term of the Secretary's Agreement, the Secretary or her designees
shall have the right to participate in the future expansion of the Company
whereby, if the Company, or any subsidiary of the Company proposes to form a
subsidiary for any purpose, the Secretary shall have the right to purchase 1% of
the authorized securities of each class and series of such newly formed
subsidiary at a purchase price that is equal to fair market value. The purchase
price for such securities shall be payable by delivery of the Secretary's 10
year recourse promissory note, bearing interest at the lowest rate necessary to
avoid imputed interest under the Internal Revenue Code of 1986. If subsequent to
the formation of such subsidiary, the subsidiary issues any securities as a
dividend, stock split or any other recapitalization, the Secretary shall be
entitled to receive her proportionate share of such securities issued.
Secretary's Profit Sharing Bonus:
In the event of the sale of any subsidiary or the business thereof or any
business combination including any subsidiary or of any securities purchased or
acquired by the Company or any subsidiary thereof as investment securities, the
Secretary shall be entitled to a profit-sharing bonus equal to 1% of the gross
profit, if any received as
20
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Unaudited Footnotes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
a result of the sale or business combination.
Secretary's Expense Reimbursement:
The Company is obligated to reimburse the Secretary for all ordinary and
necessary expenses incurred in the performance of her services. In the event
that the Company moves its headquarters from the New York metropolitan area, and
the Secretary elects to move, the Company will pay the Secretary's moving costs,
including 6 months temporary housing, or if the Secretary elects not to move,
the Company will provide the Secretary with an office and a staff in the New
York metropolitan area. In the event that the Company establishes multiple
offices, the Company will pay the Secretary a housing allowance of $1,000 per
month for as long as more than one office is maintained.
21
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
Going Concern
For the three and six months ended June 30, 1997, (the "1997 three and six month
periods"), the Company incurred net losses of $312,000 and $4.1 million,
respectively, has an accumulated deficit at June 30, 1997, ("June 1997"), of
$54.3 million, and approximately $6.4 million of debt that is in default. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Furthermore, as of August 15, 1997, the Company has been delisted
from Trading on the NASDAQ because it failed to meet the minimum bid
requirements of $1 and the minimum net tangible worth requirement of $1 million.
In order to address the minimum bid requirements, the Company's Board of
Directors has approved a 1 for 30 reverse split which will be voted on at a
stockholders meeting. In order to address the financial difficulties that the
Company is experiencing, management has disposed of the unprofitable Audio
Products Manufacturing segment, has developed a plan to discontinue the
unprofitable operations of the Three Dimensional Products and Services segment
and is attempting to sell the Medical Diagnostics segment in anticipation that
such a sale would provide the Company with adequate income and working capital
to rectify the NASDAQ net tangible worth deficiency as well as enable the
Company to properly fund the remaining subsidiaries. Additionally, management
plans to continue efforts to raise capital through initial and secondary public
offerings of the remaining subsidiary's equity and to manage them to profitable
levels once adequate funding is in place. There can be no assurances that
management's plans to raise additional capital and to manage the subsidiaries to
profitable levels will be successful. Additionally, no assurances can be given
that the Company will be able to sell the Medical Diagnostics segment or that
any potential sale would result in a significant gain. The failure of the
Company to sell the Medical Diagnostics segment and the failure of the
subsidiaries to raise capital by equity offerings of their stock may force the
Company to reduce operations via the closure of additional unprofitable segments
and could ultimately force the Company as a whole to cease operations.
Working Capital Condition
As of December 31, 1996, ("December 1996"), the Company had negative working
capital of $5.4 million. As of June 1997, the Company has negative working
capital of $8 million representing an increase in negative working capital of
$2.6 million. The Company's principal working capital consists of cash and cash
equivalents which were $2.8 million at June 1997 and December 1996. Restrictions
exist with regards to the Company's use of the Medical Diagnostics segment's
cash which was $2.1 million at June 1997. During the 1997 six month period,
International Magnetic Imaging, Inc., ("IMI"), and Trans Global Services, Inc.,
("TGS"), generated $3.8 million and $570,000, respectively, from operations
while the remaining segments used $3 million for continuing operations and used
$913,000 for discontinued 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 at June 1997 the most significant impact from these restrictions is on
the Electro-Mechanical and Electro-Optical Products Manufacturing and
Telecommunications segments which are currently unable to operate without cash
infusions from the parent company, (Consolidated). It is imperative that these
segments obtain alternative sources of funding. (i.e. equity offerings, debt
financing) or increased volume at higher operating margins, in order to continue
as operating segments and no assurance can be given that these segments will be
able to continue as operating entities. The remaining segments are less affected
by the restrictions on IMI's cash since they operated substantially with their
own cash flows during the 1997 six month period.
22
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
Sources of Cash
During the 1997 six month period, sources of cash, other than from operations,
included proceeds from the issuance of long-term debt of $665,000, net advances
from asset based lenders of $980,000, $2 million from a subsidiaries private
issuance of equity (see footnote 7 of the accompanying financial statements),
collections on repayments of notes receivable of $228,000 and proceeds from the
disposal of a subsidiary of $62,000.
Uses of Cash
During the 1997 six month period, uses of cash included the repayment of
long-term and subordinated debt of $2 million, payments on capital leases of
$691,000, expenditures for software development of $462,000, $430,000 for
deferred offering costs, capital expenditures of $385,000, payments for loans
made of $141,000, purchases of investments of $82,000 and an increase in other
assets of $120,000.
Changes in Other Working Capital Assets and Liabilities
From December 1996 to June 1997, working capital assets remained relatively
level decreasing $527,000 while working capital liabilities increased $2.1
million due to the following factors; (1) accounts payable and accrued expenses
increased $1.7 million primarily as a result of the Telecommunications and
Medical Information Services segments inability to make timely payments on trade
payables and increased accrued expenses from offering costs, (2) accrued payroll
and related expenses increased $574,000 of which $261,000 relates to the Medical
Diagnostics segment and $266,000 relates to the Contract Engineering Services
segment, and accrued interest increased $524,000 (primarily from the Medical
Diagnostics segment).
Effect of Loan Defaults
The Company is in technical default on loans approximating $6.4 million at June
1997 of which $6.3 million relates to the Medical Diagnostics segment and
$135,000 relates to the Three Dimensional Products and Services segment. Such
default has not had, and is not expected to have a significant impact on the
operations of the related segment. The creditors have not called such loans and
all amounts are classified as current liabilities in the Company's June 1997
balance sheet.
Delinquent Payroll Taxes
A subsidiary of the Company, which operated in the discontinued Three
Dimensional Products and Services segment, owes delinquent payroll taxes and
related interest and penalties of approximately $80,000. It is anticipated that
such obligations will be resolved as a part of the planned discontinuation of
such segment.
23
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
Results of Operations
Loss from Continuing Operations
The Company's loss from continuing operations increased $614,000 and $853,000,
respectively, for the comparative three and six month periods.
Comparing the 1997 three month period with the three months ended June 30, 1996,
(the "1996 three month period"), aggregate increases in loss from continuing
operations consisted of the following:
<TABLE>
<CAPTION>
1997 Three 1996 Three
Loss from Continuing Operations Month Period Month Period Variance
------------------------------- ------------ ------------ --------
<S> <C> <C> <C>
Contract Engineering Services $255,000 $ 58,000 $197,000
Medical Diagnostics (66,000) (218,000) 152,000
Electro-Mechanical and Electro-
Optical Products Manufacturing (402,000) (173,000) (229,000)
Medical Information Services (586,000) (126,000) (460,000)
Telecommunications (348,000) (209,000) (139,000)
Business Consulting Services 100,000 67,000 33,000
Corporate and Other 263,000 431,000 (168,000)
------- ------- --------
Loss from Continuing Operations ($784,000) ($170,000) ($614,000)
======= ======= =======
</TABLE>
Comparing the 1997 six month period with the six months ended June 30, 1996,
(the "1996 six month period"), aggregate increases in loss from continuing
operations consisted of the following:
<TABLE>
<CAPTION>
1997 Six 1996 Six
Loss from Continuing Operations Month Period Month Period Variance
------------------------------- ------------ ------------ --------
<S> <C> <C> <C>
Contract Engineering Services $158,000 ($ 494,000) $652,000
Medical Diagnostics 41,000 330,000 (289,000)
Electro-Mechanical and Electro-
Optical Products Manufacturing (751,000) (422,000) (329,000)
Medical Information Systems (1,239,000) (2,125,000) 886,000
Telecommunications (783,000) (508,000) (275,000)
Business Consulting Services 193,000 134,000 59,000
Corporate and Other (62,000) 1,495,000 (1,557,000)
------- --------- ----------
Loss from Continuing Operations ($2,443,000) ($1,590,000) ($853,000)
========= ========= =======
</TABLE>
The 1996 six month period loss from continuing operations includes $2.2 million
of non cash expense from the exercise of below market warrants in the Medical
Information Services segment.
Discontinued Operations
Loss from operations of discontinued segments includes the operating activity of
the Audio Products Manufacturing segment through the date of disposal on May 20,
1997 and the operating activity of the Three Dimensional Products and Services
segment through June 30, 1997 and amounted to $604,000 and $142,000 for the 1997
and 1996 three month periods, respectively, and $1.3 million and $814,000 for
the 1997 and 1996 six month periods, respectively.
24
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
The 1997 three and six month periods loss on disposal of discontinued segments
includes a gain on disposal of the Audio Products manufacturing segment of
$129,000 and an estimated loss on the disposal of the Three Dimensional Products
and Services segment of $525,000.
Consolidated Net Loss
The Company's net loss increased $1.5 million and $1.7 million, respectively,
for the comparative three and six month periods as a result of the
aforementioned increases in losses of both the continuing and discontinued
operations.
Discussion of Operations by Segment
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.
<TABLE>
<CAPTION>
Percentage of Total
-------------------
1997 1996 1997 1996
Three Three Six Six
Month Month Month Month
Revenues: Period Period Period Period
------ ------ ------ ------
<S> <C> <C> <C> <C>
Contract Engineering Services 61% 56% 62% 55%
Medical Diagnostics 23% 28% 24% 30%
Electro-Mechanical and Electro-Optical
Products Manufacturing 3% 3% 2% 3%
Medical Information Services 6% 9% 5% 9%
Telecommunications 7% 4% 7% 3%
Business Consulting Services 1% 1% 1% 1%
Intercompany Transactions (1)% (1)% (1)% (1)%
Percentage of Total
-------------------
1997 1996 1997 1996
Three Three Six Six
Month Month Month Month
Gross Profit: Period Period Period Period
------ ------ ------ ------
Contract Engineering Services 34% 26% 32% 21%
Medical Diagnostics 57% 57% 60% 63%
Electro-Mechanical and Electro-Optical
Products Manufacturing (1)% 3% (1)% 2%
Medical Information Services 6% 11% 4% 12%
Telecommunications 4% 3% 4% 2%
Business Consulting Services 3% 1% 3% 2%
Intercompany Transactions (3)% (1)% (2)% (2)%
</TABLE>
25
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Total
-------------------
1997 1996 1997 1996
Three Three Six Six
Month Month Month Month
Selling, General & Administrative Expense: Period Period Period Period
------ ------ ------ ------
<S> <C> <C> <C> <C>
Contract Engineering Services 24% 26% 25% 22%
Medical Diagnostics 41% 38% 40% 33%
Electro-Mechanical and Electro-Optical
Products Manufacturing 6% 6% 6% 5%
Medical Information Services 14% 13% 13% 27%
Telecommunications 10% 7% 10% 5%
Business Consulting Services 1% 1% 1% 1%
Corporate and Other 6% 10% 7% 8%
Intercompany Transactions (2)% (1)% (2)% (1)%
</TABLE>
Contract Engineering Services - The contract engineering services segment
reflects the operations of Trans Global Services, Inc., ("TGS"), and its two
subsidiaries, Avionics Research Holdings, Inc., ("Avionics"), and Resource
Management International, Inc., ("RMI"). TGS is engaged in the business of
providing engineers, designers and technical personnel on a temporary basis to
major corporations.
Revenue from technical temporary staffing services is based on the hourly cost
of payroll plus a percentage. The success of TGS's business will be dependent
upon its ability to generate sufficient revenues to enable it to cover its fixed
costs and other operating expenses, and to reduce its variable costs,
principally its interest. Under its agreements with its clients, TGS is required
to pay its employees and pay all applicable Federal and state withholding and
payroll taxes prior to receipt of payment from the clients. Furthermore, TGS's
payments from its clients are based upon the hourly rate paid to the employee,
without regard to when payroll taxes are payable with respect to the employee.
Accordingly, TGS's cost of services are greater during the first part of the
year, when Federal Social Security taxes and state unemployment and related
taxes, which are based on a specific level of compensation, are due. Thus, until
TGS satisfies its payroll tax obligations, it will have a lower gross margin
than after such obligations are satisfied. Furthermore, to the extent that TGS
experiences turnover in employees, its gross margin will be adversely affected.
For example, in 1997, Social Security taxes are payable on the first $65,400 of
compensation. Once that level of compensation is paid with respect to any
employee, there is no further requirement for TGS to pay Social Security tax for
such employee. Since most of TGS's employees receive compensation in excess of
that amount, TGS's costs with respect to any employee are significantly higher
during the period when it is required to pay Social Security taxes than it is
after such taxes have been paid.
TGS finances its payroll obligations by borrowing from an asset-based lender at
an interest rate of 2% in excess of prime. TGS also pays a fee of 0.3% of the
face amount of the invoices financed. The borrowings are secured by a security
interest in all of TGS's assets. Pursuant to an April 1997 amendment to the
agreement, on October 31, 1997, the borrowing availability will be reduced to
$3.0 million and TGS will pay a fixed monthly fee of $10,500 to the asset-based
lender. The fee will be subject to increases to the extent that receivables in
any month exceed $10 million. The interest rate of 2% in excess of prime will
not be affected by the amendment. Such reduction in borrowing availability, if
implemented, would have a material adverse effect upon TGS. As of June 1997,
such borrowings from the asset-based lender were approximately $3.8 million. The
interest rates (exclusive of the fee) payable by TGS at June 1997 and 1996 were
10.5% and 10.25% respectively.
1997 and 1996 Three Month Periods
For the 1997 three month period, TGS had revenues of $19.6 million reflecting a
31% increase in revenues over the $15.0 million achieved during the 1996 three
month period. This increase reflects TGS's continuing efforts to meet its
clients requirements in a timely manner. The gross margin for the 1997 three
month period was 8.2% compared to 9.7% for the 1996 three month period. This
decrease can be attributed to the continued increase in staffing which has a
negative impact on gross margin during periods of growth because of payroll
taxes.
26
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
Selling, general and administrative expenses were $1.1 million or 5.6% of sales
for 1997 three month period and $1.2 million or 7.6% of sales for the 1996 three
month period. This reflects the continuing effort TGS is placing on controlling
costs and maximizing efficiency.
During the 1997 three month period interest expense was $197,000, an 18.4%
increase from the $166,000 interest costs during the 1996 three month period.
This was a result of increased borrowings due to greater revenues and slightly
higher interest rates.
As a result of the foregoing, TGS earned a profit of $256,000 for the 1997 three
month period as compared to a net profit of $58,000 for the 1996 three month
period. The increase in profits can be attributed to a combination of the
increase in sales and a stabilization of selling, general and administrative
expenses.
1997 and 1996 Six Month Periods
TGS had revenues of $38.9 million for the 1997 six month period reflecting a 37%
increase from the revenues of $28.5 million for the same period a year earlier.
This increase is attributable to TGS's increased sales and placement efforts and
success in replacing the loss of a contract on January 1, 1996 from one of TGS's
larger clients. During the 1997 six month period, approximately 81% of TGS's
revenue was derived from its five largest clients. For the 1997 six month
period, TGS had a gross margin of 7.8% as compared to 8.0% for the 1996 six
month period. The slight decrease in margin reflects the additional payroll
taxes incurred because of TGS's continued increase in staffing.
Selling, general and administrative expenses were approximately $2.4 million for
the 1997 six month period, reflecting a $2,000 increase over the same period a
year ago. TGS has been able to maintain a relatively stable level of selling,
general and administrative expenses despite a significant increase in revenue.
During the 1997 six month period, interest expense was $383,000, a 17.5%
increase from $326,000 in the 1996 period as a result of increased borrowings
and slightly higher interest rates.
TGS has not provided for income taxes for the 1997 and 1996 six month periods.
Federal and state tax benefits have not been recognized for the 1997 and 1996
six month periods due to the fact that all potential loss carrybacks have been
fully utilized and under SFAS No. 109, "Accounting for Income Taxes". TGS has
determined that it is more likely than not that the deferred tax asset will not
be realized.
TGS earned a profit of approximately $158,000 for the 1997 six month period as
compared to a net loss of $494,000, for the 1996 six month period. TGS believes
that with the continued increased revenues and stabilized selling, general and
administrative costs it has improved its operations. TGS is continuing to search
for ways to reduce its financing costs by seeking to enter into agreements with
other financing sources which would offer lower financing costs. However, no
assurance can be given that TGS can or will operate profitably in the future.
Medical Diagnostics - This segment consists of the operations of International
Magnetic Imaging, Inc., ("IMI"), a medical diagnostic imaging company, which
primarily performs MRI and other diagnostic imaging modalities.
IMI is not engaged in the practice of medicine and does not employ any
physicians to provide medical services. IMI's bills, which include fees for the
technical services provided by IMI and the professional services rendered by the
radiologists, are sent to the patient or third-party payor, whichever is
appropriate. The radiologists, who are independent contractors engaged by IMI
and are compensated by IMI pursuant to agreements between IMI and the
radiologists, do not bill patients for the radiology services related to their
services for IMI. Pursuant to their agreements with IMI, the radiologists read
the scans at IMI's Centers, for which they receive compensation in accordance
with such agreements. For the Florida Centers, IMI paid a fee that ranges from
10% to 20% of net
27
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
collections plus a bonus based on specified criteria. During the six months
ended June 30, 1997 (the "June 1997 period") and the six months ended June 30,
1996 (the "June 1996 period"), the radiology fees for the Florida Centers
averaged 10% to 11% of cash collections from MRI procedures and 15% to 16.5% of
cash collections for multi-modality procedures. During 1996 and 1995, the
radiology fees for the Florida Centers averaged 11% to 12% of cash collections
from MRI procedures and 16% to 17% of cash collections for multi-modality
procedures. At the San Juan Center, IMI pays 10% of collections plus 3% of
annual cash collections between $2 million and $3 million plus 5% of annual cash
collections in excess of $3 million. For the Virginia Center, IMI pays a fixed
annual fee of $275,000 plus 15% of collections in excess of $2.4 million. At the
Kansas City Center, IMI pays a fixed fee per scan which fee ranges from $75 to
$150, depending on the number of scans read. The compensation to the
radiologists is reflected on the Statement of Operations as radiology fees.
1997 and 1996 Three Month Period
Net patient service revenue for performing MRI and other diagnostic modality
procedures decreased $494,000, or 7%, from $7.3 million for the 1996 three month
period to $6.8 million for the 1997 three month period. The following table
shows the mix of procedures by class of payor for MRI procedures and other
multi-modality procedures during the 1997 and 1996 three month periods:
1997 1996
Three Three
Month Month
Class of Payor Period Period
- -------------- ------ ------
MRI Procedures (representing 83% and 89%,
respectively of net patient service revenue
for the 1997 and 1996 three month periods):
Managed Care 49% 46%
Commercial 16% 18%
Medicare 12% 13%
Contract Worker's Compensation 10% 5%
Worker's Compensation 7% 11%
Liability 4% 5%
Other 2% 2%
Multi-modality procedures, other than MRI(1)
(representing 17% and 11%, respectively of
net patient service revenue for the 1997 and
1996 three month periods):
Managed Care 83% 85%
Medicare 9% 8%
Commercial 6% 4%
Other 2% 3%
- ------
(1) Includes CAT scans, nuclear medicine, mammography, fluoroscopy,
ultrasound and X-Rays.
The decrease in the net patient service revenue in the June 1997 period results
from the following:
Decrease in reimbursement rates for MRI procedures $(1,264,000)
Increase in reimbursement rates for multi-modality procedures 392,000
Decrease in scan procedure volume for MRI procedures 9,000
Increase in scan procedure volume for multi-modality procedures 369,000
----------
Total decrease in net patient service revenue $ (494,000)
=======
28
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
Other service revenues and management fee income represented 8% and 4% of total
revenues, respectively, for the 1997 and 1996 three month periods. Such fees
increased approximately $359,000 from $267,000 for the 1996 three month period
to $626,000 for the 1997 three month period, due primarily to the operations of
MRI Net, an MRI and multi-modality patient scheduling service company owned by
IMI.
IMI's gross profit decreased $607,000, or 19%, from $3.3 million for the 1996
three month period to $2.7 million for the 1997 three month period due to the
aforementioned net decrease in total revenues of $135,000 and an increase in
direct costs of $607,000. Income from operations decreased $760,000, or 55%,
from $1.4 million for the 1996 three month period to $635,000 for the 1997 three
month period of which $607,000 relates to the aforementioned decrease in gross
profit and $153,000 relates to an increase in selling, general and
administrative expense. The overall increase in direct costs and selling,
general and administrative expense reflected a number of factors discussed
below.
Radiology fees decreased $123,000 or 14% when comparing the 1997 three month
period to the 1996 three month period. During both periods, the radiology fees
were incurred based on cash collections related to services performed in all but
two of IMI's centers. Approximately $84,000 of the decrease was the direct
result of a decrease in cash collections subject to radiology fees for the South
Florida and San Juan centers and approximately $24,000 related to a higher
radiology fee rate paid in the June 1996 period for a portion of the applicable
cash collections in the San Juan center.
Equipment maintenance costs relate primarily to fixed contract payment schedules
and generally do not fluctuate from period to period unless repairs and
maintenance are required that are not covered by the equipment contracts or new
equipment is placed into service or removed from service. Substantially all
maintenance costs incurred for the 1997 and 1996 three month periods were
incurred pursuant to fixed maintenance contracts, and as a result such costs did
not fluctuate significantly, increasing $61,000 of which $45,000 related to
repairs on telecommunications equipment which is expected to be of a non
recurring nature. The remaining increase relates to repairs of medical equipment
outside of the service contracts.
Patient service costs and expenses consist primarily of film, contrast agents
and utility costs used in MRI and multi-modality procedures. Such costs
increased $107,000, or 20%, from the 1996 three month period to the 1997 three
month period. An increase in multi-modality procedures accounted for
approximately $57,000 of the increase and the remainder related to an increase
in MRI procedures which required contrast agents.
Salaries and benefits increased $43,000 or 3% from the 1996 three month period
to the 1997 three month period which represents increases in pay to previously
existing employee positions.
Professional services, consisting primarily of legal, accounting and consulting
services, increased $305,000 or 139% when comparing the 1997 and 1996 three
month periods of which $284,000 relates to the write-off of deferred offering
costs in the 1997 three month period and remainder relates to marketing
agreements that were not in place during the 1996 three month period.
Other management, general and administrative expenses, decreased $143,000, or
13%, from the 1996 three month period to the 1997 three month period. During the
1996 three month period, one of the Centers was in the process of relocating to
a new facility and in connection with the relocation, it rented, on a short-term
basis, mobile MRI equipment.
Provision for bad debts increased $285,000, or 143%, from the 1996 three month
period to the 1997 three month period. Substantially all of this increase
reflects the liability accounts receivable whose aging had reached the point
where IMI's receivable policy and evaluation required that such receivables be
provided for with an additional allowance.
29
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
Depreciation and amortization consists of the depreciation of purchased
equipment, buildings, leasehold improvements and capital leases and the
amortization of goodwill, customer lists, restrictive covenants and loan costs.
Depreciation expense increased $79,000, or 11%, when comparing the 1997 and 1996
three month periods which reflects the addition of equipment in certain Centers
as well as the depreciation of certain medical equipment that had previously
been maintained at salvage value. Amortization remained relatively level
increasing $11,000, or 2%, from the 1996 three month period to the 1997 three
month period.
Interest and other income increased $13,000, or 7% from $198,000 for the 1996
three month period to $211,000 for the 1997 three month period. Interest and
other income consists primarily of income in the equity of a joint venture.
Interest expense increased $127,000, or 18%, from the 1996 three month period to
the 1997 three month period. Approximately $90,000 of the increase relates to
new debt for the purchase of equipment and the remainder relates to the
refinancing of subordinated notes at a higher interest rate.
IMI's income tax expense is comprised of current and deferred portions of
Federal, state and Puerto Rico income taxes. The Federal income tax expense for
the 1997 and 1996 three month periods was $329,000 and $1 million, respectively.
Federal income tax was accrued at the statutory rates for such periods. However,
because IMI files its Federal income tax returns as part of a consolidated group
with Consolidated as the common parent, the actual tax liability was treated as
an amount due to Consolidated and the debt was simultaneously canceled by
Consolidated. State income tax benefit for the 1997 and 1996 three month periods
was $258,000 and $177,000, respectively. Puerto Rico income tax expense was
$4,000 and $220,000 for the 1997 and 1996 three month periods, respectively. IMI
also has a state and Puerto Rico net operating loss carryforward at June 1997 of
$2 million and $548,000, respectively. The state net operating loss carryforward
was adjusted from the March 1997 amount to $5.2 million to reflect the filing of
Florida consolidated income tax returns for 1996 and 1997. State and Puerto Rico
net operating loss carryforwards are only available to offset future income of
the subsidiary which incurred the losses.
Overall profitability increased $152,000 from a loss of $218,000 for the 1996
three month period to a loss of $66,000 for the 1997 three month period. During
the 1997 three month period, four of the Centers operated at an aggregate net
loss of $1.1 million while the remaining Centers generated net income of $1
million. During the 1996 three month period, four of the Centers operated at an
aggregate net loss of $1.1 million while the remaining Centers generated net
income of $913,000.
30
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
1997 and 1996 Six Month Periods
Net patient service revenue for performing MRI and other diagnostic modality
procedures decreased $1.1 million, or 7%, from $15.2 million for the 1996 six
month period to $14.1 million for the 1997 six month period. The following table
shows the mix of procedures by class of payor for MRI procedures and other
multi-modality procedures during the 1997 and 1996 six month periods:
1997 1996
Six Six
Month Month
Class of Payor Period Period
- -------------- ------ ------
MRI Procedures (representing 83% and 89%,
respectively of net patient service revenue
for the 1997 and 1996 six month periods:
Managed care 48% 32%
Commercial 16% 18%
Medicare 13% 13%
Contract worker's compensation 10% 6%
Workers' compensation (other than pursuant to
contracts with workers' compensation insurers) 8% 12%
Brokered -- 11%
Liability-related 3% 5%
Other 2% 3%
Multi-modality procedures, other than MRI(1)
(representing 17% and 11%, respectively of
net patient service revenue for the 1997 and
1996 six month periods:
Managed care 84% 85%
Medicare 7% 8%
Commercial 6% 4%
Other 3% 3%
- -----
(1) Includes CAT scans, nuclear medicine, mammography, fluoroscopy,
ultrasound and X-Rays.
The decrease in the net patient service revenue in the 1997 six month period
results from the following:
Decrease in reimbursement rates for MRI procedures $(1,849,000)
Increase in reimbursement rates for multi-modality procedures 353,000
Decrease in scan procedure volume for MRI procedures (224,000)
Increase in scan procedure volume for multi-modality procedures 662,000
----------
Total decrease in net patient service revenue $(1,058,000)
=========
Other service revenues and management fee income represented only 7% and 3% of
total revenues, respectively, for the 1997 and 1996 six month periods. Such fees
increased approximately $510,000 from $533,000 for the 1996 six month period to
$1,043,000 for the 1997 six month period, due primarily to the operations of MRI
Net, an MRI and multi-modality patient scheduling service company owned by IMI.
IMI's gross profit decreased $1.4 million, or 20%, from $7.1 million for the
1996 six month period to $5.7 million for the 1997 six month period due to the
aforementioned net decrease in total revenues of $548,000 and an increase
31
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
in direct costs of $871,000. Income from operations decreased $1.8 million, or
53%, from $3.3 million for the 1996 six month period to $1.5 million for the
1997 six month period of which $1.4 million relates to the aforementioned
decrease in gross profit and $325,000 relates to increased selling, general and
administrative expense. The overall increase in direct costs and selling,
general and administrative expense reflected a number of factors discussed
below.
IMI's operating income decreased $1.8 million, or 53%, from $3.3 million for the
1996 six month period to $1.5 million for the 1997 six month period due to the
aforementioned net decrease in revenues of $548,000 and an increase in operating
expenses of $1.2 million. The overall increase in operating costs is reflected
by the factors discussed below.
Radiology fees decreased $105,000 or 6% when comparing the 1997 six month period
to the 1996 six month period. During both periods, the radiology fees were
incurred based on cash collections related to services performed in all but two
of IMI's centers. Approximately $84,000 of the decrease was the direct result of
a decrease in cash collections subject to radiology fees for the South Florida
and San Juan centers and approximately $24,000 related to a higher radiology fee
rate paid in the 1996 six month period for a portion of the applicable cash
collections in the San Juan center.
Equipment maintenance costs relate primarily to fixed contract payment schedules
and generally do not fluctuate from period to period unless repairs and
maintenance are required that are not covered by the equipment contracts or new
equipment is placed into service or removed from service. Substantially all
maintenance costs incurred for the 1997 and 1996 six month periods were incurred
pursuant to fixed maintenance contracts, and as a result such costs did not
fluctuate significantly, increasing $155,000 of which $45,000 related to repairs
on telecommunications equipment which is expected to be of a non recurring
nature. The remaining increase relates to repairs of medical equipment outside
of the service contracts.
Patient service costs and expenses consist primarily of film, contrast agents
and utility costs used in MRI and multi-modality procedures. Such costs
increased $197,000, or 18%, from the 1996 six month period to the 1997 six month
period. An increase in multi-modality procedures accounted for approximately
$110,000 of the increase and the remainder related to an increase in MRI
procedures which required contrast agents.
Salaries and benefits increased $109,000 or 3% from the 1996 six month period to
the 1997 six month period which represents increases in pay to previously
existing employee positions.
Professional services, consisting primarily of legal, accounting and consulting
services, increased $352,000 or 76% when comparing the 1997 and 1996 six month
periods of due to increased legal fees of approximately $351,000 of which
$284,000 relates to the write-off of deferred offering costs and the remainder
relates to ongoing litigation costs.
Other management, general and administrative expenses, decreased $237,000, or
10%, from the 1996 six month period to the 1997 six month period. During 1996,
one of the Centers was in the process of relocating to a new facility and in
connection with the relocation, it rented, on a short-term basis, mobile MRI
equipment.
Provision for bad debts increased $539,000, or 123%, from the 1996 six month
period to the 1997 six month period. Substantially all of this increase reflects
the write-off of amounts due from scan brokers who went out of business and
liability accounts receivable whose aging had reached the point where IMI's
receivable policy and evaluation required that such receivables be provided for
with an additional allowance.
Depreciation and amortization consists of the depreciation of purchased
equipment, buildings, leasehold improvements and capital leases and the
amortization of goodwill, customer lists, restrictive covenants and loan costs.
Depreciation expense increased $162,000, or 11%, when comparing the 1997 and
1996 six month periods
32
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
which reflects an increase of $208,000 from the 1997 six month period
depreciation of the salvage value of MRI units in the Boca Raton, Oakland Park
and Arlington centers offset by a decrease of approximately $46,000 from
equipment which was fully depreciated as of the beginning of the 1997 six month
period. Amortization remained relatively level increasing $23,000, or 2%, from
the 1996 six month period to the 1997 six month period.
Interest and other income increased $492,000 from $259,000 for the 1996 six
month period to $751,000 for the 1997 six month period. During the 1997 six
month period, IMI recognized $663,000 of income from a joint venture and during
the 1996 six month period, joint venture income amounted to only $189,000.
Interest expense increased $302,000, or 22%, from the 1996 six month period to
the 1997 six month period. Approximately $180,000 of the increase relates to new
debt for the purchase of equipment and the remainder relates to the refinancing
of subordinated notes at a higher interest rate.
IMI's income tax expense is comprised of current and deferred portions of
Federal, state and Puerto Rico income taxes. The Federal income tax expense for
the 1997 and 1996 six month periods was $714,000 and $1.7 million, respectively.
Federal income tax was accrued at the statutory rates for such periods. However,
because IMI files its Federal income tax returns as part of a consolidated group
with Consolidated as the common parent, the actual tax liability was treated as
an amount due to Consolidated and the debt was simultaneously canceled by
Consolidated. State income tax benefit for the 1997 and 1996 six month periods
was $335,000 and $108,000, respectively. Puerto Rico income tax expense was
$174,000 and $220,000 for the 1997 and 1996 six month periods, respectively. IMI
also has a state and Puerto Rico net operating loss carryforward at June 1997 of
$2 million and $548,000, respectively. The state net operating loss carryforward
was adjusted from the March 1997 amount to $5.2 million to reflect the filing of
Florida consolidated income tax returns for 1996 and 1997. State and Puerto Rico
net operating loss carryforwards are only available to offset future income of
the subsidiary which incurred the losses.
Overall profitability decreased $288,000 from $329,000 for the 1996 six month
period to $41,000 for the 1997 six month period, reflecting increased overall
costs and a decrease in revenues. During the 1997 six month period, five of the
Centers operated at an aggregate net loss of $1.5 million while the remaining
Centers generated net income of $1.6 million. During the 1996 six month period,
five of the Centers operated at an aggregate net loss of $1.5 million while the
remaining Centers generated net income of $1.8 million.
Electro-Mechanical and Electro-Optical Products Manufacturing - This segment
consists of two companies which manufactures optical encoders, encoded motors
and limit programmers, debit card vending machines and various avionics
instrumentation devices, a company that markets telephone debit cards and a
company that designs, develops and integrates all of the critical building
blocks of a Fingerprint ID System which commenced operations in 1996.
1997 and 1996 Three Month Period
Optical-encoders, encoded motors and limit programmers, debit card vending
machines and avionics instrumentation device revenues, when comparing the 1997
three month period to the 1996 three month period, increased $49,000, or 7% from
$680,000 to $729,000. Cost of sales for the June 1997 and 1996 periods includes
$150,000 and $75,000, respectively, for the write-off of obsolete inventory.
Excluding such write-offs, the gross profit percentages for the June 1997 and
1996 periods decreased from 30% to 13%, respectively, due primarily to decreases
in gross profit of the debit card vending machine line. Selling, general and
administrative expenses decreased $51,000, or 16% from $264,000 for the 1996
three month period to $213,000 for the 1997 three month period due to planned
cutbacks in expenses related to existing operations. Net losses increased from
$211,000 for the 1996 three month period to $318,000 for the June 1997, due
primarily to the increase in write-off for obsolete inventory of $75,000. In
prior periods, this segment focused primarily on sales to the governmental
sector and currently management is attempting to place more emphasis on sales to
the private sector through the sale of encoders to private manufacturing
companies while also trying to capitalize on the recent potential for increased
33
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
governmental military spending. During 1996, the segment participation in
government awarded contracts was not significant, however, during 1997, this
segment was awarded certain government contracts on which a current backlog of
$1,280,000 exists as of June 30, 1997 and management believes that revenues from
these contracts will enable this segment to significantly improve its
profitability during the remainder of 1997. However, no assurance can be made
that such backlog will result in net income or long-term profitability for this
segment.
Prepaid telephone calling card revenues increased from $52,000 for the 1996
three month period to $88,000 for the 1997 three month period on which
substantially no gross profit was earned for either period. Selling, general and
administrative expense increased from $17,000 for the 1996 three month period to
$50,000 for the 1997 three month period. The net loss increased by $46,000 from
$7,000 for the 1996 three month period to $53,000 for the 1996 three month
period. This segment operates in a highly competitive market and is competing
against companies that are larger, more well established and have significantly
greater resources. The impact of this competition has required the segment to
sell the calling cards at below cost in order to attempt to establish a market
presence which has resulted in a negative gross margin. Based on the competitive
environment that this segment operates in, no assurances can be given that its
operations will ever reach profitable levels.
Finger print identification products activity to date have been the costs of
developing its products. Such amounts for the 1997 three month period
approximated $30,000. Due to the nature of a development stage company, no
assurances can be given that it will ever be able to develop a marketable
product and achieve revenues that will allow it to operate profitably.
As a result of the foregoing, this segment as a whole sustained net losses of
$402,000 and $217,000, respectively, for the June 1997 and 1996 periods,
reflecting a $200,000 decrease in gross profit.
1997 and 1996 Six Month Period
Optical-encoders, encoded motors and limit programmers, debit card vending
machines and avionics instrumentation device revenues, when comparing the 1997
six month period to the 1996 six month period, increased $160,000, or 13% from
$1.3 million to $1.4 million. Cost of sales for the 1997 and 1996 six month
periods include $300,000 and $150,000, respectively, for the write-off of
obsolete inventory. Excluding such write-offs, the gross profit percentages for
the 1997 and 1996 six month periods decreased from 29% to 17%, respectively, due
primarily to decreases in gross profit of the debit card vending machine line.
Selling, general and administrative expenses decreased $84,000, or 16% from
$520,000 for the 1996 six month period to $436,000 for the 1997 six month period
due to planned cutbacks in expenses related to existing operations. Net losses
increased from $579,000 for the 1996 six month period to $667,000 for the 1997
six month period, due primarily to the increase in write-off for obsolete
inventory of $150,000. In prior periods, this segment focused primarily on sales
to the governmental sector and currently management is attempting to place more
emphasis on sales to the private sector through the sale of encoders to private
manufacturing companies while also trying to capitalize on the recent potential
for increased governmental military spending. During 1996, the segment
participation in government awarded contracts was not significant, however,
during 1997, this segment was awarded certain government contracts on which a
current backlog of $1,280,000 exists as of June 30, 1997 and management believes
that revenues from these contracts will enable this segment to significantly
improve its profitability during the remainder of 1997. However, no assurance
can be made that such backlog will result in net income or long-term
profitability for this segment.
Prepaid telephone calling card revenues decreased from $124,000 for the 1996 six
month period to $104,000 for the 1997 six month period on which substantially no
gross profit was earned for either period. Selling, general and administrative
expense increased from $54,000 for the 1996 six month period to $93,000 for the
1997 six month period. The net loss increased by $51,000 from $44,000 for the
1996 six month period to $95,000 for the 1996 six month period. This segment
operates in a highly competitive market and is competing against companies that
are larger, more well established and have significantly greater resources. The
impact of this competition has required
34
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
the segment to sell the calling cards at below cost in order to attempt to
establish a market presence which has resulted in a negative gross margin. Based
on the competitive environment that this segment operates in, no assurances can
be given that its operations will ever reach profitable levels.
Finger print identification products activity to date have been the costs of
developing its products. Such amounts for the 1997 six month period approximated
$68,000. Due to the nature of a development stage company, no assurances can be
given that it will ever be able to develop a marketable product and achieve
revenues that will allow it to operate profitably.
As a result of the foregoing, this segment as a whole sustained net losses of
$751,000 and $421,000, respectively, for the June 1997 and 1996 periods, due
primarily to a $277,000 decrease in gross profit.
Medical Information Services - The medical information services segments
consists of the activity of two companies, Netsmart Technologies, Inc.,
("Netsmart") and Creative Socio Medics, Inc. ("CSM"). For purposes herein,
references to Netsmart relate to the operations of both Netsmart and CSM unless
indicated otherwise. Netsmart 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.
Netsmart has developed proprietary network technology utilizing smart cards in
financial and health care network systems.
1997 and 1996 Three Month Period
Netsmart's revenue for the 1997 three month period was $1,741,000, a decrease of
$634,000, or 27% from the revenue for the 1996 three month period which was $2.4
million.
Approximately $641,000 of this decrease represented a decrease in revenue from
$660,000 in the 1996 three month period to $19,000 in the 1997 three month
period. IBN represented Netsmart's largest customer in the 1996 three month
period, accounting for approximately 27.8% of revenue.
Revenue from Netsmart's health information systems continued to represent
Netsmart's principal source of revenue in the 1997 three month period,
accounting for $1,690,000 or 97% of revenue. The largest component of revenue in
the 1997 three month period was data center (service bureau) revenue which
decreased to $535,000 from $556,000 in the 1996 three month period, reflecting a
4% decrease. The turnkey systems revenue increased to $462,000 in the 1997 three
month period from $409,000 in the 1996 three month period, reflecting an
increase of 13%. Maintenance revenue increased to $342,000 in the 1997 three
month period from $284,000 in the 1996 three month period, reflecting an
increase of 20%. License revenue increased to $75,000 in the 1997 three month
period from $72,000 in the 1996 three month period, an increase of 4%. License
revenue is generated as part of a sale of a turnkey system pursuant to a
contract or purchase order that includes development of a turnkey system and
maintenance. Third party hardware and software revenue decreased to $276,000 in
the 1997 three month period from $394,000 in the 1996 three month period,
reflecting a decrease of 30%. Sales of third party hardware and software are
made in connection with the sales of turnkey systems. Revenue from contracts
from government agencies represented 32% of revenue for 1997 three month period
. Netsmart believes that such contracts will continue to represent an important
part of its business.
Gross profit decreased to $265,000 in the 1997 three month period from $649,000
in the 1996 three month period, a 59% decrease. The decrease in the gross profit
was substantially the result of a reduction in revenue from the IBN contract.
Selling, general and administrative expenses were $679,000 in the 1997 three
month period, an increase of 42% from the $479,000 in the 1996 three month
period. This increase was the result of an increase in personnel and
35
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
salaries in the sales and marketing and administrative areas as well as an
increase in other direct sales expenses and insurance.
During the 1996 three month period, Netsmart incurred non cash compensation
charges of $156,000 arising out of the issuance by Netsmart of warrants and
options having exercise prices which were less than the market value of the
Common Stock at the date of approval by the board of directors. No such charges
were incurred during the 1997 three month period.
In the 1997 three month period Netsmart recognized its 50% share of its loss in
its joint venture corporation with respect to the development of CCAC software
purchased in 1996. Netsmart's share of such loss was $46,000 for the 1997 three
month period as compared to $100,000 for the 1996 three month period.
Interest expense was $82,000 in the 1997 three month period, a decrease of
$66,000, or 45% from the $148,000 in the 1996 three month period . This is a
result of a decrease in the average borrowings during the 1997. The most
significant component of the interest expense on an ongoing basis is the
interest payable to Netsmart's asset-based lender. Netsmart pays interest on
such loan at a rate equal to the greater of 18% per annum or prime plus 8% plus
a fee of 1% of the face amount of the invoice.
Related party administrative expense was $45,000 in the 1997 three month period,
an increase of $41,000 from the $4,000 in the 1996 three month period. This
increase was the result of an agreement with The Trinity Group an affiliate to
provide general business, management and financial consulting services for a
monthly fee of $15,000.
Netsmart did not incur any research and development costs in the 1997 and 1996
periods.
As a result of the foregoing factors, Netsmart incurred a net loss of $587,000,
in the 1997 three month period, as compared with a net loss of $237,000 in the
1996 three month period.
1997 and 1996 Six Month Period
Netsmart's revenue for the 1997 six month period was $3.3 million, a decrease of
$1.6 million, or 33% from the revenue for the 1996 six month period which was
$4,936,000. Approximately $1.5 million of this decrease represented a decrease
in revenue from $1,593,000 in the 1996 six month period to $95,000 in the 1997
six month period, from a contract with IBN Inc. ("IBN"). IBN represented
Netsmart's largest customer in the 1996 six month period , accounting for
approximately 32.3% of revenue. As of June 30, 1997 the contract is
substantially complete. Netsmart is no longer providing professional services to
IBN. Netsmart intends to expand its marketing effort for its CarteSmart System,
however, at June 30, 1997, Netsmart did not have any significant contracts for
the CarteSmart system. The remainder of the decrease in revenue for the 1997 six
month period was attributable to a modest decline in Netsmart's health
information systems divisions sales.
Revenue from Netsmart's health information systems continued to represent
Netsmart's principal source of revenue in 1997 six month period, accounting for
$3.1 million or 95% of revenue. The largest component of revenue in the 1997 six
month period was $1 million of data center (service bureau) revenue which
decreased 2% from the prior period. The turnkey systems revenue decreased to
$812,000 in the 1997 six month period from $820,000 in the 1996 six month
period, reflecting a decrease of 1%. Maintenance revenue increased to $666,000
in the 1997 six month period from $573,000 in the 1996 six month period,
reflecting an increase of 16%. License revenue decreased to $145,000 in the 1997
six month period from $240,000 in the 1996 six month period, a decrease of 40%.
Although this decrease reflected reduced new business during the June period,
Netsmart has experienced an increase in new order backlog during the second
quarter. License revenue is generated as part of a sale of a turnkey system
pursuant to a contract or purchase order that includes development of a turnkey
system and maintenance. Third party hardware and software revenue decreased to
$489,000 in the 1997 six month period from $663,000 in
36
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
the 1996 six month period, reflecting a decrease of 26%. Sales of third party
hardware and software are made in connection with the sales of turnkey systems.
Revenue from contracts from government agencies represented 32% of revenue for
1997 six month period . Netsmart believes that such contracts will continue to
represent an important part of its business.
Gross profit decreased to $422,000 in the 1997 six month period from $1.3
million in the 1996 six month period, a 68% decrease. The decrease in the gross
profit was substantially the result of the reduction in revenue from the IBN
contract as well as a decrease in the health information systems license
revenue.
Selling, general and administrative expenses were $1.3 million in the 1997 six
month period, an increase of 41% from the $934,000 in the 1996 six month period.
This increase was the result of an increase in personnel and salaries in the
sales and marketing and administrative areas as well as an increase in other
direct sales expenses and insurance.
During the 1996 six month period, Netsmart incurred non cash compensation
charges of $2.2 million arising out of the issuance by Netsmart of warrants and
options having exercise prices which were less than the market value of the
Common Stock at the date of approval by the board of directors. No such charges
were incurred during the 1997 six month period.
In the 1997 six month period Netsmart recognized its 50% share of its loss in
its joint venture corporation with respect to the development of CCAC software
purchased in 1996. Netsmart's share of such loss was $104,000 for the 1997 six
month period as compared to $100,000 for the 1996 six month period.
Interest expense was $151,000 in the 1997 six month period, a decrease of
$124,000, or 45% from the $275,000 in the 1996 six month period . This is a
result of a decrease in the average borrowings during the 1997. The most
significant component of the interest expense on an ongoing basis is the
interest payable to Netsmart's asset-based lender. Netsmart pays interest on
such loan at a rate equal to the greater of 18% per annum or prime plus 8% plus
a fee of I% of the face amount of the invoice. Effective August 1, 1997,
Netsmart renegotiated its agreement with its asset- based lender whereby the
interest rate was reduced to a basic interest rate of prime plus 8.5% plus a fee
of 5/8% of the face amount of the invoice.
Related party administrative expense was $90,000 in the 1997 six month period,
an increase of $81,000 from the $9,000 in the 1996 six month period. This
increase was the result of an agreement with The Trinity Group, an affiliate to
provide general business, management and financial consulting services for a
monthly fee of $15,000.
Netsmart did not incur any research and development costs in the 1997 and 1996
periods.
As a result of the foregoing factors, Netsmart incurred a net loss of $1.2
million in the 1997 six month period, as compared with a net loss of $2.2
million, in 1996 six month period.
37
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
Telecommunications - This segment consists of the operations of ARC Networks,
("ARC"), which is engaged in the business of marketing a wide range of
telecommunications services including the resale of local exchange services
through Competitive Access Providers ("CAP"), the design and installation of
end-user networks in addition to its newly formed debit card services and
domestic and international long distance services.
1997 and 1996 Three and Six Month Periods
Revenues for the 1997 three and six month periods were $2.3 million and $4.3
million, reflecting increases of 125% and 67%, or $1.3 million and $1.7 million
from the 1996 three and six month periods. The following table sets forth the
revenues and percentage of revenues during 1997 and 1996 from each business
line).
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------- -------------
Revenue Percent Revenue Percent
------- ------- ------- -------
<S> <C> <C> <C> <C>
Telephone Services $1,527,000 67% $694,000 68%
Data Cabling Installation Services $760,000 33% $322,000 32%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
------------- -------------
Revenue Percent Revenue Percent
------- ------- ------- -------
<S> <C> <C> <C> <C>
Telephone Services $3,013,000 71% $1,999,000 78%
Data Cabling Installation Services $1,253,000 29% $559,000 22%
</TABLE>
The increase in revenue in the 1997 three and six month periods compared to the
1996 three and six month periods is a result of greater market penetration into
the local telephone market, principally NYC, the sale of debit calling cards
initiated in the latter part of 1996 and, as more fully discussed below, a 136%
and 124% increase in ARC Network's data cabling installation business for the
1997 three and six month periods, respectively. The sales increase for the local
telephone market was principally due to the addition of one customer in June
1996 which increased sales in the 1997 three and six month periods by S449,000
and $1 million, respectively. In November 1996, ARC Networks also began offering
long distance phone service. Revenue attributed to the sale of debit calling
cards in the 1997 three and six month periods amounted to $241,000 and $487,000,
respectively, and is expected to become a major contributor to future sales
growth.
Cost of revenue for the 1997 three and six month periods was $2 million and $3.8
million, respectively, reflecting an increase of $1.3 million and $2.3 million,
or 154% and 153%, respectively, from the cost of revenue of $823,000 and $1.5
million for the 1996 three and six month periods in 1996. Total Company gross
margins for the 1997 three and six month periods were 8.7% and 9.6%,
respectively compared to 19% and 13% for the 1996 three and six month periods.
Gross margins in ARC Network's Telephone services segment were 4% for the 1997
three and six month periods compared to 11% in 1996. In the fourth quarter of
1996, ARC Networks purchased certain hardware and software for approximately
$416,000 in order to install a platform in New York City to improve the
reliability of its phone services and obtain certain cost benefits which were
not possible without the improvements. The software will provide ARC Networks
with the ability to manage the traffic over its phone lines more effectively
and, with the addition of certain other hardware which ARC Networks anticipates
purchasing later in 1997, will be able to provide least cost routing to its
customers. In the first quarter of 1997, ARC Networks discovered an error in its
rate
38
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
tables for its outgoing calls related to debit calling cards resulting in a loss
of $40,000. ARC Networks has taken corrective action to ensure this problem does
not recur. ARC Networks incurred approximately $62,000 and $100,000 of costs in
the 1997 three and six month periods related to managing its debit card platform
which it did not incur in the 1996 three and six month periods. These costs will
be ongoing but will become a smaller percentage of cost of sales as ARC
Network's revenue base in this line of business continues to grow.
ARC Network's initial focus in the telephone services segment has been to build
its customer base and market share. In this regard, certain costs and charges
relating to signing up new customers have been absorbed by ARC Networks such as
waiving installation charges and acquiring certain equipment by the customer
needed to make the connection. Such costs are being amortized into the monthly
recurring billings to these customers over the term of their agreements and
would account for the lower margins in the initial phase of the service cycle.
In addition, approximately $449,000 and $1 million of sales in the 1997 three
and six month periods were to one customer at a margin of 5%. These sales at
lower margins, although not customary, will become a smaller percentage of total
sales as revenues continue to grow in this line.
Gross margins for ARC Network's data cabling and installation services were 18%
and 23% for the 1997 three and six month periods, respectively, compared to 35%
and 18%, respectively, for the 1996 three and six month periods. During the 1997
six month period, ARC Networks managed 29 different jobs and continues to
benefit from its contract with the State of New York to provide data and voice
cabling for certain NYC schools. During 1996 ARC Networks incurred a loss of
$15,000 on the jobs it was performing during the quarter. All jobs in process
during the previous year have been completed and ARC Networks does not
anticipate losses on any further jobs.
Selling, general and administrative expenses for the 1997 three and six month
periods were $478,000 and $1 million or 21% and 25% of total sales,
respectively, compared to $369,000 and $679,000, or 36% and 39% of total sales,
for the 1996 three and six month periods of 1996. In the second half of 1996,
ARC Networks added four sales personnel to promote ARC Network's phone services,
certain administrative personnel to manage its platform, an additional cable
installer and in March 1997 hired a controller to manage its finances. ARC
Networks also opened offices in Florida and Illinois to begin direct sales
efforts in those regions, however, in July 1997 ARC Networks closed its Illinois
office in order to conserve its existing cash resources. It is ARC Network's
intention to build a nationwide network of commissioned sales agents, however,
it must qualify to do business in all states in order to implement such a
program. As of June 30 1997, ARC Networks is qualified to sell phone service in
20 states. In this regard, ARC Networks has spent approximately $30,000 in legal
fees which it is amortizing over one year. The principle components of selling,
general and administrative expenses for the 1997 six month period were: $603,000
of personnel costs, sales commissions of $107,000, travel and trade show
expenses of $78,000, office equipment and supplies of $64,000, depreciation and
amortization of $55,000 and rent and utilities of $49,000. The principle
components of Selling, general and administrative expenses for the 1996 six
month period were: personnel costs of $320,000, sales commissions of $71,000,
travel and trade show expenses of $65,000, office equipment and supplies of
$161,000, and rent and utilities, $32,000.
In the fourth quarter of 1996 ARC Networks obtained a $350,000 equipment loan on
which it incurred interest of $15,000 and $37,000 for the 1997 three and six
month periods. ARC Networks incurred interest expense of $11,000 and $15,000 for
the 1997 three and six month periods on an 8% $550,000 loan it obtained in
February 1997. Such loan was arranged by J.B. Sutton, an underwriter in NY, who
had arranged for a bridge loan in anticipation of a potential initial public
offering, however, the agreement has terminated with J.B. Sutton and talks have
been initiated other lenders and underwriters in anticipation of completing an
initial public offering. ARC Networks had also paid a 10% commission, or
$55,000, to J.B. Sutton to complete the bridge loan. Such amount is being
amortized over the life of the loan. Interest expense of $6,000 and $10,000 was
also incurred for the 1997 three and six month periods on a loan from ARC
Network's asset based lender. For the 1996 three and six month periods, ARC
Networks incurred interest expense of $2,000 and $3,000 on loans from ARC
Network's asset based lender. Interest expense of $35,000 and $72,000 was
incurred on loans from related parties for the 1997 three and six month periods
and $26,000 and $50,000 for the 1996 three and six month periods, respectively.
39
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
As a result of the above, ARC Networks reported a loss of $348,000 and $783,000
for the 1997 three and six month periods compared to a loss of $209,000 and
$509,000, for the 1996 three and six month periods.
Business Consulting Services operations are primarily intercompany fees charged
to the subsidiaries of the Company. Consulting fees amounted to $127,000 and
$82,000, respectively, for the 1997 and 1996 three month periods of which
$120,000 and $76,000, respectively were charged to the Company's subsidiaries
and eliminated in consolidation. Expenses amounted to $27,000 and $14,000 for
the 1997 and 1996 three month periods resulting in net income of $100,000 and
$68,000, respectively, for the 1997 and 1996 three month periods. Consulting
fees amounted to $254,000 and $164,000, respectively, for the 1997 and 1996 six
month periods of which $241,000 and $151,000, respectively were charged to the
Company's subsidiaries and eliminated in consolidation. Expenses amounted to
$60,000 and $33,000, respectively, for the 1997 and 1996 six month periods
resulting in net income of $194,000 and $131,000, respectively, for the 1997 and
1996 six month periods. 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 Expense
Corporate selling, general and administrative expenses decreased by $223,000,
from $505,000 for the 1996 three month period to $282,000 for the 1997 three
month period and decreased $310,000 from $1 million for the 1996 six month
period to $715,000 for the June 1997 six month period. Included in Corporate and
Other expenses is approximately, $450,000 of legal and accounting fees incurred
with respect to the Lafayette Industries reverse acquisition and subsequent
settlement (see footnote 7 to the consolidated financial statements). Such
increases in expense were more than offset be decreases in consulting fees for
the 1997 six month period. During the remainder of 1997, it is anticipated that
corporate selling, general and administrative expense levels will be a factor of
the activity of additional acquisitions and capitalization activities which
cannot be quantified on a prospective basis.
Gain (Loss) from Security Sales
During the 1996 three and six month periods, the Company realized gains of
$216,000 and 253,000, respectively. During 1997 no sales of securities occurred
as of June 1997. 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.
Minority Interest in Gain and Loss of Subsidiaries
For the 1997 and 1996 three month periods, the minority interest in (gain) loss
of subsidiaries was $179,000 and (21,000), respectively, and for the 1997 and
1996 six month periods was $627,000 and $733,000. Changes to the minority
interest in the gain and loss of subsidiaries relates primarily to the inherent
differences in the net income and loss of subsidiaries from period to period.
Impact of Inflation
The Company is subject to normal inflationary trends and anticipates that any
increased costs would be passed on to its customers.
40
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 CEO's Employment Agreement.
10.2 Corporate Secretary's Employment Agreement.
10.3 Comprehensive Agreement dated May 20, 1997 between WWR Acquisition,
Corp., Don Shamsie and Malco Theatres relating to the sale of WWR
Technology, Inc.
11.1 Calculation of earnings per share.
27 Financial Data Schedule (filed only in electronic format with the SEC)
. . . . . . . . . . . . . . . . . . . . . . . . . .
41
<PAGE>
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 August 19, 1997
Lewis S. Schiller (Principal Executive Officer)
/S/ Chief Financial Officer August 19, 1997
George W. Mahoney (Principal Financial and
Accounting Officer)
42
<PAGE>
Consolidated Technology Group Ltd. and Subsidiaries
Index to Exhibits
June 30, 1997
1. 10.1 CEO's Employment Agreement.
2. 10.2 Corporate Secretary's Employment Agreement.
3. 10.3 Comprehensive Agreement dated May 20, 1997 between WWR
Acquisition, Corp., Don Shamsie and Malco Theatres relating
to the sale of WWR Technology, Inc.
4. 11.1 Calculation of earnings per share.
5. 27 Financial Data Schedule (filed only in electronic format with
the SEC)
<PAGE>
Exhibit 10.1 CEO's Employment Agreement
RESTATED EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 1st day of January, 1997, 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 imaging services, contract engineering services, manufacturing,
medical information systems, three-dimensional products and services,
telecommunications and financial advisory and business consulting services; and
WHEREAS, the Executive and the Company were parties to an Employment
Agreement dated January 1988, which was amended by various agreements subsequent
thereto, including that certain Executive Employment Contract and certain
Restated Employment Agreements dated as of September 1, 1993, October 1, 1994
and January 1, 1996 (the "Prior Employment Agreements"); and
WHEREAS, the Board of Directors of the Company (the "Board") and the
Executive have agreed that the Prior Employment Agreements did not and do not
accurately and properly reflect the intent and prior understanding and agreement
of the parties with respect to the matters provided for in Paragraph 6 hereof
and certain other matters; and
WHEREAS, the Board has approved a further amendment and restatement of
the Prior Employment Agreements to correct such inaccuracies and clarify certain
other matters; and
WHEREAS, the Company desires the Executive to continue to serve, and
the Executive is willing to continue to serve, as the Company's Chief Executive
Officer on and subject to the terms set forth in this Agreement;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs the Executive as its Chief
Executive Officer for the Term of this Agreement (as hereinafter defined)
subject to and in accordance with the terms, conditions and provisions of this
Agreement. The Executive shall also serve as an executive officer of such of the
Company's wholly-owned or controlled subsidiaries which shall include any entity
existing as of the date hereof or formed or acquired during the Term hereof,
including corporations, partnerships, limited liability companies, joint
ventures or other entities (each an "Entity" and collectively, the "Entities"),
owned or controlled by the Company or by any Entity owned or controlled by any
such Entity (each a "Subsidiary" and collectively, the "Subsidiaries") to which
Executive may be elected by the board of directors of any such Subsidiary. The
Executive shall also serve in such other positions or capacities, not
inconsistent with his position as Chief Executive Officer of the Company or the
provisions of this Agreement, to which he may be elected by the Board or by the
board of directors of any Subsidiary or to which he may be assigned by the Board
from time to time during the Term hereof. The Company shall, subject to the
Executive's consent, cause the Executive to be nominated and elected to the
Board and to the boards of directors of such of the Subsidiaries as the Board
may determine. The Executive hereby accepts such employment upon and subject to
the terms, conditions and provisions of this Agreement.
2. Executive's Duties and Responsibilities.
(a) During the Term hereof, the Executive will perform all of
the services customarily associated with the position of chief executive officer
including, without limitation, services on behalf of any Subsidiary of which he
may serve as an officer, subject to the policies established by and at the
direction of the Board.
Exhibit 10.1 Page 1 of 14
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Exhibit 10.1 CEO's Employment Agreement
(b) The Executive will devote substantially all of his business
time, attention and efforts to the performance of his duties under this
Agreement during the Term hereof and shall perform such duties diligently, in
good faith and in a manner consistent with the best interests of the Company.
The Executive will use his best efforts at all times during the Term hereof to
preserve, protect, enhance and maintain the trade, business and goodwill of the
Company. Subject to the provisions of subparagraphs 7(b) and (c) hereof, the
Executive will perform his services wherever his services may reasonably be
required, but principally at the principal offices of the Company, which are
currently located at 160 Broadway, New York, New York 10038.
3. Term; Severance.
(a) The term of this Agreement (the "Term") commenced in January
1988 and shall expire on December 31, 2000, subject to earlier termination as
provided in subparagraph 3(b) below:
(b) This Agreement shall terminate prior to December 31, 2000,
upon the occurrence of any of the following events:
(i) The death of the executive;
(ii) The Permanent Disability, as hereinafter defined,
of the Executive, subject ot provisions of Paragraph 9 of this Agreement.
(iii) Entry of a final judgment by a court of competent
jurisdiction that there has been a breach or default by the Executive in the
performance or observance of any of the provisions of Paragraph 9 of this
Agreement;
(iv) Entry of a final judgment by a court of competent
jurisdiction that there has been repeated and deliberate misconduct by the
Executive;
(v) Entry of a final judgment by a court of competent
jurisdiction that there has been a repeated breach of trust or other repeated
action by which the Executive has obtained a material personal gain (other than
as provided for in this Agreement or consented to by the Board) at the material
expense or to the material detriment of the Company;
(vi) Entry of a final judgment by a court of competent
jurisdiction that there has been a failure by the Executive to perform the
customary duties of his position; provided that the Executive is furnished with
notice of such breach from the Company, which notice sets forth with
particularity such alleged failures, and the Executive fails to cure any such
breach within thirty (30) days of such notice. If the alleged breach is of a
type that cannot be cured within thirty (30) days, no breach shall exist under
this subparagraph 3(b)(vi) if the Executive has undertaken and is diligently
pursuing such cure;
(vii) Upon 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; provided that any such breach
or default is not cured within thirty (30) days of such notice; or
(viii) In the event of a Change of Control, as hereinafter
defined, during the Term hereof, 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, sells more than 50% of the outstanding capital
stock of any one or more subsidiaries, the aggregate gross revenues of which
constitute 33-1/3% or more of the gross revenues of the Company on a
consolidated basis, merges with or into or consolidates with any Entity, issues
to an independent, non-affiliated third party such number of shares of its
outstanding capital stock (or equity or debt securities convertible into or
exchangeable for shares of the Company's capital stock) as shall equal twenty
five percent (25%) or more of its total issued and outstanding shares of capital
stock, or Executive is removed from the Board, without cause, provided, however,
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 the occurrence of any of the foregoing transactions which is
approved by the Executive. For the purpose of this subparagraph
Exhibit 10.1 Page 2 of 14
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Exhibit 10.1 CEO's Employment Agreement
3(b)(viii), a merger transaction shall mean the merger or consolidation of the
Company with or into any other Entity; or
(ix) Upon thirty (30) days notice from Executive if
Executive is removed from the Board without cause; or
(x) Upon seven days notice from Executive in the event
of the entry by a court of competent jurisdiction of a decree or order for
relief in respect of the Company in an involuntary case under any applicable
bankruptcy, insolvency, or similar law then in effect or the appointment of a
receiver, liquidator, assignee, custodian, trustee, or sequestrator of the
Company or for any substantial part of its property or an order by any such
court for the wind-up or liquidation of the Company's affairs; or a petition
initiating an involuntary case under any such bankruptcy, insolvency, or similar
law is filed against the Company and is pending for sixty (60) days without a
stay or dismissal; or the Company commences a voluntary case under any such
bankruptcy, insolvency, or similar law then in effect, or makes any general
assignment for the benefit of its creditors or fails generally to pay its debts
as such debts become due or takes corporate action in furtherance of any of the
foregoing.
(c) In the event of a Change of Control of any Subsidiary to
which Executive renders services pursuant to this Agreement, or the occurrence
of any event with respect to any such subsidiary under subparagraphs 3(b)(vii)
or 3(b)(ix), the 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 or any benefits payable to the Executive, or any rights
of the Executive pursuant to this Agreement.
4. Compensation. In consideration of the performance by the Executive
of the services to be performed by him under this Agreement during the Term
hereof, the Company will pay to the Executive the following compensation:
(a) (i) An annual salary at the rate of Five Hundred
Thousand Dollars ($500,000), plus the increases thereto hereinafter referred to
(the "Salary") from September 1, 1996 through the remainder of the Term hereof.
The Salary shall be paid to the Executive in equal weekly installments (after
the deduction of all applicable withholding and other required payroll
deductions), in arrears, during the Term hereof. The Salary may be increased at
any time and from time to time by the Board during the Term hereof. The term
"Salary" shall also include all such increases as well as all increases pursuant
to subparagraph 4(a)(ii) below.
(ii) Commencing January 1, 1997 and on each January 1
thereafter during the Term hereof, the Executive shall receive an increase in
Salary equal to the greater of (A) five percent (5%) of the Salary in effect for
the year prior to such increase, or (B) the increase, if any, in the Cost of
Living Index, as hereinafter defined. The Company will, on the next payroll date
following the publication of such Cost of Living Index, pay to the Executive all
amounts of such increased salary determined in accordance with the preceding
sentence for the period commencing on the 1st day of January of such year
through such payroll date.
(iii) For purposes of this subparagraph 4(a), the increase
in the Cost of Living Index shall be computed as follows:
(A) The Cost of Living Index, as hereinafter
defined, for each December, commencing with December 1996, shall be compared
with the Cost of Living Index for December of the previous year. The increase in
the Cost of Living Index 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
publication of the Cost of Living Index for the December as of which the
computation is being made.
(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 the form in which it is published as of the date of this Agreement or
the calculation basis thereof shall be revised or
Exhibit 10.1 Page 3 of 14
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Exhibit 10.1 CEO's Employment Agreement
discontinued, the parties shall attempt in good faith to modify the provisions
of this subparagraph 4(a)(ii) on a basis which will provide a method of
calculation consistent with the method described herein for prior years.
(b) (i) A bonus for each calendar year during the Term of
this Agreement (the "Bonus") 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 net income before income taxes, determined in accordance
with generally accepted accounting principles applied on a basis consistent with
prior years or (B) the Company's Consolidated Net Cash Flow, as hereinafter
defined, exceeds Six Hundred Thousand Dollars ($600,000). "Consolidated Net Cash
Flow" shall mean (A) consolidated net income, plus (B) depreciation,
amortization and other non-cash items of expense, minus (C) payments of all
principal amounts of then outstanding indebtedness, all determined in accordance
with generally accepted accounting principles applied on a basis consistent with
prior years. The computation of consolidated net income before income taxes and
Consolidated Net Cash Flow shall be made in a manner consistent with the
financial statements included in the Company's Annual Report on Form 10-K for
the year with respect to which the Bonus is computed; provided, however, that
such computation shall be made without any deduction for the Bonus payable to
the Executive pursuant to this subparagraph 4(b). Such computation shall be made
by the Company's independent auditors, whose determination shall be final,
binding and conclusive on the parties (subject to the provisions of subparagraph
4(b)(iii) hereof)
(ii) The Bonus shall be payable to the Executive on or
before the later of (A) thirty (30) days following the completion of the audited
consolidated financial statements of the Company, or (B) May 1 of each such
year, or (C) within ten (10) days after the final resolution of any disagreement
with respect to the calculation of consolidated net income before income taxes
or Consolidated Net Cash Flow pursuant to subparagraph 4(b)(iii) of this
Agreement. In the event of any termination of this Agreement prior to the end of
any calendar year during the Term hereof, the Company will pay to the Executive
(or, in the case of early termination due to the Executive's death, to his
beneficiary, as hereinafter defined), with respect to the year in which any such
termination occurs, a portion of the Bonus which shall be determined by
calculating the Bonus for the entire year in which such termination occurs and
multiplying such Bonus by a fraction, the numerator of which is the number of
months in such year prior to the month in which such termination occurs and the
denominator of which shall be twelve (12), unless such termination results from
an event or occurrence described in subparagraphs 3(b)(iv) or 3(b)(v) of this
Agreement, in which case, notwithstanding any provision of this Agreement to the
contrary, the Company will have no obligation to make any payment of the Bonus
to the Executive for the year in which such termination occurs. As used in this
Agreement, the term "beneficiary" shall mean the person designated by the
Executive by an instrument signed by the Executive, acknowledged before a notary
public and delivered to the Company. In the event that the 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 the Executive with each
Bonus payment a report setting forth the calculation of consolidated net income
before income taxes and Consolidated Net Cash Flow for the year with respect to
which such Bonus is paid, computed in accordance with subparagraph 4(b)(i) of
this Agreement. Unless the 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), such calculations will be final,
binding and conclusive on the Executive. If there is a disagreement of which the
Company is so notified by the Executive, and the disagreement cannot be resolved
by the Company and the Executive within sixty (60) days following the delivery
of such notice, 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 Company's independent auditors shall
determine what changes, if any, are required in the calculations, and such
determination shall be final, binding and conclusive on the Company and the
Executive. The fees, costs and expenses of such independent auditors shall be
borne by the Company.
Exhibit 10.1 Page 4 of 14
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Exhibit 10.1 CEO's Employment Agreement
(iv) The Executive and his duly authorized
representatives shall have the right, at his 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 and/or any sums payable to Executive under this Agreement.
(c) In the event of a termination of this Agreement pursuant
to subparagraphs 3(b)(i), (ii), (vii), (viii), (ix) or (x) of this Agreement,
the Executive will be entitled to receive from the Company, in addition to any
Salary and Bonus payable pursuant to this Paragraph 4, and the Company will pay
to the Executive, severance compensation as follows:
(i) In the event of any termination of the Term hereof
pursuant to subparagraph 3(b)(i) of this Agreement, the Company will pay to the
Executive's beneficiary the face value of the life insurance policy to be
maintained by the Company pursuant to subparagraph 5(b) of this Agreement. In
the event that the Company fails to maintain such insurance, unless such failure
results from the Company having a lack of sufficient funds to pay the premiums
therefor, the Executive's failure to pass an insurance physical or the Executive
being otherwise uninsurable, the Company will pay such amount in forty-eight
(48) equal consecutive monthly installments, the first of which shall be due and
payable on the first day of the first month following the month in which the
Executive's death occurs.
(ii) In the event of the termination of this Agreement
pursuant to subparagraph 3(b)(ii) of this Agreement, the Executive will be
entitled to receive the payments provided for in subparagraph 8(b) of this
Agreement.
(iii) In the event of the termination of this Agreement
pursuant to subparagraphs 3(b)(vii), (viii), (ix) or (x) of this Agreement, the
Executive, his legal representative or his beneficiary, as the case may be, will
continue to receive the Executive's then Salary in equal monthly installments,
in advance, for a period of one hundred twenty (120) months from the date of any
such termination.
(d) In the event of the sale, during the Term hereof, by the
Company or any Subsidiary of any securities purchased or acquired solely for
investment purposes or in exchange for or in consideration of the performance of
services or as a fee (the "Investment Securities"), or of the stock, business or
assets of the Company or any Subsidiary of the Company, the Executive shall be
entitled to a profit-sharing bonus (the "Profit-Sharing Bonus") equal to twenty
percent (20%) of the gross profit (determined as provided below), if any,
received by the seller in such transaction (the "Seller") as a result of such
sale. In the event of any such sale in which the purchase price is paid in cash
or marketable securities, or a combination of cash and marketable securities,
the Profit-Sharing Bonus shall be paid by delivery to the Executive by the
Seller of cash and/or marketable securities in the same proportion as received
by the Seller. In all other events, the Profit-Sharing Bonus shall be payable in
cash or in such other manner as to which the Executive and the Company may agree
prior to the consummation of such sale. Each Profit-Sharing Bonus shall be
payable by the Seller to the Executive not later than twenty (20) days following
the date of any such sale and each such payment shall be accompanied by a
document, signed by the Chief Financial Officer of the Company, showing the
Seller's adjusted cost basis in the Investment Securities, stock, business or
assets sold, the gross sale price, the gross profit on such sale, which shall be
the Seller's gross sale price less the Seller's adjusted cost basis in the
Investment Securities, stock, business or assets sold (the "Gross Profit"), the
amount of the Profit-Sharing Bonus payable and a description and statement of
the value of each kind of property, other than cash, being delivered in payment
of the Profit-Sharing Bonus (the "Bonus Certificate"). The adjusted cost basis
of the Seller in the Investment Securities, stock, business or assets being
sold, the value of each kind of property, other than cash, received by the
Seller in such sale, the gross sale price and the amount of the Profit-Sharing
Bonus shall be determined by the Company's independent auditors. If the
Executive shall not have disputed the amount of such payment, the accuracy or
completeness of the Bonus Certificate and/or the information set forth in such
Bonus Certificate within thirty (30) days following the receipt of payment of
any Profit-Sharing Bonus under this subparagraph 4(d) and the related Bonus
Certificate, then the information set forth in the Bonus Certificate shall be
conclusive and binding upon the parties. If the Executive desires to dispute the
amount of such payment, the accuracy or completeness of the Bonus Certificate
and/or the information set forth therein, such dispute shall be conducted and
resolved in accordance with the procedures set forth in subparagraph 6(d) of
this
Exhibit 10.1 Page 5 of 14
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Exhibit 10.1 CEO's Employment Agreement
Agreement. The Bonus Certificate to which any such dispute relates will be
promptly modified following the resolution of any such dispute to reflect such
resolution.
(e) Attached hereto as Schedule A is a schedule setting forth as
of the date hereof each Investment Security purchased or acquired by the Company
or any Subsidiary of the Company prior to the date hereof, the purchase price of
each such Investment Security, the date or dates of acquisition of each such
Investment Security, and the date of transfer or sale of each such Investment
Security that has been transferred or sold. Each time, subsequent to the date
hereof that the Company or any Subsidiary acquires or otherwise obtains an
Investment Security which is subject to subparagraph 4(d) of this Agreement, the
Company shall prepare and deliver to the Executive a supplement to or an updated
Schedule A which will set forth the date of such supplement or update, the
Investment Security acquired or otherwise obtained (including the type or
designation of such Security, the number of shares of such Security and the date
of purchase or acquisition thereof) and the purchase price of such Security.
Each such supplement or updated Schedule A shall be signed by the Chief
Financial Officer of the Company when delivered to the Executive and, upon
receipt by the Executive, will be countersigned and returned to the Company by
the Executive (unless disputed in accordance with the provisions of subparagraph
6(d) hereof). Notwithstanding any provision in this Agreement to the contrary,
Schedule A attached hereto is binding and conclusive on the parties hereto as to
the Investment Securities, purchase price, and dates of acquisition as set forth
in such Schedule.
(f) In the event of the Retirement (as hereinafter defined) of
the Executive, the Executive or his legal representative or beneficiary, as the
case may be, will continue to receive, as and for retirement compensation, an
amount equal to one-twelfth of the greater of (i) the Executive's Salary for the
year in which Retirement occurs, or (ii) the average of the Executive's Salary
and Bonus for each of the five (5) years immediately preceding the year in which
Retirement occurs, for a period of twenty (20) months from the date of
commencement of such Retirement. The amount calculated pursuant to the preceding
sentence shall be payable, in equal monthly installments, in arrears. For the
purpose of this subparagraph 4(f), "Retirement" shall be deemed to have occurred
at the expiration of the Term or any renewal Term of this Agreement or upon
termination of the employment provided for herein prior to the expiration of the
Term by the mutual consent of the Executive and the Company.
5. Executive Benefits. In addition to the Salary, Bonus and
severance compensation, the Executive will receive the following benefits:
(a) The Executive will be entitled to four (4) weeks paid
vacation and fifteen (15) paid sick days during each calendar year of the Term
hereof commencing with 1994. The Executive will 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 or sick
days shall be paid to the Executive by the Company at the end of each year of
the Term hereof based upon Executive's then Salary.
(b) The Company will pay for and maintain for the Executive
during the Term of this Agreement, disability insurance providing for the
payment to the Executive of a minimum of sixty percent (60%) of his Salary for
any "disability" as defined in such disability insurance policy. The Company
will also pay and maintain for the Executive during the Term hereof, major
medical, hospitalization, dental and vision insurance (which insurance will
cover the Executive and members of his immediate family, as defined in the
applicable insurance policies) and life insurance upon the life of the Executive
having a face value of not less than Two Million Dollars ($2,000,000), the
proceeds of which shall be payable to such beneficiary(ies) as shall be
designated by the Executive from time to time during the Term hereof, or, in the
absence thereof, Executive's estate. The Company will 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 hereof unless this Agreement shall be terminated pursuant to
subparagraphs 3(b)(iii), (iv), (v) or (vi) of this Agreement, in which case the
Company will not be obligated to maintain such insurance. During the Term
hereof, any such life insurance policy which the Company is obligated hereby to
maintain will remain the property of the Company; provided, however, upon the
expiration of the Term hereof, the Executive will have the right to have such
life insurance policy assigned to him and the Company shall continue to pay or
reimburse the Executive for all costs therefor. The Company may, at its election
at any time during the Term hereof, obtain and maintain at its cost, a key man
life insurance policy on the
Exhibit 10.1 Page 6 of 14
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Exhibit 10.1 CEO's Employment Agreement
Executive's life with the Company as the beneficiary thereof, and the Executive
will cooperate with the Company and its insurer with respect to obtaining and
maintaining in force such insurance policy.
(c) The Company will provide the Executive with a late model
luxury automobile during the Term of this Agreement (and/or reimburse the
Executive for all costs incurred by him in connection therewith). In addition,
the Company will pay or reimburse the Executive for the cost of insurance,
gasoline, service and maintenance of such automobile upon presentation of bills
or other evidences of payment therefor.
(d) The Company agrees that nothing contained in this Agreement
is intended to, or shall be deemed to be a grant to the Executive in lieu of, or
as a limitation upon, any rights and privileges to which the Executive may
otherwise be entitled as an executive employee of the Company or any Subsidiary
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 or instituted by the Company or any
Subsidiary during the Term hereof of which the Executive is an officer or
director, it being understood that the Executive shall have the same rights and
privileges to participate in such Company and Subsidiary benefit plans as any
other officer or executive employee of the Company or any such Subsidiary.
6. Executive's Right to Participate in Future Expansion of the
Company.
(a) From and after January 1988, and through the expiration or
earlier termination of the Term hereof, the Executive or his designees (who or
which, for the purposes of this Paragraph 6, shall be deemed to be included in
the definition of and referred to as the "Executive"), shall have the right to
and benefit of participating in the future growth and expansion of the Company,
as hereinafter provided in this Paragraph 6.
(b) If the Company or any subsidiary of the Company or any
subsidiary of any such Subsidiary, which, for the purposes of this Paragraph 6,
shall include any corporation in which the Company or any such Subsidiary
thereof owns capital stock (any such corporation being hereinafter referred to
in this Paragraph 6 as a "Parent") proposes to form a subsidiary for any purpose
whatsoever including, but not limited to the formation of a subsidiary to
acquire, or to enter into any agreement or other understanding to acquire, by
purchase, merger, consolidation or by or as a result of any other form of
business arrangement (including the establishment of a new business) or
combination (an "Acquisition"), all or any part of any corporation, partnership,
joint venture, proprietorship or other operating business, or any equity
interest in any such business (other than for investment purposes only, for
services rendered or as a fee, as provided for in subparagraph 4(d) hereof),
including, but not limited to, the acquisition of common or preferred stock of
any class or series, or options, warrants, rights or other securities
convertible into or exchangeable for common or preferred stock of any class or
series (each a "Security" or collectively, the "Securities"), the Executive
shall have the right to form or cause to be formed, at his sole cost and
expense, such subsidiary or subsidiaries (the "Purchaser") and, in consideration
of the Executive bearing such cost and expense, the Executive shall receive, as
of the date of the formation of any such Purchaser, 10% of the authorized
Securities of each class and series of such Purchaser at that date (the
"Founder's Securities"). Whether or not the Founder's Securities of any
Purchaser are physically issued on the date of the formation of any such
Purchaser, the Executive shall be deemed to have equitable and beneficial
ownership of 10% of such Founder's Securities as of the date of formation of any
such Purchaser.
(c) If, subsequent to the formation of any such Purchaser, such
Purchaser issues, or agrees to issue, any Securities as a dividend or in respect
of any Securities of such Purchaser then held by the Executive or in connection
with any stock split or other recapitalization, Executive shall, as a security
holder of such Purchaser, be entitled to receive his proportionate share of such
subsequently issued securities (the "Subsequently Issued Securities").
(d) Attached hereto as Schedule B is a schedule as of the date
hereof setting forth the name, state of incorporation and date of formation of
each Purchaser, the capitalization of each Purchaser as of its date of
formation, the Founder's Securities of such Purchaser issued to the Executive,
the cost basis of the Executive in connection with the formation of each such
Purchaser, the Subsequently Issued Securities of each Purchaser, if any,
Exhibit 10.1 Page 7 of 14
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Exhibit 10.1 CEO's Employment Agreement
the Subsequently Issued Securities of each Purchaser owned by Executive, and the
date of ownership of same. Each time, subsequent to the date of this Agreement,
that a new Purchaser is formed, the Executive shall prepare and deliver to the
Company a supplement to or an updated Schedule B which shall set forth the date
of such supplement or update and include the information specified in the
preceding sentence with respect to the new Purchaser. Each such supplement or
updated Schedule B shall be signed by the Executive when delivered to the
Company and, upon receipt by the Company, will be countersigned and returned to
the Executive by the Chief Financial Officer of the Company. Each time,
subsequent to the date hereof, that Subsequently Issued Securities are approved
for issuance by the Board of Directors of a Purchaser, the Company shall prepare
and deliver to the Executive a supplement to or an updated Schedule B which
shall include the information specified above with respect to the Subsequently
Issued Securities. Each such supplement to or updated Schedule B shall be signed
by the Chief Financial Officer of the Company when delivered to the Executive.
If the Executive does not dispute any of the information set forth therein, he
will countersign such supplement or updated Schedule B and return it to the
Chief Financial Officer of the Company and the information set forth therein
will be binding upon the parties hereto. If the Executive disputes any of the
information in such supplement or updated Schedule B, he shall be required to
give notice of such dispute to the Company within such thirty (30) day period
(the "Dispute Notice"). The Dispute Notice shall set forth the specifics of the
Executive's dispute if the Company and Executive shall not have resolved such
dispute within thirty (30) days after the Company's receipt of the Dispute
Notice, the matter shall be submitted to the Company's then independent auditors
for a determination thereof and the decision of such auditors shall be final,
binding and conclusive on the Company, the Parent and the Executive. The fees of
said auditors shall be paid by the Company. The supplement or updated Schedule B
to which the Dispute Notice relates will be promptly modified following the
resolution of any such dispute to reflect such resolution. Notwithstanding any
provision in this Agreement to the contrary, Schedule B attached hereto is
binding and conclusive on the parties hereto with respect to the accuracy of the
information set forth therein.
(e) Notwithstanding the provisions of any subparagraph of this
Paragraph 6, the Executive shall have no entitlement, by virtue of the
provisions of this Agreement, to any debt or equity securities of the Company
which are issued to or in any other manner become the property of any subsidiary
of the Company.
(f) The Executive may, at any time during the Term of this
Agreement, upon ten (10) days notice to the Company, purchase up to ten (10%)
percent of the equity securities of SISC (on a fully diluted basis) for a
purchase price equal to the then fair market value thereof. The purchase price
for such equity securities shall be payable by delivery of Executive's ten (10)
year recourse promissory note, bearing interest at the lowest rate necessary to
avoid imputed interest under the Internal Revenue Code of 1986, as amended,
interest being payable annually and all principal being payable upon maturity of
said note (which note shall be prepayable, in whole or in part at any time,
without premium or penalty). The fair market value of such equity securities
shall be determined by the Company's Chief Financial Officer and a notice of
such determination, specifying the fair market value of such equity securities
signed by the Company's Chief Financial Officer, shall be given to the Executive
within thirty (30) days after the Executive's aforementioned notice and shall be
binding upon Executive unless Executive notifies the Company of his disagreement
with the determination thereof within thirty (30) days after his receipt of such
notice from the Chief Financial Officer. If the Company and the Executive shall
not have resolved such dispute within thirty (30) days after the Company's
receipt of the Executive's notice disagreeing with such determination, the
matter shall be submitted to the Company's then independent auditors for a
determination thereof and the decision of such auditors shall be final, binding
and conclusive on the Company and the Executive.
7. Expense Reimbursement.
(a) The Company will reimburse the Executive for all ordinary
and necessary expenses incurred by him in connection with 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 from time to time.
(b) In the event that the Company moves its corporate
headquarters from the New York metropolitan area, the Company will, if the
Executive elects to relocate, pay the Executive's reasonable moving expenses,
including temporary living accommodations for up to six months; provided, that
the Company may not
Exhibit 10.1 Page 8 of 14
<PAGE>
Exhibit 10.1 CEO's Employment Agreement
require the Executive to relocate. In the event the Company so relocates its
corporate headquarters and the Executive elects not to relocate, the Company
will provide the Executive, at the Company's cost, with such offices and staff
in a location in the New York metropolitan area as to which the Company and the
Executive may agree.
(c) In the event that the Company establishes multiple offices
and the Executive is required to spend any significant part of his time at more
than one Company office, the Company shall pay to the Executive a housing
allowance of Three Thousand Five Hundred Dollars ($3,500) per month for as long
as more than one Company office is maintained; provided, however, that following
the closing of any such office, the Company will reimburse the Executive for any
costs incurred by him in moving and in terminating any lease obligations and
similar expenses.
8. Disability.
(a) In the event the Executive suffers any temporary disability
during the Term hereof, 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 the Executive for a period in excess of six (6)
consecutive calendar months. For the purpose of this subparagraph 8(a), the
terms "disabled" and "disability" shall mean (i) any physical or mental illness,
injury or other incapacity which, in the opinion of a doctor reasonably
satisfactory to the Company and the Executive or his legal representative,
renders the Executive unable to perform substantially all of his duties under
this Agreement, or (ii) a judicial determination of incompetence. The date that
any such disability shall be deemed to have commenced shall be the date the
Executive first absents himself from work during a continuous period of
disability as determined by the doctor referred to in this subparagraph 8(a) or
the date of judicial determination of incompetence, as the case may be.
(b) In the event of a Permanent Disability, the Company shall
pay to the Executive, as disability benefits, one hundred twenty (120) monthly
payments each in an amount equal to sixty percent (60%) of Executive's then
Salary divided by twelve (12), the first of such payments to commence on the
first day of the first month following any such termination of this Agreement as
a result of a Permanent Disability. In the event that such date is a date
subsequent to the date such Permanent Disability is determined, payments for all
prior months in which the Executive was entitled to such payments will be made
together with the first payment made. Such payments shall be reduced by the
amount of all payments which the Executive receives under any disability policy
maintained by the Company.
Exhibit 10.1 Page 9 of 14
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Exhibit 10.1 CEO's Employment Agreement
9. Confidentiality and Non-Disclosure Covenant.
(a) The 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 businesses and operations, the use or
disclosure of which would materially adversely affect the operations of the
Company or its Subsidiaries, including, without limitation, unpublished material
financial information relating to the Company's and its Subsidiaries' present
and proposed businesses 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, and the terms of all material agreements to which the Company or
any Subsidiary is a party. All of such unpublished information that may be
obtained by the Executive shall, for purposes hereof, be referred to as
"Confidential Information". The Executive hereby agrees that, unless the
Confidential Information becomes publicly known other than by reason of any
improper act or omission of the Executive, neither he, nor any entity or person
owned or controlled by him, shall, during or after the Term hereof, 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 the Executive's services under this
Agreement. Notwithstanding the foregoing, the 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, if
possible, the Company shall be given notice in time to enable it to object to
such disclosure) or which was obtained by the Executive from a third party
without such third party's breach of any agreement or obligation of trust. The
term "entity or person owned or controlled by" the Executive or words of like
import shall not include the Company or any of its Subsidiaries.
(b) The Executive agrees that his violation or threatened
violation of any of the provisions of this Paragraph 9 may cause immediate and
irreparable harm to the Company. In the event of any breach or threatened breach
of said provisions, the Company shall be entitled to seek all available
equitable remedies therefor including, without limitation, preliminary and
permanent injunctions by a court of competent jurisdiction prohibiting Executive
from any violation or threatened violation of these provisions and compelling
the Executive to comply with these provisions. This Paragraph 9 shall not affect
or limit, and the equitable remedies provided in this subparagraph 9(b) shall be
in addition to, any other remedies available to the Company at law. The
provisions of this Paragraph 9 shall survive the termination or expiration of
the Term of this Agreement.
10. Representations and Warranties of the Executive. The Executive
represents and warrants to the Company as follows:
(a) All action on the part of the Executive necessary for the
authorization, execution, delivery and performance of this Agreement by him and
the consummation of the transactions contemplated hereby, has been taken and
this Agreement constitutes a valid and legally binding obligation of the
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 the
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 the Executive, currently threatened against the
Executive, in any way relating to the validity of this Agreement or the right of
the Executive to enter into or to consummate this Agreement and the transactions
contemplated hereby.
11. Representations and Warranties of the Company. The Company
represents and warrants to the Executive as follows:
Exhibit 10.1 Page 10 of 14
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Exhibit 10.1 CEO's Employment Agreement
(a) All action on the part of the Company, SISC and each
Subsidiary necessary for the authorization, execution, delivery and performance
of this Agreement by them and the consummation of the transactions contemplated
hereby, has been taken and this Agreement constitutes a valid and legally
binding obligation of the Company, 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 the
Company, SISC or any Subsidiary is a party or by which any of them is bound.
(c) There is no action, suit, proceeding, or investigation
pending, or to the knowledge of the Company, currently threatened against the
Company, SISC or any Subsidiary, in any way relating to the validity of this
Agreement or the right of the Company to enter into or to consummate this
Agreement and the transactions contemplated hereby.
12. Arbitration. Except for any action under this Agreement for
injunctive or other equitable relief and except as otherwise expressly provided
in subparagraphs 4(b) and 6(i) 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 the 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. Judgment upon any
award or decision rendered by such arbitrators may be entered or enforced in any
court, domestic or foreign, having jurisdiction thereof. The arbitrators shall
not, except as provided in subparagraph 14(f) of this Agreement, have any
authority to modify or amend any express provisions of this Agreement.
13. Agreements with Affiliates. The Executive may enter into
employment agreements with affiliates of the Company (the "Affiliate
Agreements"). To the extent that, for any year during the Term hereof that the
aggregate annual salary paid to Executive pursuant to the Affiliate Agreements
does not exceed the Salary payable pursuant to this Agreement for such year,
such aggregate salary received by the Executive under such Affiliate Agreements
shall reduce the Salary payable pursuant to this Agreement on a dollar for
dollar basis. If, for any year during the Term hereof that the aggregate annual
salary paid to Executive pursuant to the Affiliate Agreements exceeds the Salary
payable pursuant to this Agreement for such year, no Salary shall be paid by the
Company to the Executive pursuant to this Agreement for such year; provided,
however, that in such event the Executive shall not be required to refund any
Salary (or salary or other compensation received by him pursuant to any
Affiliate Agreement) paid to him during such year. Any bonuses or other
non-salary compensation or benefits paid to Executive pursuant to the Affiliate
Agreements shall not affect in any way the Salary, Bonus, or other benefits
payable to Executive pursuant to this Agreement.
14. Miscellaneous.
(a) This Agreement constitutes the entire agreement of the
Company and the Executive with respect to the subject matter hereof and
supersedes all prior written or prior or contemporaneous oral understandings or
agreements, including the Prior Employment Agreements and any other employment
agreements or understandings between the Company and the Executive 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 hereto in the
case of a modification or amendment or by the party granting the waiver. No
course of conduct or dealing between the parties hereto and no custom or trade
usage shall be relied upon to vary the terms of this Agreement. The failure of a
party to this Agreement 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.
Exhibit 10.1 Page 11 of 14
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Exhibit 10.1 CEO's Employment Agreement
(b) Any notice, demand or other communication (collectively, the
"Notices") required or permitted by or with respect to 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 subparagraph 14(b), to the
parties at their respective addresses set forth at the beginning of this
Agreement or by telecopier to the 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 notice given in accordance with the terms hereof, 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) Except as specifically set forth in this subparagraph,
neither party hereto may assign this Agreement or his or its rights, benefits or
obligations hereunder without the written consent of the other party; except
that the rights of the Executive set forth in Paragraphs 4 and 6 hereof may be
assigned to designated purchasers and shall inure to the benefit of the
Executive's heirs, administrators, executives, personal representatives,
successors and permitted assigns. Subject to the foregoing, this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their heirs,
administrators, executors, personal representatives, successors and permitted
assigns. Nothing contained herein is intended to confer upon any person or
entity, other than the parties hereto, and their respective heirs,
administrators, executors, personal representatives, successors or permitted
assigns or, in the case of the Executive, his designated purchasers under
Paragraph 6 hereof, any rights, benefits, obligations, remedies or liabilities
under or by reason 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 their execution hereof, the Company and the Executive
hereby consent and irrevocably submit 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 9, the Federal or state courts
situated in New York County, New York, which shall have sole jurisdiction as to
such matters, and agree that any process in any action commenced in such
tribunal or court under this Agreement may be served upon it or 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 it or 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 arbitration proceeding pursuant to
Paragraph 9 hereof, 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, other documents and assurances as may be
reasonably required to more effectively consummate this Agreement and the
transactions contemplated 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 hereof, the Company shall defend,
indemnify and hold the Executive harmless from any and all claims, causes of
action, liabilities, damages, costs or expenses (including,
Exhibit 10.1 Page 12 of 14
<PAGE>
Exhibit 10.1 CEO's Employment Agreement
without limitation, attorneys' fees and disbursements) incurred by the 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 SISC or a Subsidiary, the laws of the
jurisdiction of incorporation of SISC or any such Subsidiary) and of the By-Laws
of the Company, SISC or any such Subsidiary, as the case may be. In the event
that, under applicable law, the Company is not permitted to defend the Executive
or pay the costs of defense as provided in this subparagraph 14(g) unless the
Executive undertakes to reimburse the Company in the event that any such payment
is unlawful, then, in such event, the Company may condition such defense or
payment on receipt of an appropriate reimbursement agreement from the Executive.
This provision will survive the expiration or termination of the Term of this
Agreement.
(h) 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.
[SIGNATURES FOLLOW ON NEXT PAGE]
Exhibit 10.1 Page 13 of 14
<PAGE>
Exhibit 10.1 CEO's Employment Agreement
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the day and year first above written.
CONSOLIDATED TECHNOLOGY GROUP LTD.
By:__________________________________
George W. Mahoney
Chief Financial Officer
------------------------------------
Lewis S. Schiller
Exhibit 10.1 Page 14 of 14
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 14th day of August, 1997, by and
between GRAZYNA B. WNUK, an individual with an address at 160 Broadway, New
York, New York 10038 ("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 imaging services, contract engineering services, manufacturing,
medical information systems, three-dimensional products and services,
telecommunications and financial advisory and business consulting services; and
WHEREAS, the Executive is, and for some time has been, employed by the
Company as its Corporate Secretary; and
WHEREAS, the Board of Directors of the Company (the "Board") desires
the Executive to continue to serve, and the Executive is willing to continue to
serve, as the Company's Secretary on and subject to the terms set forth in this
Agreement;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs the Executive as its
Corporate Secretary for the Term of this Agreement (as hereinafter defined)
subject to and in accordance with the terms, conditions and provisions of this
Agreement. The Executive shall also serve as the Corporate Secretary of such of
the Company's wholly-owned or controlled subsidiaries which shall include any
entity existing as of the date hereof or formed or acquired during the Term
hereof, including corporations, partnerships, limited liability companies, joint
ventures or other entities (each an "Entity" and collectively, the "Entities"),
owned or controlled by the Company or by any Entity owned or controlled by any
such Entity (each a "Subsidiary" and collectively, the "Subsidiaries") to which
Executive may be elected by the board of directors of any such Subsidiary. The
Executive shall also serve in such other positions or capacities, not
inconsistent with her position as Corporate Secretary of the Company or the
provisions of this Agreement, to which she may be elected by the Board or by the
board of directors of any Subsidiary or to which she may be assigned by the
Board from time to time during the Term hereof. The Company shall, subject to
the Executive's consent, cause the Executive to be nominated and elected to the
Board and to the boards of directors of such of the Subsidiaries as the Board
may determine. The Executive hereby accepts such employment upon and subject to
the terms, conditions and provisions of this Agreement.
2. Executive's Duties and Responsibilities.
(a) During the Term hereof, the Executive will perform all of
the services customarily associated with the position of Corporate Secretary
including, without limitation, services on behalf of any Subsidiary of which she
may serve as an officer, subject to the policies established by and at the
direction of the Board.
(b) The Executive will devote substantially all of her business
time, attention and efforts to the performance of her duties under this
Agreement during the Term hereof and shall perform such duties diligently, in
good faith and in a manner consistent with the best interests of the Company.
The Executive will use her best efforts at all times during the Term hereof to
preserve, protect, enhance and maintain the trade, business and goodwill of the
Company. Subject to the provisions of subparagraphs 7(b) and (c) hereof, the
Executive will perform her services wherever his services may reasonably be
required, but principally at the principal offices of the Company, which are
currently located at 160 Broadway, New York, New York 10038.
3. Term; Severance.
Exhibit 10.2 Page 1 of 12
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
(a) The term of this Agreement (the "Term") commenced on June
30, 1997 and shall expire on December 31, 2002, subject to earlier termination
as provided in subparagraph 3(b) below. The Executive shall have the right, upon
notice to the Company, not later than sixty (60) days prior to the expiration of
the Term hereof, to extend the Term of this Agreement for up to an additional
five (5) year period commencing on January 1, 2003 (and the "Term" shall include
any such extended period):
(b) This Agreement shall terminate prior to December 31, 2002,
upon the occurrence of any of the following events:
(i) The death of the Executive;
(ii) The Permanent Disability, as hereinafter defined, of
the Executive, subject to the provisions of Paragraph 8 of this Agreement;
(iii) Entry of a final judgment by a court of competent
jurisdiction that there has been repeated and deliberate misconduct by the
Executive;
(iv) Entry of a final judgment by a court of competent
jurisdiction that there has been a repeated breach of trust or other repeated
action by which the Executive has obtained a material personal gain (other than
as provided for in this Agreement or consented to by the Board) at the material
expense or to the material detriment of the Company;
(v) Entry of a final judgment by a court of competent
jurisdiction that there has been a failure by the Executive to perform the
customary duties of her position; provided that the Executive is furnished with
notice of such breach from the Company, which notice sets forth with
particularity such alleged failures, and the Executive fails to cure any such
breach within thirty (30) days of such notice. If the alleged breach is of a
type that cannot be cured within thirty (30) days, no breach shall exist under
this subparagraph 3(b)(v) if the Executive has undertaken and is diligently
pursuing such cure;
(vi) Upon 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; provided that any such breach
or default is not cured within thirty (30) days of such notice; or
(vii) In the event of a Change of Control, as hereinafter
defined, during the Term hereof, 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, sells more than 50% of the outstanding capital
stock of any one or more subsidiaries, the aggregate gross revenues of which
constitute 33-1/3% or more of the gross revenues of the Company on a
consolidated basis, merges with or into or consolidates with any Entity, issues
to an independent, non-affiliated third party such number of shares of its
outstanding capital stock (or equity or debt securities convertible into or
exchangeable for shares of the Company's capital stock) as shall equal twenty
five percent (25%) or more of its total issued and outstanding shares of capital
stock, or Executive is removed from the Board, without cause, provided, however,
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 the occurrence of any of the foregoing transactions which is
approved by the Executive. For the purpose of this subparagraph 3(b)(vii), a
merger transaction shall mean the merger or consolidation of the Company with or
into any other Entity; or
(viii) Upon thirty (30) days notice from Executive if
Executive is removed from the Board without cause; or
(ix) Upon seven days notice from Executive in the event
of the entry by a court of competent jurisdiction of a decree or order for
relief in respect of the Company in an involuntary case under any
Exhibit 10.2 Page 2 of 12
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
applicable bankruptcy, insolvency, or similar law then in effect or the
appointment of a receiver, liquidator, assignee, custodian, trustee, or
sequestrator of the Company or for any substantial part of its property or an
order by any such court for the wind-up or liquidation of the Company's affairs;
or a petition initiating an involuntary case under any such bankruptcy,
insolvency, or similar law is filed against the Company and is pending for sixty
(60) days without a stay or dismissal; or the Company commences a voluntary case
under any such bankruptcy, insolvency, or similar law then in effect, or makes
any general assignment for the benefit of its creditors or fails generally to
pay its debts as such debts become due or takes corporate action in furtherance
of any of the foregoing.
(c) In the event of a Change of Control of any Subsidiary to
which Executive renders services pursuant to this Agreement, or the occurrence
of any event with respect to any such subsidiary under subparagraphs 3(b)(vi) or
3(b)(viii), the 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 or any benefits payable to the Executive, or any rights
of the Executive pursuant to this Agreement.
4. Compensation. In consideration of the performance by the Executive
of the services to be performed by her under this Agreement during the Term
hereof, the Company will pay to the Executive the following compensation:
(a) (i) An annual salary at the rate of Two Hundred Thousand
Dollars ($200,000), plus the increases thereto hereinafter referred to (the
"Salary"). The Salary shall be paid to the Executive in equal weekly
installments (after the deduction of all applicable withholding and other
required payroll deductions), in arrears, during the Term hereof. The Salary may
be increased at any time and from time to time by the Board during the Term
hereof. The term "Salary" shall also include all such increases as well as all
increases pursuant to subparagraph 4(a)(ii) below.
(ii) Commencing January 1, 1998 and on each January 1
thereafter during the Term hereof, the Executive shall receive an increase in
Salary equal to the greater of (A) five percent (5%) of the Salary in effect for
the year prior to such increase, or (B) the increase, if any, in the Cost of
Living Index, as hereinafter defined. The Company will, on the next payroll date
following the publication of such Cost of Living Index, pay to the Executive all
amounts of such increased salary determined in accordance with the preceding
sentence for the period commencing on the 1st day of January of such year
through such payroll date.
(iii) For purposes of this subparagraph 4(a), the increase
in the Cost of Living Index shall be computed as follows:
(A) The Cost of Living Index, as hereinafter
defined, for each December, commencing with December 1997, shall be compared
with the Cost of Living Index for December of the previous year. The increase in
the Cost of Living Index 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
publication of the Cost of Living Index for the December as of which the
computation is being made.
(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 the form in which it is published as of the date of this Agreement or
the calculation basis thereof shall be revised or discontinued, the parties
shall attempt in good faith to modify the provisions of this subparagraph
4(a)(ii) on a basis which will provide a method of calculation consistent with
the method described herein for prior years.
(b) (i) A bonus for each calendar year during the Term of
this Agreement (the "Bonus") commencing with the year ending December 31, 1997,
equal to one-half of one percent (.5%) of the amount by which the greater of (A)
the Company's consolidated net income before income taxes, determined in
accordance with generally accepted accounting principles applied on a basis
consistent with prior years or (B) the Company's Consolidated Net Cash Flow, as
hereinafter defined, exceeds Six Hundred Thousand Dollars
Exhibit 10.2 Page 3 of 12
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
($600,000). Such Bonus shall be pro-rated for the calendar year ending December
31, 1997 for the period June 30, 1997 through December 31, 1997. "Consolidated
Net Cash Flow" shall mean (A) consolidated net income, plus (B) depreciation,
amortization and other non-cash items of expense, minus (C) payments of all
principal amounts of then outstanding indebtedness, all determined in accordance
with generally accepted accounting principles applied on a basis consistent with
prior years. The computation of consolidated net income before income taxes and
Consolidated Net Cash Flow shall be made in a manner consistent with the
financial statements included in the Company's Annual Report on Form 10-K for
the year with respect to which the Bonus is computed; provided, however, that
such computation shall be made without any deduction for the Bonus payable to
the Executive pursuant to this subparagraph 4(b). Such computation shall be made
by the Company's independent auditors, whose determination shall be final,
binding and conclusive on the parties (subject to the provisions of subparagraph
4(b)(iii) hereof)
(ii) The Bonus shall be payable to the Executive on or
before the later of (A) thirty (30) days following the completion of the audited
consolidated financial statements of the Company, or (B) May 1 of each such
year, or (C) within ten (10) days after the final resolution of any disagreement
with respect to the calculation of consolidated net income before income taxes
or Consolidated Net Cash Flow pursuant to subparagraph 4(b)(iii) of this
Agreement. In the event of any termination of this Agreement prior to the end of
any calendar year during the Term hereof, the Company will pay to the Executive
(or, in the case of early termination due to the Executive's death, to her
beneficiary, as hereinafter defined), with respect to the year in which any such
termination occurs, a portion of the Bonus which shall be determined by
calculating the Bonus for the entire year in which such termination occurs and
multiplying such Bonus by a fraction, the numerator of which is the number of
months in such year prior to the month in which such termination occurs and the
denominator of which shall be twelve (12), unless such termination results from
an event or occurrence described in subparagraph 3(b)(iii) of this Agreement, in
which case, notwithstanding any provision of this Agreement to the contrary, the
Company will have no obligation to make any payment of the Bonus to the
Executive for the year in which such termination occurs. As used in this
Agreement, the term "beneficiary" shall mean the person designated by the
Executive by an instrument signed by the Executive, acknowledged before a notary
public and delivered to the Company. In the event that the Executive fails to
designate a beneficiary as provided in the previous sentence, her estate shall
be deemed to be her beneficiary.
(iii) The Company shall deliver to the Executive with each
Bonus payment a report setting forth the calculation of consolidated net income
before income taxes and Consolidated Net Cash Flow for the year with respect to
which such Bonus is paid, computed in accordance with subparagraph 4(b)(i) of
this Agreement. Unless the Executive notifies the Company within fifteen (15)
business days after receipt of said calculations of her disagreement therewith
(which notice shall state with reasonable specificity the reasons for any such
disagreement and the amounts in dispute), such calculations will be final,
binding and conclusive on the Executive. If there is a disagreement of which the
Company is so notified by the Executive, and the disagreement cannot be resolved
by the Company and the Executive within sixty (60) days following the delivery
of such notice, 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 Company's independent auditors shall
determine what changes, if any, are required in the calculations, and such
determination shall be final, binding and conclusive on the Company and the
Executive. The fees, costs and expenses of such independent auditors shall be
borne by the Company.
(iv) The Executive and her duly authorized
representatives shall have the right, at her 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 and/or any sums payable to Executive under this Agreement.
(c) In the event of a termination of this Agreement pursuant to
subparagraphs 3(b)(i), (ii), (vi), (vii), (viii) or (ix) of this Agreement, the
Executive will be entitled to receive from the Company, in addition to
Exhibit 10.2 Page 4 of 12
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
any Salary and Bonus payable pursuant to this Paragraph 4, and the Company will
pay to the Executive, severance compensation as follows:
(i) In the event of any termination of the Term hereof
pursuant to subparagraph 3(b)(i) of this Agreement, the Company will pay to the
Executive's beneficiary the face value of the life insurance policy to be
maintained by the Company pursuant to subparagraph 5(b) of this Agreement upon
the Company's receipt of the proceeds of such insurance policy. In the event
that the Company fails to maintain such insurance, the Company will pay such
amount in forty-eight (48) equal consecutive monthly installments, the first of
which shall be due and payable on the first day of the first month following the
month in which the Executive's death occurs.
(ii) In the event of the termination of this Agreement
pursuant to subparagraph 3(b)(ii) of this Agreement, the Executive will be
entitled to receive the payments provided for in subparagraph 8(b) of this
Agreement.
(iii) In the event of the termination of this Agreement
pursuant to subparagraphs 3(b)(vi), (vii), (viii) or (ix) of this Agreement, the
Executive, her legal representative or her beneficiary, as the case may be, will
continue to receive the Executive's then Salary in equal monthly installments,
in advance, for a period of one hundred twenty (120) months from the date of any
such termination.
(d) In the event of the sale, during the Term hereof, by the
Company or any Subsidiary of any securities purchased or acquired on or after
the date hereof solely for investment purposes or in exchange for or in
consideration of the performance on or after the date hereof of services or as a
fee (the "Investment Securities"), or of the stock, business or assets of the
Company or any Subsidiary of the Company, the Executive shall be entitled to a
profit-sharing bonus (the "Profit-Sharing Bonus") equal to one percent (1%) of
the gross profit (determined as provided below), if any, received by the seller
in such transaction (the "Seller") as a result of such sale. In the event of any
such sale in which the purchase price is paid in cash or marketable securities,
or a combination of cash and marketable securities, the Profit-Sharing Bonus
shall be paid by delivery to the Executive by the Seller of cash and/or
marketable securities in the same proportion as received by the Seller. In all
other events, the Profit-Sharing Bonus shall be payable in cash or in such other
manner as to which the Executive and the Company may agree prior to the
consummation of such sale. Each Profit-Sharing Bonus shall be payable by the
Seller to the Executive not later than twenty (20) days following the date of
any such sale and each such payment shall be accompanied by a document, signed
by the Chief Financial Officer of the Company, showing the Seller's adjusted
cost basis in the Investment Securities, stock, business or assets sold, the
gross sale price, the gross profit on such sale, which shall be the Seller's
gross sale price less the Seller's adjusted cost basis in the Investment
Securities, stock, business or assets sold (the "Gross Profit"), the amount of
the Profit-Sharing Bonus payable and a description and statement of the value of
each kind of property, other than cash, being delivered in payment of the
Profit-Sharing Bonus (the "Bonus Certificate"). The adjusted cost basis of the
Seller in the Investment Securities, stock, business or assets being sold, the
value of each kind of property, other than cash, received by the Seller in such
sale, the gross sale price and the amount of the Profit-Sharing Bonus shall be
determined by the Company's independent auditors. If the Executive shall not
have disputed the amount of such payment, the accuracy or completeness of the
Bonus Certificate and/or the information set forth in such Bonus Certificate
within thirty (30) days following the receipt of payment of any Profit-Sharing
Bonus under this subparagraph 4(d) and the related Bonus Certificate, then the
information set forth in the Bonus Certificate shall be conclusive and binding
upon the parties. If the Executive desires to dispute the amount of such
payment, the accuracy or completeness of the Bonus Certificate and/or the
information set forth therein, such dispute shall be conducted and resolved in
accordance with the procedures set forth in subparagraph 6(d) of this Agreement.
The Bonus Certificate to which any such dispute relates will be promptly
modified following the resolution of any such dispute to reflect such
resolution.
(e) Each time, subsequent to the date hereof that the Company or
any Subsidiary acquires or otherwise obtains an Investment Security which is
subject to subparagraph 4(d) of this Agreement, the Company shall prepare and
deliver to the Executive a Schedule ("Schedule A") or a supplement to or an
updated Schedule A which will set forth the date of such Schedule, supplement or
update, the Investment Security acquired or otherwise obtained (including the
type or
Exhibit 10.2 Page 5 of 12
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
designation of such Security, the number of shares of such Security and the date
of purchase or acquisition thereof) and the purchase price of such Security.
Such Schedule A and each such supplement or updated Schedule A shall be signed
by the Chief Financial Officer of the Company when delivered to the Executive
and, upon receipt by the Executive, will be countersigned and returned to the
Company by the Executive (unless disputed in accordance with the provisions of
subparagraph 6(d) hereof).
(f) In the event of the Retirement (as hereinafter defined) of
the Executive, the Executive or her legal representative or beneficiary, as the
case may be, will continue to receive, as and for retirement compensation, an
amount equal to one-twelfth of the greater of (i) the Executive's Salary for the
year in which Retirement occurs, or (ii) the average of the Executive's Salary
and Bonus for each of the five (5) years immediately preceding the year in which
Retirement occurs, for a period of one-hundred-twenty (120) months from the date
of commencement of such Retirement. The amount calculated pursuant to the
preceding sentence shall be payable, in equal monthly installments, in arrears.
For the purpose of this subparagraph 4(f), "Retirement" shall be deemed to have
occurred at the expiration of the Term or any renewal Term of this Agreement or
upon termination of the employment provided for herein prior to the expiration
of the Term by the mutual consent of the Executive and the Company.
5. Executive Benefits. In addition to the Salary, Bonus and severance
compensation, the Executive will receive the following benefits:
(a) The Executive will be entitled to three (3) weeks paid
vacation and fifteen (15) paid sick days during each calendar year of the Term
hereof commencing with 1997. The Executive will 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 or sick
days shall be paid to the Executive by the Company at the end of each year of
the Term hereof based upon Executive's then Salary.
(b) The Company will pay for and maintain for the Executive
during the Term of this Agreement, disability insurance providing for the
payment to the Executive of a minimum of sixty percent (60%) of her Salary for
any "disability" as defined in such disability insurance policy. The Company
will also pay and maintain for the Executive during the Term hereof, major
medical, hospitalization, dental and vision insurance and life insurance upon
the life of the Executive having a face value of not less than Four Hundred
Thousand Dollars ($400,000), the proceeds of which shall be payable to such
beneficiary(ies) as shall be designated by the Executive from time to time
during the Term hereof, or, in the absence thereof, Executive's estate. The
Company will 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 hereof unless this Agreement
shall be terminated pursuant to subparagraphs 3(b), (iii), (iv) or (v) of this
Agreement, in which case the Company will not be obligated to maintain such
insurance. During the Term hereof, any such life insurance policy which the
Company is obligated hereby to maintain will remain the property of the Company;
provided, however, upon the expiration of the Term hereof, the Executive will
have the right to have such life insurance policy assigned to her and the
Company shall continue to pay or reimburse the Executive for all costs therefor.
The Company may, at its election at any time during the Term hereof, obtain and
maintain at its cost, a key person life insurance policy on the Executive's life
with the Company as the beneficiary thereof, and the Executive will cooperate
with the Company and its insurer with respect to obtaining and maintaining in
force such insurance policy.
(c) The Company agrees that nothing contained in this Agreement
is intended to, or shall be deemed to be a grant to the Executive in lieu of, or
as a limitation upon, any rights and privileges to which the Executive may
otherwise be entitled as an executive employee of the Company or any Subsidiary
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 or instituted by the Company or any
Subsidiary during the Term hereof of which the Executive is an officer or
director, it being understood that the Executive shall have the same rights and
privileges to participate in such Company and Subsidiary benefit plans as any
other officer or executive employee of the Company or any such Subsidiary.
Exhibit 10.2 Page 6 of 12
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
6. Executive's Right to Participate in Future Expansion of the
Company.
(a) From and after June 30, 1987, and through the expiration or
earlier termination of the Term hereof, the Executive or her designees (who or
which, for the purposes of this Paragraph 6, shall be deemed to be included in
the definition of and referred to as the "Executive"), shall have the right to
and benefit of participating in the future growth and expansion of the Company,
as hereinafter provided in this Paragraph 6.
(b) If the Company or any subsidiary of the Company or any
subsidiary of any such Subsidiary, which, for the purposes of this Paragraph 6,
shall include any corporation in which the Company or any such Subsidiary
thereof owns capital stock (any such corporation being hereinafter referred to
in this Paragraph 6 as a "Parent") proposes to form a subsidiary ("the
Purchaser") for any purpose whatsoever including, but not limited to the
formation of a subsidiary to acquire, or to enter into any agreement or other
understanding to acquire, by purchase, merger, consolidation or by or as a
result of any other form of business arrangement (including the establishment of
a new business) or combination (an "Acquisition"), all or any part of any
corporation, partnership, joint venture, proprietorship or other operating
business, or any equity interest in any such business (other than for investment
purposes only, for services rendered or as a fee, as provided for in
subparagraph 4(d) hereof), including, but not limited to, the acquisition of
common or preferred stock of any class or series, or options, warrants, rights
or other securities convertible into or exchangeable for common or preferred
stock of any class or series (each a "Security" or collectively, the
"Securities"), the Executive shall have the right to purchase up to one percent
(1%) of the authorized Securities of each class and series of such Purchaser
(the "Founder's Securities") on the date of its formation. The purchase price
for such Founder's Securities shall be equal to the fair market value thereof on
the date of formation and shall be payable by delivery of Executive's ten (10)
year recourse promissory note, bearing interest at the lowest rate necessary to
avoid imputed interest under the Internal Revenue Code of 1986, as amended,
interest being payable annually and all principal being payable upon maturity of
said note (which note shall be prepayable, in whole or in part, at any time,
without premium or penalty). The fair market value of such Founder's Securities
shall be determined by the Company's Chief Financial Officer and a notice of
such determination, specifying the fair market value of such Founder's
Securities signed by the Company's Chief Financial Officer, shall be given to
the Executive within ten (10) days after the formation of any such Purchaser and
shall be binding upon Executive unless Executives notifies the Company of her
disagreement with the determination thereof within thirty (30) days after her
receipt of such notice from the Chief Financial Officer. If the Company and the
Executive shall not have resolved such dispute within thirty (30) days after the
Company's receipt of the Executive's notice disagreeing with such determination,
the matter shall be submitted to the Company's then independent auditors for a
determination thereof and the decision of such auditors shall be final, binding
and conclusive on the Company and the Executive. Whether or not the Founder's
Securities of any Purchaser are physically issued on the date of the formation
of any such Purchaser, the Executive shall be deemed to have equitable and
beneficial ownership of such Founder's Securities as of the date of formation of
any such Purchaser.
(c) If, subsequent to the formation of any such Purchaser, such
Purchaser issues, or agrees to issue, any Securities as a dividend or in respect
of any Securities of such Purchaser then held by the Executive or in connection
with any stock split or other recapitalization, Executive shall, as a security
holder of such Purchaser, be entitled to receive her proportionate share of such
subsequently issued securities (the "Subsequently Issued Securities").
(d) Each time, subsequent to the date of this Agreement, that a
new Purchaser is formed, or a Purchaser issues Subsequently Issued Securities,
the Company shall prepare and deliver to the Executive a Schedule ("Schedule B")
or a supplement to or an updated Schedule B which shall set forth the date of
such Schedule, supplement or update and include the name, state of incorporation
and date of formation of each Purchaser, the capitalization of each Purchaser as
of its date of formation, the Founder's Securities of such Purchaser issued to
the Executive, the cost basis of the Founder's Securities issued to the
Executive in connection with the formation of each such Purchaser, the
Subsequently Issued Securities of each Purchaser, if any, and the Subsequently
Issued Securities of each Purchaser owned by Executive. Such Schedule B and each
such supplement or updated Schedule B shall be signed by the Chief Financial
Officer of the Company when delivered to the Executive and, upon receipt by the
Executive, will be countersigned and returned by the Executive to the Chief
Financial Officer of the Company. If the Executive does not dispute any of the
information set forth in Schedule B or supplement to or updated Schedule B, she
will countersign such Schedule B supplement or updated Schedule B and return it
to the
Exhibit 10.2 Page 7 of 12
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
Chief Financial Officer of the Company and the information set forth therein
will be binding upon the parties hereto. If the Executive disputes any of the
information in such Schedule B, supplement or updated Schedule B, she shall be
required to give notice of such dispute to the Company within such thirty (30)
day period (the "Dispute Notice"). The Dispute Notice shall set forth the
specifics of the Executive's dispute if the Company and Executive shall not have
resolved such dispute within thirty (30) days after the Company's receipt of the
Dispute Notice, the matter shall be submitted to the Company's then independent
auditors for a determination thereof and the decision of such auditors shall be
final, binding and conclusive on the Company, the Parent and the Executive. The
fees of said auditors shall be paid by the Company. The Schedule B, supplement
or updated Schedule B to which the Dispute Notice relates will be promptly
modified following the resolution of any such dispute to reflect such
resolution.
(e) Notwithstanding the provisions of any subparagraph of this
Paragraph 6, the Executive shall have no entitlement, by virtue of the
provisions of this Agreement, to any debt or equity securities of the Company
which are issued to or in any other manner become the property of any subsidiary
of the Company.
7. Expense Reimbursement.
(a) The Company will reimburse the Executive for all ordinary
and necessary expenses incurred by her in connection with the performance of her
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 from time to time.
(b) In the event that the Company moves its corporate
headquarters from the New York metropolitan area, the Company will, if the
Executive elects to relocate, pay the Executive's reasonable moving expenses,
including temporary living accommodations for up to six months; provided,
however, that the Company may not require the Executive to relocate. In the
event the Company so relocates its corporate headquarters and the Executive
elects not to relocate, the Company will provide the Executive, at the Company's
cost, with such offices and staff in a location in the New York metropolitan
area as to which the Company and the Executive may agree.
(c) In the event that the Company establishes multiple offices
and the Executive is required to spend any significant part of her time at more
than one Company office, the Company shall pay to the Executive a housing
allowance of One Thousand Dollars ($1,000) per month for as long as more than
one Company office is maintained; provided, however, that following the closing
of any such office, the Company will reimburse the Executive for any costs
incurred by her in moving and in terminating any lease obligations and similar
expenses.
8. Disability.
(a) In the event the Executive suffers any temporary disability
during the Term hereof, she shall continue to receive one hundred (100%) percent
of the Salary and Bonus to which she 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 the Executive for a period in excess of six (6)
consecutive calendar months. For the purpose of this subparagraph 8(a), the
terms "disabled" and "disability" shall mean (i) any physical or mental illness,
injury or other incapacity which, in the opinion of a doctor reasonably
satisfactory to the Company and the Executive or her legal representative,
renders the Executive unable to perform substantially all of her duties under
this Agreement, or (ii) a judicial determination of incompetence. The date that
any such disability shall be deemed to have commenced shall be the date the
Executive first absents herself from work during a continuous period of
disability as determined by the doctor referred to in this subparagraph 8(a) or
the date of judicial determination of incompetence, as the case may be.
(b) In the event of a Permanent Disability, the Company shall
pay to the Executive, as disability benefits, one hundred twenty (120) monthly
payments each in an amount equal to sixty percent (60%) of Executive's then
Salary divided by twelve (12), the first of such payments to commence on the
first day of the first month following any such termination of this Agreement as
a result of a Permanent Disability. In the event that such date is a date
subsequent to the date such Permanent Disability is determined, payments for all
prior months in which the Executive was entitled to such payments will be made
together with the first payment made. Such
Exhibit 10.2 Page 8 of 12
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
payments shall be reduced by the amount of all payments which the Executive
receives under any disability policy maintained by the Company.
9. Confidentiality and Non-Disclosure Covenant.
(a) The Executive hereby acknowledges that, in the performance
of her duties pursuant to this Agreement, she may obtain and be entrusted with
unpublished confidential and proprietary information relating to the Company's
and its Subsidiaries' present and proposed businesses and operations, the use or
disclosure of which would materially adversely affect the operations of the
Company or its Subsidiaries, including, without limitation, unpublished material
financial information relating to the Company's and its Subsidiaries' present
and proposed businesses 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, and the terms of all material agreements to which the Company or
any Subsidiary is a party. All of such unpublished information that may be
obtained by the Executive shall, for purposes hereof, be referred to as
"Confidential Information". The Executive hereby agrees that, unless the
Confidential Information becomes publicly known other than by reason of any
improper act or omission of the Executive, neither she, nor any entity or person
owned or controlled by her, shall, during or after the Term hereof, use for her
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 the Executive's services under this
Agreement. Notwithstanding the foregoing, the Executive shall not be in breach
of this covenant with respect to any use or disclosure of any Confidential
Information by her which is required as a result of any legal process served
upon her in any judicial or administrative proceeding (provided that, if
possible, the Company shall be given notice in time to enable it to object to
such disclosure) or which was obtained by the Executive from a third party
without such third party's breach of any agreement or obligation of trust. The
term "entity or person owned or controlled by" the Executive or words of like
import shall not include the Company or any of its Subsidiaries.
(b) The Executive agrees that her violation or threatened
violation of any of the provisions of this Paragraph 9 may cause immediate and
irreparable harm to the Company. In the event of any breach or threatened breach
of said provisions, the Company shall be entitled to seek all available
equitable remedies therefor including, without limitation, preliminary and
permanent injunctions by a court of competent jurisdiction prohibiting Executive
from any violation or threatened violation of these provisions and compelling
the Executive to comply with these provisions. This Paragraph 9 shall not affect
or limit, and the equitable remedies provided in this subparagraph 9(b) shall be
in addition to, any other remedies available to the Company at law. The
provisions of this Paragraph 9 shall survive the termination or expiration of
the Term of this Agreement.
10. Representations and Warranties of the Executive. The Executive
represents and warrants to the Company as follows:
(a) All action on the part of the Executive necessary for the
authorization, execution, delivery and performance of this Agreement by her and
the consummation of the transactions contemplated hereby, has been taken and
this Agreement constitutes a valid and legally binding obligation of the
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 the
Executive is a party or by which she is bound.
(c) There is no action, suit, proceeding, or investigation
pending, or to the knowledge of the Executive, currently threatened against the
Executive, in any way relating to the validity of this Agreement or the right of
the Executive to enter into or to consummate this Agreement and the transactions
contemplated hereby.
Exhibit 10.2 Page 9 of 12
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Exhibit 10.2 Corporate Secretary's Employment Agreement
11. Representations and Warranties of the Company. The Company
represents and warrants to the Executive as follows:
(a) All action on the part of the Company and each Subsidiary
necessary for the authorization, execution, delivery and performance of this
Agreement by them and the consummation of the transactions contemplated hereby,
has been taken and this Agreement constitutes a valid and legally binding
obligation of the Company, 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 the
Company or any Subsidiary is a party or by which any of them is bound.
(c) There is no action, suit, proceeding, or investigation
pending, or to the knowledge of the Company, currently threatened against the
Company or any Subsidiary, in any way relating to the validity of this Agreement
or the right of the Company to enter into or to consummate this Agreement and
the transactions contemplated hereby.
12. Arbitration. Except for any action under this Agreement for
injunctive or other equitable relief and except as otherwise expressly provided
in subparagraphs 4(b), 6(d) and 6(f) 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 the 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. Judgment upon any award or decision rendered by such arbitrators may be
entered or enforced in any court, domestic or foreign, having jurisdiction
thereof. The arbitrators shall not, except as provided in subparagraph 14(f) of
this Agreement, have any authority to modify or amend any express provisions of
this Agreement.
13. Agreements with Affiliates. The Executive may enter into
employment agreements with affiliates of the Company (the "Affiliate
Agreements"). To the extent that, for any year during the Term hereof that the
aggregate annual salary paid to Executive pursuant to the Affiliate Agreements
does not exceed the Salary payable to Executive pursuant to this Agreement for
such year, such aggregate salary received by the Executive under such Affiliate
Agreements shall reduce the Salary payable pursuant to this Agreement on a
dollar for dollar basis. If, for any year during the Term hereof that the
aggregate annual salary paid to Executive pursuant to the Affiliate Agreements
exceeds the Salary payable pursuant to this Agreement for such year, no Salary
shall be paid by the Company to the Executive pursuant to this Agreement for
such year; provided, however, that in such event the Executive shall not be
required to refund any Salary (or salary or other compensation received by her
pursuant to any Affiliate Agreement) paid to him during such year. Any bonuses
or other non-salary compensation or benefits paid to Executive pursuant to the
Affiliate Agreements shall not affect in any way the Salary, Bonus, or other
benefits payable to Executive pursuant to this Agreement.
14. Miscellaneous.
(a) This Agreement constitutes the entire agreement of the
Company and the Executive with respect to the subject matter hereof and
supersedes all prior written or prior or contemporaneous oral understandings or
agreements between the Company and the Executive 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 hereto in the case of a modification or amendment
or by the party granting the waiver. No course of conduct or dealing between the
parties hereto and no custom or trade usage shall be relied upon to vary the
terms of this Agreement. The failure of a party to this Agreement to insist upon
strict adherence to any term of
Exhibit 10.2 Page 10 of 12
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
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.
(b) Any notice, demand or other communication (collectively, the
"Notices") required or permitted by or with respect to 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 subparagraph 14(b), to the
parties at their respective addresses set forth at the beginning of this
Agreement or by telecopier to the Executive at (212) 786-4571 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 notice given in accordance with the terms hereof, 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) Except as specifically set forth in this subparagraph,
neither party hereto may assign this Agreement or his or its rights, benefits or
obligations hereunder without the written consent of the other party; except
that the rights of the Executive set forth in Paragraphs 4 and 6 hereof may be
assigned to designated purchasers and shall inure to the benefit of the
Executive's heirs, administrators, executives, personal representatives,
successors and permitted assigns. Subject to the foregoing, this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their heirs,
administrators, executors, personal representatives, successors and permitted
assigns. Nothing contained herein is intended to confer upon any person or
entity, other than the parties hereto, and their respective heirs,
administrators, executors, personal representatives, successors or permitted
assigns or, in the case of the Executive, her designated purchasers under
Paragraphs 4 and 6 hereof, any rights, benefits, obligations, remedies or
liabilities under or by reason 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 their execution hereof, the Company and the Executive
hereby consent and irrevocably submit 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 9, the Federal or state courts
situated in New York County, New York, which shall have sole jurisdiction as to
such matters, and agree that any process in any action commenced in such
tribunal or court under this Agreement may be served upon it or her 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 it or her 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 arbitration proceeding pursuant to
Paragraph 9 hereof, 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, other documents and assurances as may be
reasonably required to more effectively consummate this Agreement and the
transactions contemplated 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.
Exhibit 10.2 Page 11 of 12
<PAGE>
Exhibit 10.2 Corporate Secretary's Employment Agreement
(g) During and after the Term hereof, the Company shall defend,
indemnify and hold the Executive harmless from any and all claims, causes of
action, liabilities, damages, costs or expenses (including, without limitation,
attorneys' fees and disbursements) incurred by the Executive based upon or in
connection with the performance of her 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 such 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 is not permitted to defend the Executive or pay the costs of defense
as provided in this subparagraph 14(g) unless the Executive undertakes to
reimburse the Company in the event that any such payment is unlawful, then, in
such event, the Company may condition such defense or payment on receipt of an
appropriate reimbursement agreement from the Executive. This provision will
survive the expiration or termination of the Term of this Agreement.
(h) 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 hereunto set their hands
and seals as of the day and year first above written.
CONSOLIDATED TECHNOLOGY GROUP LTD.
By:__________________________________
Lewis S. Schiller,
Chief Executive Officer
-------------------------------------
Grazyna B. Wnuk
Exhibit 10.2 Page 12 of 12
<PAGE>
Exhibit 10.3 Comprehensive Agreement dated May 20, 1997 between WWR Acquisition,
Corp., Don Shamsie and Malco Theatres Relating to the sale of WWR Technology.
COMPREHENSIVE AGREEMENT
COMPREHENSIVE AGREEMENT made this 20th day of May, 1997, by and among
DONALD L. SHAMSIE, whose mailing address is c/o WWR Technology, Inc., P.O. Box
1320, Hope, Arkansas 71801 ("Shamsie"), MALCO THEATRES, INC., a Tennessee
corporation whose mailing address is 5851 Ridgeway Center Parkway, Memphis,
Tennessee 38120 ("Malco"), WWR ACQUISITION CORP., a Delaware corporation
("Seller") whose mailing address is c/o SIS Capital Corp., 160 Broadway, New
York, New York 10038, and SIS CAPITAL CORP., a Delaware corporation ("Parent"),
the parent corporation of Seller and whose mailing address is the same as
Seller's.
Recitals
A. Shamsie desires to purchase, and Seller desires to sell, all of
the issued and outstanding capital stock ("WWR Shares") of WWR Technology, Inc.
("Target"), all on and subject to the terms and conditions hereinbelow set
forth.
B. On the terms and subject to the conditions herein set forth, and
as reflected in a Loan and Pledge Agreement ("Loan and Pledge Agreement")
attached hereto as Exhibit A, Malco has agreed to loan and advance to Shamsie
the sum of One Hundred Thousand ($100,000) Dollars (the "Malco Loan"), the Malco
Loan to be secured by the pledge and delivery to Malco of certificates
evidencing the WWR Shares, which certificates shall be delivered, on behalf of
Shamsie, by Seller to Malco, c/o William S. Solmson, Esquire, Wyatt, Tarrant &
Combs, Suite 650, Crescent Center, 6075 Poplar Avenue, Memphis, Tennessee
("Malco's Counsel").
C. Conditioned on the consummation of the transactions provided for
herein ("Closing"), Shamsie has agreed to grant to Malco an option ("Option") to
purchase all of the WWR Shares for an amount equal to the original face amount
of the Malco Loan, on terms hereinafter set forth.
D. Subject to the conditions provided for herein, Malco has agreed
to purchase and acquire from Sirrom Capital Corporation ("Sirrom") loans made by
Sirrom to Target in the principal amount of Two Hundred Fifty Thousand
($250,000) Dollars plus accrued interest thereon ("Sirrom Debt") and to
unconditionally release and cancel the guarantees of The Kanter Family
Foundation, Walnut Capital Corp. and Parent (together, the "Sirrom Guarantors").
E. Shamsie has agreed to use his best efforts to cause Allstate
Financial Corporation ("AFC") to deliver to Jerold K. Levien, Esquire, c/o Ruffa
& Ruffa, 150 East 58th Street, 35th Floor, New York, New York 10155 ("Seller's
Counsel"), an agreement ("AFC Consent and Agreement") in form and content
substantially as set forth in Exhibit B attached hereto providing for AFC's
consent to and approval of the transactions provided for herein without causing
a default in the AFC loan to Target ("AFC Loan") and, further, for the release
by AFC of obligations of Lewis S. Schiller, SES Holdings, Inc., and Parent
(together, the "AFC Guarantors") with respect to the AFC Loan (howsoever
evidenced, including their obligations as guarantors of the AFC Loan and as
makers of certain Confessed Judgment Demand Notes given as additional collateral
security for the AFC Loan).
Agreements
NOW, THEREFORE, the foregoing Recitals being a part of this Agreement,
and such agreements being deemed to be in the best interest of the Target, the
parties agree as follows:
Section 1. Purchase and Sale of WWR Shares
Exhibit 10.3 Page 1 of 8
<PAGE>
Exhibit 10.3 Comprehensive Agreement dated May 20, 1997 between WWR Acquisition,
Corp., Don Shamsie and Malco Theatres Relating to the sale of WWR Technology.
1.1 Agreement to Sell and Purchase. Subject to the conditions set
forth herein, Seller agrees to sell and transfer to Shamsie, and Shamsie agrees
to purchase, all of the WWR Shares for the Consideration (hereinafter defined).
1.2 Consideration. The consideration ("Consideration") payable to
Seller for the WWR Shares consists of (a) the cash sum of One Hundred Thousand
($100,000) Dollars, (b) the receipt of an unconditional release of the Sirrom
Guarantors and the AFC Guarantors from all liability, debts and obligations with
respect to the Sirrom Loan and the AFC Loan, respectively, and (c) receipt of
the AFC Consent and Agreement.
1.3 Standstill. Until the first to occur of the Closing Date or the
Outside Date (hereinafter defined), Seller agrees to (and, where applicable,
Seller will cause WWR to) refrain from making or entering into any agreement or
transaction which results, directly or indirectly, in any of the following: (a)
any sale, transfer, assignment or other disposition of any of the WWR Shares;
(b) any sale of assets of WWR which is not in the ordinary course of business;
or (c) any act which would reasonably be expected to, or which does, interfere
with the ability of Seller to perform the transactions provided for herein.
1.4 Warranties and Representations of Seller.
1.4.1 Capitalization of WWR. WWR is a corporation duly
organized and existing under the laws of the State of Delaware. The
capitalization of WWR consists of 1,500 shares of common stock, no par value, of
which 1,500 shares are issued and outstanding. All of the issued and outstanding
WWR Shares are validly issued, fully paid and not subject to assessment.
1.4.2 Ownership of WWR Shares. Seller is the record and
beneficial owner and holder of the WWR Shares, free and clear of any charge,
claim, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership, except any restrictions on transfer pursuant to the Securities Act of
1933, as amended, or any Rule or Regulation promulgated thereunder. There are no
agreements relating to the issuance, sale, or transfer of any equity securities
or other securities of the Target.
1.4.3 Binding Obligation; No Violation. This Agreement
constitutes the legal, valid, and binding obligation of Seller, enforceable
against Seller 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. Seller has the right, power, authority, and capacity to execute, deliver
and perform this Agreement, and all corporate authorizations required therefor
have been obtained by Seller. Neither the execution and delivery of this
Agreement nor the consummation or performance of any of the contemplated
transactions will, directly or indirectly (with or without notice or lapse of
time) (a) contravene, conflict with, or result in a violation of, or give any
governmental body or other person the right to challenge any of the contemplated
transactions or to exercise any remedy or obtain any relief against the Target
or any of the assets owned or used by the Target; (b) contravene, conflict with,
or result in a violation or breach of any provision of, or give any person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any agreement
binding on either Seller or the Target; or (c) require Seller or Target to give
any notice to or obtain any consent from any person in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby (except such persons whose approval is provided for herein).
1.4.4 Indebtedness to Affiliates. To the best knowledge of
Seller and Parent, Target has no indebtedness, liability or obligation, absolute
or contingent, owing to any of the affiliates of Seller or Parent, except for
intercompany debt owing to Parent, which indebtedness shall be, without any
further acts of the parties being required, cancelled as of the time of the
Closing hereunder; provided that Target
Exhibit 10.3 Page 2 of 8
<PAGE>
Exhibit 10.3 Comprehensive Agreement dated May 20, 1997 between WWR Acquisition,
Corp., Don Shamsie and Malco Theatres Relating to the sale of WWR Technology.
shall indemnify and hold harmless Seller and its affiliates (as defined below)
of and from any obligation owing to the former President of Target under a
severance agreement entered into with him by the Target in November, 1996. As
used herein, the term "affiliate" means any person, firm, corporation or other
legal entity which, directly or indirectly, (i) owns any equity interest in any
of the Target, Seller or Parent, or (ii) is under common ownership with any of
the Target, Seller or Parent.
1.5 Indemnity by Parent. Parent hereby indemnifies and agrees to
hold harmless Shamsie and Malco from and against any loss, cost, expense, damage
or claim based on the inacurracy of any of the representations or warranties set
forth in Section 0 hereof.
1.6 Conditions. The obligations of Shamsie and Seller to consummate
the purchase and sale of the WWR Shares are contingent on a Closing occurring on
or prior to the Outside Date, and the following:
1.6.1 Conditions to Seller's Obligations. Seller's
obligation to sell the WWR Shares is conditioned upon receipt of the
Consideration on or prior to the Closing Date by Seller's Counsel in escrow, as
hereinafter provided.
1.6.2 Conditions to Shamsie's Obligations. Shamsie's
obligation to purchase the WWR Shares is conditioned upon receipt, on or prior
to the Closing Date, by Malco's Counsel, of (i) certificates evidencing the WWR
Shares duly endorsed (or with stock powers executed in blank attached) for
transfer to Shamsie, and (ii) resignations of all officers and directors of WWR
(except for Shamsie and such persons whose resignation is waived by Shamsie).
Seller's Counsel shall retain the certificate evidencing the WWR Shares and such
resignations until receipt by Seller's Counsel of those matters provided for in
Section 0 hereof.
1.7 Representations of Shamsie. Shamsie represents, warrants,
acknowledges and agrees that he is knowledgeable of the business conducted by
the Target (including its properties, assets, liabilities, obligations,
operations and prospects), has requested and obtained from the Target all
information deemed by him to be material to the transactions provided for
herein, and has undertaken and completed such investigation of the business,
properties, liabilities, operations and prospects of the Target as he deems
necessary or desirable. Shamsie acknowledges that the WWR Shares are
"restricted" securities and that he is acquiring same for investment purposes,
for his own account and not with a view to distribution thereof in violation of
applicable state or federal securities laws. No representation, warranty or
other undertaking of Seller is made with respect to the business, properties,
liabilities, operations and prospects of the Target, except as specifically set
forth in this Agreement.
Section 2. Malco Loan
2.1 Amount and Method of Advance. At the Closing hereunder, Malco
agrees to loan and advance to Shamsie the principal sum of One Hundred Thousand
($100,000) Dollars, said advance to be made by wire of the proceeds of the Malco
Loan to Seller's Counsel per written instructions received from Seller's
Counsel. Seller's Counsel shall retain the proceeds of the Malco Loan until
receipt of facsimile confirmation from Malco's Counsel of the receipt by it of
those matters provided for in Section 0 hereof.
2.2 Loan Documents. The Malco Loan shall be evidenced by the
promissory note of Shamsie ("Shamsie Note") dated the Closing Date (which date
Malco is hereby authorized to insert into the Shamsie Note at the time of
Closing hereunder), and shall be governed and secured by the terms of the Loan
and Pledge Agreement (the Shamsie Note and the Loan and Pledge Agreement being
herein called the "Loan Documents").
2.3 Conditions. As a condition to Malco's obligation to make the
Malco Loan, Malco's Counsel shall have received prior to the Outside Date: (a)
from Seller, the certificates evidencing the
Exhibit 10.3 Page 3 of 8
<PAGE>
Exhibit 10.3 Comprehensive Agreement dated May 20, 1997 between WWR Acquisition,
Corp., Don Shamsie and Malco Theatres Relating to the sale of WWR Technology.
WWR Shares as provided for in Section 0 hereof, (b) from Shamsie, (i) the
executed Loan Documents and (ii) the AFC Consent and Agreement, and (c) from
Sirrom, (i) instruments evidencing the Sirrom Debt duly endorsed (without
recourse) to Malco, (ii) originals of the documents and agreements evidencing,
securing or governing the terms of the Sirrom Debt, and (iii) such Forms UCC-2
(amendment) as are required to be recorded in the offices of any public
officials in order to perfect the assignment to Malco of security interests in
Target's assets held by Sirrom to secure payment of the Sirrom Debt.
Section 3. Option
Subject to his purchase of the WWR Shares in accordance herewith,
Shamsie agrees to and does hereby grant to Malco the right and option to
purchase all of the WWR Shares upon those terms and subject to those conditions
hereinbelow set forth.
3.1 Exercise Date. The Option aforesaid shall expire on, and be
exercisable by Malco at any time prior to, the close of business on December 31,
1997 ("Option Exercise Date").
3.2 Terms of Purchase and Sale; Stock Purchase Agreement
3.2.1 Closing Date; Purchase Price. If, on or before the
Option Exercise Date, Malco exercises the Option, then Malco agrees to purchase,
and Shamsie agrees to sell, all of the WWR Shares for the cash price of One
Hundred Thousand ($100,000) Dollars, said purchase and sale to be in accordance
with a Stock Purchase Agreement (hereinbelow provided for) providing for a
Closing on the earlier of January 31, 1998 or five days following notice to
Shamsie from Malco that Malco desires to consummate the closing of said purchase
and sale. The purchase price aforesaid may be paid to the holder of the Shamsie
Note.
3.2.2 Stock Purchase Agreement. As soon as practicable
following the Closing hereunder, Shamsie and Malco shall undertake to negotiate
in good faith and to execute a Stock Purchase Agreement which shall contain
terms (including representations and warranties of Shamsie) customarily included
in an agreement providing for the sale and purchase of all of the capital stock
of a corporation.
3.3 Additional Agreements of Shamsie. Shamsie represents and
warrants to, and agrees with, Malco as follows:
3.3.1 Conduct of Business of Target. Shamsie will (i)
operate the business of the Target in its normal course with a view to
maintaining the goodwill possessed by the Target with vendors, employees,
customers and others with whom the Target conducts business; (ii) not permit the
Target to declare or pay any cash dividends, make any redemption of the WWR
Shares, or otherwise make any distribution in respect to the WWR Shares; (iii)
not permit any levy, foreclosure, attachment or other taking of the assets of
the Target to occur under agreements pertaining to the same or under applicable
law, and do all that is necessary to maintain and preserve Target's assets,
properties, rights and prospects; (iv) not permit the Target to enter into any
agreements relating to employment, compensation, capital expenditures, sales of
assets or properties or any other material agreement (other than purchases and
sales of inventory in the ordinary course of business), nor undertake any
commitment in regard to the foregoing, and (v) do all that is necessary to
continue in full force and effect all material contracts and arrangements
pertaining to the continuing business or assets of the Target.
3.3.2 Investigation. Upon execution of this Agreement,
Shamsie will permit Malco and its advisors and representatives to conduct such
due diligence investigations of the Target's business, assets, liabilities,
operations and prospects as Malco shall determine to be advisable. No matter
discovered by Malco during the course of such investigations shall be relied
upon by Malco or any other person as a basis for rescinding any agreements
herein set forth with respect to the Malco Loan or the
Exhibit 10.3 Page 4 of 8
<PAGE>
Exhibit 10.3 Comprehensive Agreement dated May 20, 1997 between WWR Acquisition,
Corp., Don Shamsie and Malco Theatres Relating to the sale of WWR Technology.
Consideration paid and delivered to Seller. Shamsie will cooperate with Malco
during the conduct of its due diligence review, and will permit Malco and its
representatives access to Shamsie's and Target's records (financial or
otherwise) and premises for such purposes. To facilitate Malco's investigation,
Shamsie will make available to Malco the personnel employed by the Target for
such purposes.
3.3.3 Notifications. So long as this Agreement remains in
force, Shamsie will, and will cause Target to, notify Malco promptly of any
occurrence which has or may reasonably be expected to have a material adverse
affect on the business, properties, assets or prospects of the Target.
Section 4. Conduct of Closing; Termination
4.1 Closing Date. The Closing shall take place by overnight
courier delivery of the documents and agreements, and wire transfer of funds,
required to consummate the transactions provided for herein. All documents,
monies and materials required to be delivered to Parent and Seller (or Seller's
affiliates) shall be paid and delivered to Seller's Counsel; and all documents
and materials required to be delivered to Malco or Shamsie shall be delivered to
Malco's Counsel. Any monies, documents and materials received shall be retained
in escrow by each of such counsel until the earlier of the following dates
("Closing Date"): (A) the receipt by each of facsimile confirmation from the
other that such counsel have received (or waived receipt of) all documents,
monies and materials required to be paid or delivered hereunder, or (B) May 23,
1997 (the "Outside Date").
4.2 Termination. If the Closing does not occur prior to the Outside
Date, this Agreement shall terminate, each of the Seller's Counsel and Malco's
Counsel shall return all monies, agreements and documents to the person from
whom same shall have been received, and no party hereto shall have any further
obligation to any other party hereunder.
4.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[Signatures on Next Page]
Exhibit 10.3 Page 5 of 8
<PAGE>
Exhibit 10.3 Comprehensive Agreement dated May 20, 1997 between WWR Acquisition,
Corp., Don Shamsie and Malco Theatres Relating to the sale of WWR Technology.
IN WITNESS WHEREOF, the parties have executed this Comprehensive
Agreement in multiple counterparts as of the day and year first above written.
MALCO THEATRES, INC.
________________________________ By:____________________________
DONALD L. SHAMSIE Title:_________________________________
Date: , 1997 Date: , 1997
------------------------ -----------------
WWR ACQUISITION CORP. SIS CAPITAL CORP.
By:_____________________________ By:______________________________
Title:__________________________ Title:___________________________
Date: , 1997 Date: , 1997
------------------ -----------------
Exhibit 10.3 Page 6 of 8
<PAGE>
Exhibit 10.3 Comprehensive Agreement dated May 20, 1997 between WWR Acquisition,
Corp., Don Shamsie and Malco Theatres Relating to the sale of WWR Technology.
ADDENDUM TO COMPREHENSIVE AGREEMENT
ADDENDUM made this 21st day of May, 1997, with respect to a
Comprehensive Agreement dated May 20, 1997 by and among DONALD L. SHAMSIE,
(herein and therein, "Shamsie"), MALCO THEATRES, INC. (herein and therein,
"Malco"), WWR ACQUISITION CORP. (herein and there, "Seller"), and SIS CAPITAL
CORP. (herein and therein, "Parent").
NOW, THEREFORE, to correct misstatements and to clarify ambiguities in
the Comprehensive Agreement, the parties acknowledge and agree as follows:
1. All capitalized terms used herein shall have the meaning
ascribed thereto in the Comprehensive Agreement, and all references to Sections
shall refer to the corresponding Section of the Comprehensive Agreement.
2. Notwithstanding Section 1.4.1, the parties (a) acknowledge that
certificates evidencing the WWR Shares reflect that such are $0.01 par value
when, in fact, such are without par in accordance with an amendment to the
Articles of Incorporation of Target filed in December, 1996; and (b) Target also
has authorized shares consisting of 500 shares of no par value preferred stock,
none of which shares of preferred stock are issued and outstanding.
3. The undertaking of Target in Section 1.4.4 to indemnify Seller
and its affiliates (a) shall be excluded from the indemnity of Parent set forth
in Section 1.5; and (b) shall be deemed an independent undertaking of Target
enforceable by Seller and its affiliates.
4. All other provisions of the Comprehensive Agreement shall remain
in full force and effect without modification.
IN WITNESS WHEREOF, the parties have executed this Addendum in multiple
counterparts as of the day and year first above written.
MALCO THEATRES, INC.
By:_____________________________
DONALD L. SHAMSIE Title:_______________________________
WWR ACQUISITION CORP. SIS CAPITAL CORP.
By:_____________________________ By:__________________________________
Title:__________________________ Title:_______________________________
By its signature below, WWR Technology, Inc. consents hereto and agrees to the
indemnity and undertaking set forth in Section 1.4.4 as amended hereby.
WWR TECHNOLOGY, INC.
By:_____________________________
Title:__________________________
Exhibit 10.3 Page 7 of 8
<PAGE>
Exhibit 10.3 Comprehensive Agreement dated May 20, 1997 between WWR Acquisition,
Corp., Don Shamsie and Malco Theatres Relating to the sale of WWR Technology.
Exhibit 10.3 Page 8 of 8
<PAGE>
Consolidated Technology Group, Ltd. and Subsidiaries
June 30, 1997
Exhibit 11.1 Calculation of Earnings per Share
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
Net Loss: ($1,784,000) ($4,091,000)
============ ============
Loss per Share:
Loss per share - Note 1 ($0.04) ($0.09)
======= =======
Loss per Share - assuming full
dilution - Note 2 ($0.04) ($0.10)
======= =======
Note 1:
Computed by dividing the net loss for the period by the weighted average number
of common shares outstanding, 45,376,336 for the three and six month periods
ended June 30, 1997. 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 periods.
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 indicated periods, 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 three
and nine month periods as quoted on the NASD.
(ii) Assumes that at the beginning of the indicated periods, the 22,869
remaining shares of preferred convertible shares were converted to 2,977,734
shares at the conversion rate of 130.2083 shares of common for each share of
convertible preferred stock.
NOTE - THIS CALCULATION IS SUBMITTED IN ACCORDANCE WITH THE SECURITIES ACT OF
1934 RELEASE NO. 9083, ALTHOUGH IT IS CONTRARY TO PARA. 40 OF APB 15
BECAUSE IT MAY PRODUCE AN ANIT-DILUTIVE RESULT
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,793,000
<SECURITIES> 320,000
<RECEIVABLES> 21,864,000
<ALLOWANCES> 1,413,000
<INVENTORY> 2,648,000
<CURRENT-ASSETS> 27,476,000
<PP&E> 39,546,000
<DEPRECIATION> 27,141,000
<TOTAL-ASSETS> 69,259,000
<CURRENT-LIABILITIES> 35,488,000
<BONDS> 0
<COMMON> 458,000
0
26,000
<OTHER-SE> (2,192,000)
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<TOTAL-REVENUES> 63,148,000
<CGS> 1,578,000
<TOTAL-COSTS> 53,632,000
<OTHER-EXPENSES> 10,316,000
<LOSS-PROVISION> 977,000
<INTEREST-EXPENSE> 2,260,000
<INCOME-PRETAX> (2,437,000)
<INCOME-TAX> 6,000
<INCOME-CONTINUING> (2,443,000)
<DISCONTINUED> (1,921,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,091,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
