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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended March 31, 1997
Commission file number: 0-22122
MICROS-TO-MAINFRAMES, INC.
(Exact name of Registrant as specified in Its charter)
New York 13-3354896
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
614 Corporate Way, Valley Cottage, New York 10989
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (914) 268-5000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 Par Value
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in the proxy statements
incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of May 30, 1997, was $9,865,191 (assuming solely for
purposes of this calculation that all directors and officers of the
Registrant are "affiliates").
The number of shares outstanding of the Registrant's Common S tock,
par value $.001 per share, as of May 30, 1997, was 4,450,374.
Documents Incorporated by Reference: N/A
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ITEM 1. BUSINESS
GENERAL
Micros-to-Mainframes, Inc. and its subsidiaries, MTM Advanced Technology,
Inc. and Data.Com RESULTS, Inc. (collectively, the "Company" or "MTM") serve as
a "one-stop" organization for data processing solutions by providing computer
hardware and software sales, systems design, installation, consulting,
maintenance and integration of microcomputer products, including the design and
implementation of wide area networks ("WAN's") and local area networks ("LANs").
The Company sells, installs and services microcomputers, microcomputer software
products, supplies, accessories and custom designed microcomputer systems. MTM
is primarily an authorized direct dealer and value added reseller. The Company
also serves as a systems integrator, by integrating into a single working
system, for a client, a group of hardware and software products from more than
40 major computer vendors including Compaq, Hewlett Packard, IBM, Dell, NEC ,
Seagate Technology, Apple, Cisco, Canon, Novell, Microsoft, Toshiba, 3COM,
Cubix, Fore Systems, Madge and numerous others.
MTM provides its customers, some Fortune 500 corporations and others
mostly considered to be in the Fortune 2000 category (hereinafter referred
to as "Fortune 2000 corporations" in the tri-state New York Metropolitan area,
with a wide range of related outsourced customer support services,
including network analysis and design, systems configuration, physical
installation, software loading, application training, continuing education,
maintenance and repair services. A network is the integration of two or
more computers and their components into a system that allows multiple
users to share the same information, communicate with the mainframe (a
computer with large capacity used primarily for massive data storage and
processing) or central networking system and all other computers and
peripheral equipment.
The outsourcing of computer services is a rapidly growing trend whereby a
client company obtains all or a portion of its data processing requirements
from a systems integrator, such as MTM, that specializes in the computer
service, product or application required by the client. Outsourcing is a fast
growing component of the data processing industry. The focus of the Company's
growth revolves around the Company's outsourced support services, which
include contract programming, network consulting and staff leasing in
addition to systems integration. Since 1991, the Company has been providing
customer support services and is focusing its current marketing efforts in
such areas. Such services account for about 10% of the Company's current
revenues, including a small amount of revenues derived from maintenance and
repair services.
On May 6, 1996, the Company acquired the business of Data.Com RESULTS, Inc.
("Data.Com"), a data communication and networking consultant and advanced
technology solutions provider primarily serving clients located in
Connecticut. This acquisition complements the Company's existing business
by expanding its client base throughout Connecticut and New England. The
Company expects to continue to expand its operations either internally or
through strategic acquisitions, with emphasis on its support services.
The Company's software support services include network and mainframe
connectivity (communication between computers and networks) consulting,
hardware and software maintenance, network management, videoconferencing
consulting and trouble-shooting support. The Company's clients have access
to person-to-person support services administered by a staff of highly
trained support engineers, generally via a toll-free 800 telephone call.
The Company's clients also have access to MTM's consulting services for
LAN and WAN planning, detailed systems design, gateway (a device which
allows computer users to access data from networks to the mainframes or by
telephone), bridge (a device which allows computer users to communicate
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between networks and provides an expansion route for the existing network)
and security/disaster recovery, among other services.
The Company was incorporated on May 12, 1986 in the State of New York.
INDUSTRY
The microcomputer industry has become a multi-billion dollar industry
since its development in the late 1970's. Management believes that this is
attributable to rapid technological advances leading to the development of
significantly more powerful microcomputers at substantially lower prices
than larger minicomputers. The use of microcomputers has become widespread
throughout the workplace also because of the smaller size of microcomputers,
as compared to mini computers, and the microcomputer's versatility and
ability to connect to and share information with mainframe systems. The
Company believes, based on its knowledge of the industry and
industry data, that the microcomputer industry experienced a compound
annual growth rate of almost 50% from 1984 to 1988 and a more modest rate
ranging from 10% to 17% since 1988. The Company believes that the industry
will continue to grow at this modest rate in the future, although there can
be no assurance that it will.
Corporations purchase their computer hardware from a number of
sources, including manufacturer authorized dealers and value-added resellers,
such as MTM, retail stores and, with increasing importance, directly
from manufacturers through direct telemarketing and mail order
organizations. Direct sales have benefited from microcomputer users
becoming more computer literate, the emergence of industry standards and
increased inter-changeability of peripherals. As a result of the
foregoing, the microcomputer dealer distribution channel is currently
undergoing additional market segmentation into dealers such as the
Company, which are systems integrators which offer a one-stop total
solution for outsourcing.
PRODUCTS
The Company markets microcomputers, printers, displays, video
conferencing products, LAN and WAN products, plotters, software and other
peripheral products. MTM is an authorized sales and service dealership of
microcomputer equipment and related products supplied primarily by major
manufacturers, including, but not limited to, Compaq Computer Corporation,
IBM Corporation, Dell Computer Corporation, Hewlett-Packard Company, Apple
Computer, Inc., Seagate Technology, Inc., Cisco Systems, Inc., Fore
Systems, Inc., Canon USA, Inc., Novell, Inc. and Toshiba American
Information. The Company offers a variety of pro ducts manufactured by
other companies, including NEC Technologies, Inc., 3COM Corporation, Cubix
Corporation, Madge Development Corp. and others , and software products
from major suppliers, including Microsoft Corporation, IB M and others.
MTM purchases certain products from Intelligent Electronics, Inc.
("IE") and MicroAge Computer Centers, Inc. ("MicroAge"), as described below,
which are distributors selling to other dealers, at prices generally
lower than the Company could obtain directly from suppliers. The Company
also obtains products from a number of suppliers, including independent
distributors, on an individual purchase order basis rather than through
dealership agreements. MTM will also order specific products from other
manufacturers to satisfy a particular customer requirement. The Company
regularly evaluates new products, both internally and through evaluations
with its customers.
The microcomputer industry is characterized by numerous hardware
systems that utilize different and often incompatible standards for hardware
and software. The Company has the capability to design systems and
support services which include products or components manufactured by
numerous manufacturers that address most applicable industry standards.
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The Company is an authorized dealership for the various standardized
LAN systems, including Novell, 3COM, Microsoft LAN Manager, the IBM Token
Ring Network, Ethernet and compatible alternatives. In addition, the Company
sells and services LAN and WAN products produced by the various
manufacturers which it represents. LAN and WAN systems allow various
microcomputers to communicate with other computers in a group and with
other microcomputers in other LANs and WANs. The Company's clients have
access to the Company's Connectivity an d Communication Laboratory
described below where they can test, design and create LANs and WANs.
OUTSOURCED SUPPORT SERVICES
MTM Support Services include a wide range of services designed for
its customers' corporate planners and management needing a single source
for technical support issues, such as local and wide area networks, gateways,
bridges, system conversion planning, hardware and software specifications,
database and database server development and implementation, video
conferencing and security/disaster recovery.
The outsourcing of computer services is a rapidly growing trend in
which a client company obtains all or a portion of its data processing
requirements from a systems integrator, such as the Company, that
specializes in the computer service, product or application required by
the client.
The Company believes that it is generally more cost-effective and more
efficient for its clients to purchase outsourcing services from the
Company than for them to provide equivalent services by hiring their own
service and support personnel.
The following services provide the Company's clients with the ability
to outsource virtually all of their support issues with one company for a
wide variety of microcomputer hardware and software products. These services
generally provide the Company's clients with access via an 800 telephone
call to person-to-person support services administered by a staff of
highly trained support engineers in the Company's Advanced Technology
Group. The Advanced Technology Group and Technical Support consists of 44
technical support persons under the supervision of a Data Communications
Manager. This group is responsible for systems design and the
implementation of technology and the management of advanced technology
projects including LANs, WANs an d data communications problem solving for
clients.
NETWORK AND MAINFRAME CONNECTIVITY CONSULTING
MTM and its staff of networking consultants offer experience at all
levels of computers to provide management information services (MIS) departments
with consulting services ranging from connectivity to enhancements,
feasibility and implementation. These services address critical issues
such as performance, reliability and compatibility with proven strategies
and products. MTM offers research and planning insight at all levels of
information flow from mainframes to minis to micros and within each
system. These consulting services provide clients with access to a
variety of options in designing and maintaining systems.
CONNECTIVITY AND COMMUNICATION LABORATORY
The Company's Advanced Technology Group seeks to serve customers'
increasing communications requirements, including their need to share data
and resources using LANs and WANs. The Company offers an array of connectivity
services, including LAN and WAN system design and configuration,
videoconferencing consulting, user training and installation. In addition,
the Company has established a Connectivity and Communication Laboratory in
its executive offices. This state-of-the-art facility provides a multi-
vendor environment to test connectivity networks, create multi-vendor LANs
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and WANs and solution prototypes, perform feasibility studies, perform pre-
release and new connectivity product testing, perform product
compatibility testing, product bulletproofing, procedures development,
product evaluation and optimization, replication, diagnosis and solution of
service problems and to generally provide a basis to address support
issues.
The Company's lab features several different LAN and WAN operating
systems from such manufacturers as Novell, IBM, SCO, Microsoft Lan Manager
and 3COM and includes the entire spectrum of computer sizes.
NETWORK MANAGEMENT AND FINE-TUNING
The Company's Advanced Technology Group provides services designed to
resolve complex network and data communications management issues for
clients with existing multiple networks and/or sites currently utilizing
communication servers, gateways to host computers and bridges linking
multiple servers (a primary storage device, normally a PC in a network).
These services include network security planning and implementation, data
integrity and redundancy, network fine-tuning and auditing, performance
testing, evaluation and optimization, corporate electronic mail and site
management.
1-800-PRODUCT SUPPORT
The Company's experienced support engineers provide product support
to resolve specific operating system and application problems. The Company's
toll-free 800 telephone support line can be used for such problems
as application software, installation assistance, error message handling
or share d device problems. The applications supported include spread
sheets, word processing packages, communications, network and PC operating
systems, graphics, databases and various utilities.
The Company provides its clients with instant access to the latest
product support resources for known problems and resolutions, updates and
release information.
NETWORK TRAINING AND CONSULTING
The Company's Advanced Technology Group provides the Company's
clients and their corporate management, as well as its own engineering and
sales personnel, with technical support and training. The Company's
support engineers have generally been trained by the major computer
vendors and receive additional training from courses given by computer
vendors, as well as by the Company's Data Communications Manager, on an as
needed basis and also in order to maintain their certifications with the
respective vendors. The Company offers comprehensive training sessions
for its customers featuring instruction by manufacturer-trained customer
support representatives. This department assists in post -sale customer
inquiries and network consultation and support via a toll-free 800
telephone number. The Company offers customer training seminars for
various microcomputer hardware and software products at its own facilities
and at customer sites.
PRODUCT MAINTENANCE
The Company offers contracts to its customers for both on-site and
off-site complete product maintenance and repair services. These maintenance
contracts generally provide for the Company to maintain microcomputer
equipment at the customer's location during regular business hours. Most
maintenance contracts are renewable annually. In addition, the Company
provides authorized warranty service and repair for equipment sold by it
and by others. The service department fulfills warranty requirements and
offers extended maintenance and repair agreements after the expiration of
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manufacturers/ warranties. The service department maintains complete
parts inventories for the products distributed by the Company and is
staffed by manufacturer-certified field engineers.
DIAGNOSTICS
The Company will ship one of its trouble-shooting tools (e.g., HP
Advisor, Novell (r) LANalyzer or Network Analyzer) to a client to allow dial
in access for trouble-shooting network hardware and software related
problems. By displaying and capturing network traffic, the Company's
experienced systems engineers can analyze and determine the network
problem. In addition, through a remote dial-in system, the Company's
systems engineers can access a client's network problems.
DATABASE
MTM has access to state-of-the-art technical databases which provide
it with information concerning technological advances from major vendors.
This assists the Company in trouble-shooting as it receives up-to-date
product information from a wide variety of vendors. The Company has either
been licensed, contracted or authorized to use the following databases :
Novell's technical database which Novell engineers use for research and net
work diagnosis, as well as technical information from IBM, Compaq, Cisco,
Microsoft, NEC, 3COM, and Fore Systems, Inc. These databases provide the
Company with technological advances from major vendors as soon as the
information is published. These, in turn, allow the Company its
flexibility to shift rapidly to vendor s whose products are expected to
increase in demand as a result of technological advances.
ACCESSORY PRODUCTS
The Company has formed new purchasing relationships with several
computer supply vendors, through which it resells diskettes, data tape,
compact disks, toner, ribbons and other related computer supplies. The
Company does not believe that it is dependent on any one vendor of
computer supplies, and the loss of any such vendor would not have a
material adverse impact on the Company.
MARKETING AND SALES
The Company's marketing efforts are focused on Fortune 500 corporations
and, to a greater degree, what may be categorized as Fortune
2000 corporations, professional firms and governmental and educational
institutions. Except for major corporate accounts, these customers
generally do not have internal computer support personnel. Management
believes that the increasing complexity of microcomputer systems,
increased usage of microcomputers in the workplace and the trend toward
network interconnecting will cause business and institutional customers to
require significant levels of outsourced customer sup port services, such
as those provided by the Company. The Company believes that these
customers are increasingly relying on their dealers and suppliers to
provide, in addition to competitive pricing, a one-stop solution-based
approach to their data processing requirements. The Company uses such an
approach which addresses purchasing, compatibility, maintenance, support,
training and obsolescence.
The Company has approximately 500 active clients. The Company's
customers are well diversified in such industries as securities, financial
institutions, pharmaceuticals, manufacturing, distribution, law and
accounting firms. For the fiscal years ended March 31, 1997, 1996 and
1995 ("Fiscal 1997", " Fiscal 1996" and "Fiscal 1995"), approximately 13%,
16% and 11%, respectively, of the Company's total revenues were derived
from sales to PaineWebber, Incorporated ("PaineWebber"). During Fiscal
1997, Bloomberg, L.P. ("Bloomberg" ) accounted for approximately 13% of the
company's revenues. During Fiscal 1996 and Fiscal 1995, A.I. Credit Corp.
("AI") accounted for approximately 18% and 29%, respectively, of the
Company's revenues. Although the Company's customer base has increased,
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the loss of PaineWebber, Bloomberg or AI as well as, to a lesser extent,
the loss of any other principal customer, would be expected to have a material
adverse effect on the Company's operations during the short term until
the Company is able to generate replacement business, although there can be
no assurance of obtaining such business.
As of May 15, 1997, the Company employed 25 salespersons who are paid
salaries, commissions and/or a combination of both. The Company's sales
executives regularly call on sales management at companies with solutions
for their computer problems. While the Company's marketing activities are
focused on Fortune 2000 corporations located in the tri-state Metropolitan
New York area and throughout New England, the Company sells its products
and services to branch offices of its customers, including Fortune 500
corporations, throughout the United States. The Company also relies on
customer referrals from its major suppliers and manufacturers who often
receive requests for a systems integrator to design and install their
systems.
The Company's sales executives generally participate in approximately
five hours of training per week concerning various topics, including product
knowledge, industry information and sales techniques. The Company's
ability to successfully expand its business will depend, in part, on its
ability to attract, hire and retain highly skilled and motivated marketing
an d sales personnel, of which there can be no assurance.
MTM also makes joint sales presentations with certain of the Company's
major suppliers to existing and prospective customers. Certain of these
suppliers/ customer fulfillment option programs allow customers who
purchase directly from the supplier to apply purchases from MTM to their
purchase obligations under those agreements. As a result, these customers
have the flexibility of purchasing products from the Company to take advantage
of MTM/s added services and its ability to integrate multiple
manufacturers / products. Most major manufacturers have instituted either
a moratorium or a selective authorization procedure on the approval of
additional authorized dealership locations. While in effect, such
policies may preclude the Company and its competitors from becoming
authorized dealers for new vendors.
SUPPLIERS
The Company purchases microcomputers and related products directly
from numerous suppliers as either an authorized dealer or a value added
reseller. The Company has entered into authorization agreements with its
major suppliers. Typically, these agreements provide that MTM has been
appointed, on a non-exclusive basis, as an authorized dealer and systems
integrator of specified products of the supplier at specified locations.
Most of the authorization agreements provide that the supplier may
terminate the agreement with or without cause upon 30 to 90 days notice or
immediately upon the occurrence of certain events. In addition, although
each agreement is generally subject to renewal on an annual basis, there
can be no assurance that such agreements will be renewed. The Company
believes that its relationships with its major suppliers are excellent.
Sales of Dell Computer products have accounted for approximately 20%,
24% and 31%, respectively, of the Company's revenues during Fiscal 1997,
Fiscal 1996 and Fiscal 1995. Sales of Compaq and IBM products accounted
for approximately 26% and 13%, respectively, of the Company's revenues
during Fiscal 1997 and Fiscal 1996. No other supplier's products accounted
for 10% or more of the Company's revenue during Fiscal 1997, Fiscal 1996
or Fiscal 1995. The Company's sales of products purchased through MicroAge
accounted for approximately 20% and 33% of the Company's total revenues in
Fiscal 1996 and Fiscal 1995 , respectively, and sales of products purchased
through IE accounted for approximately 44% and 10% of total revenues in
Fiscal 1997 and Fiscal 1996, respectively . The material provisions of the
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MicroAge contract are described below under the heading "IE and MicroAge".
Except for Dell and Compaq, management does not believe that a termination
of any one supplier's agreement would have a material adverse effect on the
Company.
The Company's future results of operations are dependent upon
continued demand for microcomputer products. Distributors in the
microcomputer industry currently face a number of adverse business
conditions, including price and gross profit margin pressures and market
consolidation. During the past five years, all major hardware vendors have
instituted extremely aggressive price reductions in response to lower
component costs and discount pricing by certain microcomputer
manufacturers. The increased price competition among major hardware
vendors has resulted in declining gross margins for many microcomputer
distributors and may result in a reduction in existing vendor subsidies.
Management of the Company believes that these current conditions, which are
forcing certain of the Company's direct competitors out of business, may
present the Company with opportunities to expand its business. There can
be no assurance, however, that the Company will be able to continue to
compete effectively in this industry, given the intense price reductions and
competition currently existing in the microcomputer industry.
Pursuant to the terms of most of its authorized dealership agreements,
the Company furnishes firm purchase orders 30 to 90 days in
advance of shipment. Under the terms of these agreements, the Company is
generally liable for up to a 5% restocking fee to many manufacturers for
the return of previously received merchandise. The Company has not
experienced any significant cancellation penalties or restocking fees.
The Company receives certain discretionary cost subsidies, typical
for the industry, from certain major suppliers to promote sales and support
activities relating to their products. The Company will typically earn
about 1 1/2% of its aggregate purchases. It has used these funds to
subsidize marketing, advertising and its Connectivity and Communication
Laboratory, where the Company has been able to expand into areas relating
to these suppliers/ products and sales, such as LAN sales and support.
MTM's current arrangements with major suppliers generally pro vide
protection for up to two months against declines in the wholesale price of
microcomputers and related products in the Company's inventory. These
arrangements typically take the form of a cash payment or a credit against
future purchases in an amount equal to the difference between the price
actually paid by the Company for its inventory of that supplier's products
and the new dealer price.
The Company's suppliers permit the Company to pass through to its
customers all warranties and return policies applicable to the suppliers'
products. To date, the Company has experienced little return of product
and has been reimbursed by the suppliers for most warranty work done for
its customers. All service work after the expiration of the warranty
period is at the customer's expense. The Company offers service contracts
of varying lengths under which the Company agrees to be responsible for all
service costs for a fixed term in exchange for a set fee paid by the
customer.
Software and other related products are purchased from numerous
industry suppliers. As is customary, the Company does not have any
long-term agreements or commitments with these suppliers, because competitive
sources of supply are generally available for such products.
In response to discounted pricing by certain microcomputer manufacturers,
all major CPU hardware suppliers have instituted aggressive price reductions.
The heightened price competition among hardware suppliers has resulted in
declining gross margins for many microcomputer resellers. Although discounted
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prices have enabled the Company to increase its sales volume over the past three
years, it has resulted in lower gross margins for some of the Company's product
lines. Network and service-related hardware products, however, have had
improving margins. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
IE AND MICROAGE
The Company operates as a reseller for IE and MicroAge. IE and
MicroAge are master resellers and distributors which market and distribute
information, technology, products and services through a network of
franchisees and affiliated resellers, such as MTM. Such products include
microcomputer systems, workstations, networking and telecommunications
equipment, software and related products. As a reseller, the Company has
purchased products and services through MicroAge since 1993 and through IE
since 1995.
The Company purchases products from IE and MicroAge on a cost-plus
basis (consisting of IE and MicroAge's cost of the products from a supplier
plus a mark-up) generally at lower prices than could be obtained
independently from suppliers. In certain instances, the Company has
access to suppliers through IE and MicroAge for which it is not otherwise
an authorized dealer. The Company is obligated to purchase a minimum of
$100,000 of products from Micro Age in each calendar quarter. The
Company's agreement with MicroAge may be terminated by either party on 60
days/ notice, and its agreement with IE may be terminated upon 30 days'
notice by the Company and upon 3 days' notice by IE. The Company does not
believe that it is dependent on either supplier, and that if it were to
suffer the loss of either supplier, adequate alternatives would exist.
DATA.COM RESULTS, INC.
The Company's newest subsidiary, Data.Com, is a data communications,
WAN and LAN consultant and advanced technology solutions provider primarily
serving clients located in the State of Connecticut. The acquisition
of Data.Com was effective as of May 1, 1996.
The net purchase price for the assets and business was approximately
$484,000 in assumed net liabilities, and 87,000 shares of the Company's common
stock, $.001 par value ("Common Stock"), valued at approximately $407,000.
Additional consideration is payable in Common Stock, contingent upon
Data.Com's achieving certain levels of earnings before taxes, depreciation
and amortization through Fiscal 1999. The maximum number of shares to be
issued are 25,000 and 35,000 in Fiscal 1998 and 1999, respectively.
Robert Fries, the previous owner of the purchased business, joined the
Company as a Vice President and director and as the Co-President of
Data.Com. See " Item 11. Executive Compensation - Employment Agreement."
COMPETITION
The microcomputer market is highly competitive. The Company is in
direct competition with local, regional and national distributors of
microcomputer products and related services. Several of these competitors
offer most of the same basic products as does the Company. The Company
competes with other resellers and believes its prices and delivery terms
are competitive. Many competitors may sell their products at lower prices
than the Company, but generally do not offer the same range of support
services after installation of equipment that the Company offers to its
customers.
In addition, the tri-state Metropolitan New York area and New England,
to which the Company markets its products and services, are particularly
characterized by highly discounted pricing on microcomputer products from
various sources of competition. The Company faces competition from
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microcomputer suppliers that sell their products through direct sales forces and
from manufacturers and distributors that emphasize mail order and telemarketing.
Depending on the customer, the principal areas of competition may
include price, pre-sales and post-sales technical support and service,
availability of inventory and breadth of product line. The Company has an
insignificant market share of sales in the microcomputer industry and the
service markets which the Company serves. Certain of the Company's
competitors at the regional and national level are substantially larger,
have more personnel, have materially greater financial and marketing
resources than the Company and operate within a larger geographic area
than does the Company.
Management believes that the Company will continue to be able to
compete effectively against its various competitors by combining fair pricing
with its wide range of customer support services designed to provide
its customers with high-end technological services, multi-vendor technical
support, maintenance of their computer product needs, a dedicated, trained
staff of salespersons and technicians, complete solutions for single user,
multi-user or net work systems and specialized vertical market software.
BACKLOG
The Company generally delivers products from inventory to its
customers within one to two weeks of its receipt of purchase orders. As a
result, the Company believes that its backlog of unfilled customer orders
is not material.
PROPRIETARY INFORMATION
The Company holds no patents and has no trademarks registered in the
United States Patent and Trademark Office or in any state. If the Company
believes that trademark registration is significant in protecting its
product or service recognition, the Company may apply for registration of
various trademarks or service marks, including, but not limited to, the
names Micros-to-Mainframes, Data.Com and The Advanced Technology Group, in
which it believes that it has certain common-law rights. The Company may
also affix copyright notices on its support service, training and service
manuals. While such protect ion may become important to the Company, it is
not considered essential to the success of its business. The Company
relies on the know-how, experience and capabilities of its management,
sales and service personnel. The Company requires some of its employees
to sign confidentiality or non-competition agreements.
EMPLOYEES
As of May 20, 1996, the Company employed 125 persons, all but six of
whom are full-time personnel. Of these employees, five are responsible
for management, 25 are responsible for marketing and sales, 71 for technical
support, four for distribution, five for finance and eight for
purchasing and administration. None of the Company's personnel is
represented by a union, and the Company considers its employee relations to
be good.
ITEM 2. PROPERTIES
The Company's executive offices and warehouse are located in
approximately 11,000 square feet of space at a two-story facility leased at
614 Corporate Way, Valley Cottage, New York. Approximately 35% of such
space is devoted to marketing and telephone sales, 15% to service and
customer support , 10% to administration, 10% to the Connectivity and
Communication Lab and 30% to warehouse space. The Company does not
maintain a retail showroom. The monthly payment is currently $6,400 under
a lease, expiring on August 31, 1997, as amended.
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The Company also leases 4,000 square feet of office space in the
Chrysler Building in New York City, which space is devoted to high technology
sales. The monthly payment is currently $11,111 under a lease expiring
on February 28, 1998. The Company also leases approximately 8,100 square
feet of office and warehouse space (only about 10% of this property is
devoted to warehouse space) in Rocky Hill, Connecticut. The monthly
payment on this lease is currently $4,853.81, which will increase to
$5,213.35 on August 1, 1997. The lease is terminable on six months' notice
after July 31, 1997 and expires on July 31, 1999.
The Company is also responsible for real estate taxes, insurance,
utilities and maintenance expenses concerning these premises.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, other
than customer claims arising, from time to time, in the ordinary course of
the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company/s stockholders
during the fourth quarter of the fiscal year ended March 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is listed on NASDAQ/NMS under the
symbol "MTMC", and warrants of the Company were listed on NASDAQ/NMS until
December 22, 1995 under the symbol "MTMCW," when the warrants were
removed from trading.
The following table sets forth the high and low closing bid prices of
the Common Stock for the last two fiscal years, and the warrants through
December 22, 1995, as reported by NASDAQ. Bid quotations represent high
and low prices quoted between dealers, do not reflect retail mark-ups,
mark-downs or com missions and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Bid
Security Period High Low
- -------- ---------------- ------ -------
<S> <C> <C>
COMMON
STOCK FISCAL YEAR ENDED MARCH 31, 1996
April 1 - June 30, 1995 $5.750 $3.125
July 1 - September 30, 1995 $8.625 $4.875
October 1 - December 31, 1995 $7.000 $4.500
January 1 - March 31, 1996 $6.750 $4.500
FISCAL YEAR ENDED MARCH 31, 1997
April 1-June 30, 1996 $5.875 $3.750
July 1-September 30, 1996 $4.750 $3.000
October 1 - December 31, 1996 $4.250 $2.125
January 1 - March 31, 1997 $3.750 $2.500
WARRANTS FISCAL YEAR ENDED MARCH 31, 1996
April 1 - June 30, 1995 $4.750 $0.625
July 1 - September 30, 1995 $4.750 $1.250
October 1 - December 22, 1995 $3.000 $0.250
</TABLE>
On May 30, 1997, the closing bid and asked prices of a share of Common
Stock were $3.625 and $3.875, respectively, and the Company had in excess
of 2,000 beneficial holders of Common Stock.
The Company has not paid any cash dividends on Common Stock to date
and does not anticipate paying any in the foreseeable future. The Board
of Directors intends to retain earnings, if any, to support the growth of
the Company's business.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the four fiscal years ended
March 31, 1997, 1996, 1995 and 1994, and the Nine Months Ended March 31,1993,
are derived from the financial statements of the Company. The data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information included herein.
-12-
<PAGE>
<TABLE>
<CAPTION>
Income Statement Data:
Nine Months
Year Ended March 31 Ended March 31
-----------------------------------------------------
1997 1996 1995 1994 1993
(In thousands; except earnings per share)
<S> <C> <C> <C> <C> <C>
Net revenues $ 58,062 $ 47,326 $43,043 $ 29,028 $15,322
Cost of products sold 47,549 40,452 37,530 24,862 12,742
Technical personnel
salaries 2,420 1,109 778 562 242
Selling, general and
administrative
expenses 6,698 4,070 3,276 2,690 1,590
Compensatory stock
arrangement(1) 0 4,655 0 0 0
Interest expense 6 13 40 94 86
Income (loss) from
operations before
income taxes 1,530 (2,907) 1,514 820 662
Net income (loss) 910 (3,614) 878 478 387
Net income (loss) per
common share:
Primary $0.21 ($1.10) $0.40(2) $0.30(2) $0.33
Fully diluted (3) ($0.22) ($0.57)
Weighted average number
of common and common
equivalent shares used
in calculation:
Primary 4,436 3,251 2,194(2) 1,605(2) 1,175
Fully diluted (3) 3,183 2,104
Balance Sheet Data: At March 31
-----------------------------------------------------------
1997 1996 1995 1994 1993
(In thousands; except earnings per share )
Working Capital $ 10,386 $10,684 $4,648 $3,771 $ 773
Total Assets 20,428 16,209 9,420 8,486 5,247
Total Liabilities 8,085 5,208 4,554 4,501 4,307
Retained Earnings (Deficit) (469) (1,379) 2,235 1,357 879
Shareholders' Equity 12,343 11,000 4,866 3,985 940
</TABLE>
_____________________
(1) Reflects a non-cash, non-recurring charge. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
(2) Share and per share data do not include 1,400,000 shares of the Company's
Preferred Stock issued in September 1993 and redeemed in September 1996 in
exchange for 980,000 shares of Common Stock (the "Preferred Stock").
(3) Assumes (i) that the Preferred Stock was converted to Common Stock for the
periods shown, (ii) that earnings were adjusted to reflect the necessary
earnings requirements for convertibility of the Preferred Stock and (iii)
that a charge to income for the compensatory element of the Preferred Stock
was recognized for each period in the three year period ended March 31,1996
based on the current market price at the end of each period.
-13-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Report.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
items in the Company's Consolidated Statements of Operations expressed as a
percentage of sales for that period:
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1996 1995
<S> <C> <C> <C>
Net sales..................... 100.00% 100.00% 100.00%
Cost of products sold......... 81.89 85.48 87.19
Technical personnel salaries. 4.17 2.34 1.81
Selling, general and
administrative expenses..... 11.54 8.60 7.61
Compensatory stock arrangement -- 9.84(1) --
Interest expense............ 0.01 0.03 0.09
Income (loss) from operations
before income taxes.............. 2.64 (6.14) 3.52
Net income(loss).................... 1.57 (7.64) 2.04
</TABLE>
_______________________
(1) Reflects the non-cash non-recurring charge of $4,655,000 described below.
The Year Ended March 31, 1997 as compared to the Year Ended March 31, 1996.
The Company had net sales of approximately $58,062,000 for the Year
Ended March 31, 1997 ("Fiscal 1997"), as compared with approximately $47,326,000
for the Year Ended March 31, 1996 ("Fiscal 1996"). This increase
in sales of approximately 22% was attributable to increased sales of
equipment to both new and existing customers in Fiscal 1997, as well as to
increased revenues from support services, including approximately
$6,289,000 in revenue derived from the newly acquired subsidiary.
As a percentage of net sales, the cost of products sold for Fiscal
1997 decreased by 3.59% as compared to Fiscal 1996, due to increased
service revenues, which have higher margins than equipment sales, offset
by competitive market pressures on product sales.
Service revenue in Fiscal 1997 increased 41% to $6,416,000 from
$4,537,000 in Fiscal 1996. Because of the increase in the Company's
service business, the Company hired additional technical personnel. On an
aggregate basis, technical personnel salaries in Fiscal 1997 increased
118% to $2,420,000 from $1,109,000 in Fiscal 1996. Technical personnel
salaries as a percentage of service revenues were 38% in Fiscal 1997 and
24% in Fiscal 1996. This increase was due to the Company's hiring more
technical personnel as part of its planning for future growth in its
consulting and service business. The Company is expected to continue to
hire additional professional technicians and engineers for the Advanced
Technology Group in order to meet the expected demand in the outsourcing
business for the coming year.
Selling, general and administrative ("SG&A") expenses were
approximately $6,698,000 for Fiscal 1997, as compared to approximately
$4,070,000 in Fiscal 1996. SG&A expenses as a percentage of net sales
-14-
<PAGE>
increased to 11.54% in Fiscal 1997 from 8.6% in Fiscal 1996. This
increase was primarily attributable to the Company's overall increase in
overhead expenses and to the newly-formed subsidiary that acquired the
business of Data.Com RESULTS, Inc. (" Data.Com"), which had SG&A expenses of
approximately $1,513,000. Furthermore, due to the increase in sales volume,
sales commissions and salaries increased by $100,000, and other employee
payroll, benefits and payroll taxes increased by approximately $300,000.
The increases were also due to increases in occupancy expenses and telephone
expenses of approximately $222,000 for additional office space in New York
City.
Accordingly, net income increased to approximately $910,000 in Fiscal
1997 from a loss of $(3,614,000) in Fiscal 1996, which included the 1996
non-cash, non-recurring charge of $4,655,000.
The Year Ended March 31, 1996 as compared to the Year Ended March 31, 1995.
The Company had net sales of approximately $47,326,000 for Fiscal
1996, as compared with approximately $43,043,000 for the Year Ended March 31,
1995 ("Fiscal 1995"). This increase in sales of approximately 10% was
attributable to increased sales of equipment to both new and existing
customers in Fiscal 1996, as well as to increased revenues from support
services, which the Company began to offer in 1991.
As a percentage of net sales, the cost of products sold for Fiscal
1996 decreased by 1.71% as compared to Fiscal 1995, due to increased
service revenues, which have higher margins than equipment sales, offset
by competitive market pressures on product sales.
Service revenue in Fiscal 1996 increased 98% to $4,537,000 from
$2,290,000 in Fiscal 1995. Because of the increase in the Company's
service business, the Company hired additional technical personnel. On an
aggregate basis, technical personnel salaries in Fiscal 1996 increased 43%
to $1,109,000 from $778,000 in Fiscal 1995. Technical personnel salaries
as a percentage of service revenues were 24% in Fiscal 1996 and 34% in
Fiscal 1995. This decrease was due to greater utilization of technical
personnel on customer service contracts.
SG&A expenses were approximately $4,070,000 for Fiscal 1996, as
compared to approximately $3,276,000 in Fiscal 1995, SG&A expenses as a
percentage of net sales increased to 8.60% in Fiscal 1996 from 7.61%
in Fiscal 1995. As a whole, SG&A expenses increased by approximately
$794,000 in Fiscal 1996. This increase resulted primarily from expenses
related to increased sales volume , including increases in sales
commissions and salaries of $416,000, and other employee payroll, benefits
and payroll taxes of $71,000. The increase was also due to increases in
accounting and administrative salaries of $49,000, legal, accounting and
other professional fees of $104,000, and insurance of $102,000 .
The Company recognized a one-time charge against earnings in Fiscal
1996 in the amount of $4,655,000 relating to the compensatory nature of the
Preferred Stock. The charge was required to be recognized at such time as
the convertibility of the Company's Series A Preferred Stock (the "Preferred
Stock") was deemed probable. The Preferred Stock was convertible
into Common Stock, on a one for one basis, solely if the Company met
certain revenue and earnings thresholds. Such thresholds for
convertibility were considered probable in the fourth quarter of Fiscal
1996. In conjunction with this determination, the Company and the holders
of such Preferred Stock committed to accelerate the convertibility and fix
the amount of compensation expense to be charged to earnings. An
independent appraisal as to the equivalent value of the Preferred Stock and
the Common Stock concluded that the 1,400,000 shares of Preferred Stock
were equivalent to 980,000 shares of Common Stock. Based on the market
value of the Company's Common Stock at March 31, 1996, the Company
recognized the non-recurring, non-cash charge of $4,655,000 shown on the income
statement as "Compensatory stock arrangement". The shareholders of the
-15-
<PAGE>
Company subsequently approved the arrangement, and the Preferred Stock was
exchanged for 980,000 shares of Common Stock in September 1996.
Based on the above factors, the Company had a net (loss) of approximately
($3,614,000) in Fiscal 1996 as compared to net income of $878,000 in
Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company measures its liquidity in a number of ways, including the
following:
<TABLE>
<CAPTION>
March 31,
1997 1996 1995
(Dollars in thousands, except current ratio data)
-------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents........ 2,880 5,285 1,167
Working capital.................. 10,386 10,684 4,648
Current ratio.................... 2.28:1 3.05:1 2:02:1
Secured notes payable............ 5 5 5
Working capital line available... 8,140 8,759 7,373
</TABLE>
During Fiscal 1997, the Company used approximately $437,000 in cash
from operating activities. The cash used in operating activities resulted
from an increase in accounts receivable of $3,418,000 and an increase in
inventory of $96,000, offset by an increase in accounts payable and accrued
expenses of $1,886,000 and an increase in income tax payable of $55,000.
The Company used approximately $1,993,000 in investing activities for the
purchase of property, equipment and software of approximately $682,000
and the acquisition of Data.Com of approximately $1,311,000.
The Company finances much of its business through "floor-plan "
financings, which are alternate credit lines provided by manufacturers or
through lines of credit provided by vendors. The financing arrangements
have aggregate credit limits of approximately $8,300,000 and allow the
Company to borrow for between 30 and 60 days, interest-free. Interest is
charged to the Company only after the due date. These arrangements
generally provide for security interests in the related inventory and/or
accounts receivable and liens against all assets of the Company. The
Company also has a $5,000,000 revolving credit facility from a bank,
expiring on June 29, 1997, which the Company intends to renew. All
of the floor-plan borrowings are subordinated to the Company's bank revolver
except as to inventory and equipment, as to which the floor-planners hold a
first lien pursuant to intercreditor agreements. At March 31, 1997 and 1996,
the Company's total outstanding debt under the floor-plan arrangements was
approximately $5,155,000 and $2,536,000, respectively, and the revolver
balance was $5,000 at the end of each year.
The Company's current ratio decreased to 2.28:1 at March 31, 1997 from
3.05:1 at March 31, 1996.
The Company believes that expected cash flow from its operations
combined with available financing arrangements will be sufficient to satisfy
its expected cash requirements for the next 12 months and thereafter.
There can be no assurance, however, that changes in the Company's plans
or other events affecting the Company will not result in unexpected
expenditures or cash requirements.
ACQUISITION OF DATA.COM
On May 6, 1996, a newly formed subsidiary of MTM acquired substantially
all of the assets of Data.Com RESULTS, Inc. The net purchase
price for the assets was approximately $484,000 in assumed net liabilities,
and the issuance of 87,000 shares of Common Stock of the Company.
-16-
<PAGE>
to the owner of the business sold (valued at approximately $407,000).
Data.Com is a data communications, wide area network and local area
network consultant and advanced technology solution s provider primarily
serving clients located in Connecticut.
In addition to the above consideration, contingent consideration is
payable in the Company's common stock based upon defined future levels of
Data.Com's earnings before taxes, depreciation and amortization ("EBTDA")
through the fiscal year ended March 31, 1999 ("Fiscal 1999"). The maximum
number of shares to be issued are 25,000 and 35,000 in Fiscal 1998 and
1999, respectively . The contingent consideration is not included in the
calculation of the acquisition cost. In addition to the above contingent
consideration, the Co-President of Data.Com will be issued 5,000 and
10,000 stock options in Fiscal 1998 and 1999, respectively, if Data.Com/s
EBTDA is greater than $1.25 million an d $1.35 million for Fiscal 1998 and
1999, respectively. The option price for any option so granted shall be
110% of the fair market value of the Company's common stock as at the
first day of the taxable year in which the respective options, if any, are
granted. The options shall not vest until the first day of the taxable
year following the year of grant, at which time all such options shall
vest. All compensation expense will be recognized during the target period,
when earnings targets are considered achievable, based on the market value
of the Company's common stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information appears in Part IV, immediately following Item 14 of
this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-17-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Name Age Position
Howard Pavony 46 Chairman of the Board
Steven H. Rothman 48 C.E.O., President and Direct or
Frank T. Wong 50 Vice President-Finance, Secretary
and Director
Robert A. Fries 44 Vice President and Director
Ramon Mota 35 Vice President-Technology
and Director
Joseph J. Farley* 73 Director
William Lerner* 63 Director
* Member of the Audit Committee and Compensation Committee.
Howard Pavony has served as Chairman of the Board since August 1996.
He served as the Company's President and a Director from May 1986 to August
1996. He has also served as Vice President of MTM Advanced Technology, Inc.
1997. since 1986. From 1977 until 1986, Mr Pavony was employed by Data
Research Associates ("DRA"), a computer hardware and accessories company,
rising to the positions of Vice President of Sales and member of the
Executive Board of DRA.
Steven H. Rothman has served as C.E.O. and President since Au gust
1996. He served as the Company's Vice President and a Director from the
Company's inception in May 1986 to August 1996. Mr. Rothman was the
Company's Secretary from May 1986 to September 1995. He has also served as
President o f MTM Advanced Technology, Inc. since 1986. From 1976 until
1986, Mr. Rothman was employed by DRA, rising to the positions of Director
of Marketing and member o f the Executive Board.
Frank Wong has served as the Company's Vice President-Finance since
February 1992, as a Director since June 1993 and as Secretary since
September 1995. Prior thereto, from 1975 to 1991, he served as Chief
Accountant of the Carvel Corporation, a franchise ice cream distributor.
Robert A. Fries has served as a Vice President and a Director of the
Company since May 6, 1996, when he joined the Company as a result of the
acquisition of Data.Com. He was President of Data.Com RESULTS, In c. from
June 1986 until he joined the Company and now serves as Co-President of
Data.Com.
Ramon Mota has served as a Director of the Company since May 6, 1996.
He joined the Company in October 1991, acting as a technical salesperson
for the Company and was promoted to Director of Technology in June 1992.
He became Vice President-Technology of the Company in April 1993. He also
has be en Co-President of Data.Com since May 1996. Prior thereto, from
1989 until 1991, Mr. Mota served as an engineer with Multitech System, Inc.
a modem manufacturing a nd data communications company.
-18-
<PAGE>
Joseph J. Farley has served as a Director of the Company since
September 1995. From January 1982 to November 1990, Mr. Farley served as a
Vice President and Director of Marketing for Helm Resources, Inc. ("Helm"),
an American Stock Exchange listed company engaged in providing financial
services an d management assistance to small and mid-market companies. Mr.
Farley continue s to serve as a director of Helm. Prior thereto, Mr.
Farley was employed by IBM for thirty-two years. Mr. Farley held various
positions with IBM in engineering, marketing and field engineering.
William Lerner has served as a Director of the Company since September
1995. Mr. Lerner has been engaged in the private practice of corporate
and securities law in New York and Pennsylvania since 1991. From 1990 to
1991, Mr. Lerner was Vice President and general counsel to Hon
Development Company, a California real estate development company.
From 1986 to 1990, Mr . Lerner was a Vice President and general counsel of The
Geneva Companies, a California based business valuation and mergers and
acquisitions firm specializing in privately owned middle-market companies.
Mr. Lerner previously served as the Director of Compliance with the
American Stock Exchange and as a Branch Chief, Enforcement Attorney for the
Securities and Exchange Commission. Mr. Lerner serves as a director of
Helm; of Seitel, Inc., a New York Stock Exchange listed company engaged in
several facets of the oil and gas business; of Rent-Way , Inc., a Nasdaq
listed company engaged in the rent-to-own business; and of Co-Counsel,
Inc., a Nasdaq listed company that provides part-time or contract lawyers
to businesses and corporations on a nationwide basis.
All directors hold office until the next annual meeting of shareholders
or until their successors are elected and qualify. Officers are
elected annually by, and serve at the discretion of, the Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Officers, Directors and persons who own more than ten percent of
a registered class of the Company's equity securities, to file reports of
owner ship and changes in ownership with the Securities and Exchange
Commission. Officers, Directors and ten percent shareholders are required
by regulation to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on the Company's copies of such forms received or
written representations from certain reporting persons that no Form 5's
were required for those persons , the Company believes that, during the
time period from April 1, 1996 to March 31, 1997, all filing requirements
applicable to its Officers, Directors and greater than ten percent
beneficial owners were complied with, except that each of Messrs. Rothman,
Pavony, Farley, Lerner and Mota filed one late Form 4 reporting, in each
case, one transaction.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned
by, or paid for all services rendered to the Company during Fiscal 1997,
Fiscal 1996 and Fiscal 1995 by certain executive officers of the Company.
No other executive officers received compensation in excess of $100,000
during such years.
-19-
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation
--------------------- Shares
Name and Principal Underlying
Position Year Salary($) Bonus($) Options(#)
- ---------------------- ------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Howard Pavony 1997 $185,417 $20,000 50,000
Chairman of the Board 1996 $165,000 $20,000 10,000
1995 $165,000 $20,000 0
Steven H. Rothman 1997 $185,417 $20,000 50,000
President and CEO 1996 $165,000 $20,000 10,000
1995 $165,000 $20,000 0
Robert Fries 1997 $103,326 $25,000(2) 0
Vice President
Ramon Mota 1997 $100,033 $ 9,000 5,000
Vice-President 1996 $ 95,000 $ 10,500 0
Technology
</TABLE>
- -------------------------
(1) The compensation figures shown do not include the cost to the
Company of benefits, including the use of automobiles leased or car allowances
paid by the Company, premiums for life and health insurance and any
other personal benefits provided by the Company to such persons, which
are, in the aggregate, below reportable thresholds.
(2) $25,000 bonus was accrued pursuant to the Purchase Agreement
dated May 6, 1996, although the exact amount of the bonus has not yet been
determined or paid.
OPTION GRANTS IN LAST FISCAL YEAR
The table below includes the number of stock options granted to the
executive officers named in the Summary Compensation Table during the year
ended March 31, 1997, exercise information and potential realizable value.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Annual Rates of Stock
Underlying Granted to Price Appreciation
Options Employees in Exercise Expiration for Option Term
Name Granted(#) Fiscal Year Price($/sh) Date 5 %($) 10%($)
- --------------- ------------- ----------- ----------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Steven H. Rothman 50,000 31.3% $4.43 8/31/2001 $0 $30,000
Howard Pavony 50,000 31.3% $4.43 8/31/2001 $0 $30,000
Robert Fries - - - - $0 $0
Ramon Mota 5,000 3.1% $2.50 11/30/2001 $7,450 $12,650
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY END OPTION VALUES
The table below includes information regarding the value realized on
option exercises and the market value of unexercised options held by the
executive officers named in the Summary Compensation Table during the year
ended March 31, 1997.
-20-
<PAGE>
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options Options
Acquired at FY-End(#) at FY-End($)
Name on Exer- Value Exercisable / Exercisable\
cise (#) Realized Unexercisable Unexercisable
- ---------- --------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
Steven H. Rothman -0- -0- 70,000/40,000 $0/$0
Howard Pavony -0- -0- 70,000/40,000 $0/$0
Robert Fries -0- -0- 0/0 $0/$0
Ramon Mota -0- -0- 18,750/6,250 $28,200/$3,150
</TABLE>
DIRECTOR FEES
The Company's independent directors receive an annual fee of $9,000
payable in quarterly installments in advance. In addition, each independent
director receives $1,500 for attendance in person at each Board meeting
and $250 for participating in each telephonic board meeting held. Each
independent director also received ten-year options to purchase 2,500
shares of Common Stock, exercisable, beginning August 20, 1996, at $4.0625
per share. See "Stock Option Plans" below, for the terms of stock options
granted to the Company's directors. Members of the Audit Committee and
Compensation Committee are appointed annually and serve at the discretion
of the Board of Directors. Each member of each Committee will receive
$1,000 for each meeting attended in excess of five meetings of such
committee per year.
Management directors currently receive no cash compensation for serving
on the Board of Directors other than reimbursement of reasonable expenses
incurred in attending meetings. Certain of the Company's directors have
received stock options from the Company. See "Stock Option Plans" below.
EMPLOYMENT AGREEMENTS
On September 1, 1996, Steven H. Rothman and Howard Pavony, respectively
the Chief Executive Officer and Chairman of the Board of Directors of the
Company, each entered into a five year employment agreement with the Company
on the following terms. Each agreement renews annually after the term un
less either party elects to terminate. Salary for the fiscal year ending
Marc h 31, 1997 was at the rate of $200,000. Under each agreement, the
executive receives annual increases in salary equal to the greater of (i)
the percentage increase in the Consumer Price Index; and (ii) $10,000.
Each executive is entitled to participate in the Company's stock option
plans and the Company's Incentive Bonus Program, the amounts of such
incentive compensation being determined by the Compensation Committee of
the Board of Directors. Further, the Company will maintain a $1,000,000
life insurance policy on each executive's life, payable to the
beneficiaries named by him, and maintain disability insurance for the
benefit of each executive which will pay $150,000 per annum to him in the
event of his permanent disability. In the event that there is a change in
control of the Company, the executive will be entitled, upon such change
of control, to terminate his employment and receive 2.9 times his annual
salary as then in effect.
On April 1, 1996, the Company and Mr. Mota entered into a three -year
employment agreement providing for a base salary of $98,000 in the first
year, $105,000 in the second year and $115,000 in the third year; a bonus
depending upon the earnings generated by the Advanced Technology Group;
grants of five-year options to purchase up to 5,000 shares of Common Stock
in each of the first two years of the term; and a $300 to $400/month car
-21-
<PAGE>
allowance. The Company further agreed to use its best efforts to
designate Mr. Mota as a member of the Board of Directors during the
initial term of the agreement.
Simultaneously with the acquisition of Data.Com, on May 6, 1996 , the
Company and Mr. Fries entered into a three-year employment agreement
providing for a base salary of $140,000; a bonus of 6% of earnings of
Data.Com, but in no event more than $60,000 with respect to a fiscal year;
grants of up to a total of 20,000 incentive stock options over the three
years, subject to defined future level of Data.Com's EBTDA; and a $400/month
car allowance. The Company further agreed to use its best efforts to
designate Mr. Fries as a member of the Board of Directors during the
initial term of the agreement.
STOCK OPTION PLANS
The Company has established a 1993 Stock Option Plan (the "1993 Plan")
and a 1996 Stock Option Plan (the "1996 Plan").
Pursuant to the 1993 Plan, as of the date hereof, the Company has
granted an aggregate of 247,500 stock options. Of these, 202,500 are
currently exercisable, and 27,500 have been exercised to date. 17,500
options have been canceled to date and are available for regrant under the
1993 Plan. An aggregate of 145,000 options have been granted to date
under the 1996 Plan. Of these, 25,000 are exercisable and 120,000 are
unexercisable. No options have been exercised under the 1996 Plan, to
date. Messrs. Pavony and Rothman each hold five -year incentive stock
options to purchase up to 50,000 shares of Common Stock at $ 3.375 per
share, 10,000 shares of the Common Stock at $6.125 per share and a n
additional 50,000 shares of Common Stock at $4.43 per share. Mr. Mota
holds incentive stock options to purchase up to 15,000 shares of Common
Stock at $1.25 per share, 5,000 shares of Common Stock at $3.375 per share
and an additional 5,000 shares of Common Stock at $2.50 per share. Mr.
Wong holds incentive stock options to purchase 5,000 shares of Common
Stock at $3.375 per share and 10,0 00 shares of Common Stock at $5.125 per
share. Messrs Farley and Lerner each hold options to purchase up to 2,500
shares of Common Stock at $7.00 per share and an additional 2,500 shares of
Common Stock at $4.0625 per share.
SUMMARY OF THE PLANS
Both the 1993 Plan and the 1996 Plan (each, a "Plan"), provide for the
grant of options to qualified employees (including officers and director s)
of the Company, and its subsidiaries, independent contractors, consultant s
and certain other individuals to purchase shares of Common Stock. Each
Plan must be administered by the Board of Directors or a committee of at
least two disinterested members of the Board of Directors (the
"Compensation Committee"). The Board or the Compensation Committee has
complete discretion to select the optionee and to establish the terms and
conditions of each option, subject to the provisions of the respective
Plan. The than 100% of the fair market value of the Common Stock as of the
date of grant (110% of the fair market value if the grant is an Incentive
Option to an employee who owns more than 10% of the outstanding Common
Stock). Options may not be exercised more than 10 years after the date of
grant. An option may be exercised by tendering payment of the purchase
price to the Company or, at the discretion of the Board of Directors or
Compensation Committee, by delivery of shares of Common Stock having a
fair market value equal to the exercise price or through a cashless
exercise involving the cancellation of a portion of the shares underlying
the options ("Option Shares") having a fair market value equal to the
exercise price of the Option Shares issued. Options granted under a Plan
are not transferable and may be exercised only by the respective grantees
during their lifetimes or by their heirs, executors or administrators in
the event of death. Option Shares that are canceled or terminated may
later be re-granted. The number of options outstanding and the exercise
price thereof are subject to adjustment in the case of certain
-22-
<PAGE>
transactions such as mergers, recapitalizations, stock splits or stock
dividends.
The 1993 Plan provides for the grant of options to purchase up to an
aggregate of 250,000 Option Shares. Options granted under the 1993 Plan
may or may not be "incentive stock options" as defined in Section 422 of
the Code ("ISOs"), and non-qualified stock options ("NQSOs") may be granted
in tandem with Stock Appreciation Rights ("SARs") or Stock Depreciation
Rights, depending upon the terms established by the Board or the
Compensation Committee at the time of grant.
The 1996 Plan provides for the grant of options to purchase up to an
aggregate of 350,000 Option Shares. Options granted under the 1996 Plan
may be ISOs or NQSOs and may be granted in tandem with SARs, depending upon
the terms established by the Board or the Compensation Committee at the
time of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no compensation committee (or Board of Directors) interlock
relationships with respect to the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date hereof, certain
information concerning those persons known to the Company, based on
information obtained from such persons, with respect to the beneficial
ownership (as such te rm is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of Common Shares and Preferred Stock by (i) each
person known by the Company to be the owner of more than 5% of the
outstanding Common Shares and Preferred Stock, (ii) each Director, (iii)
each executive officer named in the Summary Compensation Table and (iv)
all Directors and executive officers as a group.
Amount and Nature
of Beneficial Ownership Percent of Class (1 )
Name and Address Common Common
of Beneficial Owner Shares Shares
Steven H. Rothman(2) 1,148,625(3)(4) 25.8%
Howard Pavony(2) 1,147,500(3)(5) 25.8%
Frank T. Wong(2) 14,805(3)(6) *
Robert A. Fries
71 Peria Drive
Rocky Hill, CT 06061 87,000 2.0%
Ramon Mota(2) 18,815(3) *
Joseph J. Farley
78 Sawmill Road
Stamford, CT 06903 5,000(3) *
William Lerner
423 East Beau Street
Washington, PA 15301 5,000(3) *
All Directors and
executive officers
as a group (7 persons) 2,426,745(3)(4)(5)(6) 54.5%
*Represents less than 1%.
-23-
<PAGE>
(1) Based on 4,450,374 shares of Common Stock issued and outstanding as of
the date of this Report.
(2) The address of this person is c/o the Company, 614 Corporate Way,
Valley Cottage, New York 10989.
(3) Includes options held by Steven Rothman and Howard Pavony each to
purchase 70,000 shares of Common Stock, options to purchase 13,750 shares
held by Frank Wong, to purchase 18,750 shares held by Ramon Mota and to
purchase 5,000 shares held by each of Messrs. Farley and Lerner which are
currently exercisable. Does not include options held by each of Messrs.
Pavony and Rothman to purchase 40,000 shares, by Mr. Wong to purchase 1,250
Common Shares and by Mr. Mota to purchase 6,250 shares which are not
currently exercisable.
(4) Includes 1,125 shares held by the wife of Mr. Rothman. Also includes
an aggregate of 169,139 shares of Common Stock held in trust for Mr.
Rothman's three children. Mr. Rothman disclaims beneficial ownership of
all of such shares.
(5) Includes an aggregate of 164,044 shares held in trust for Mr. Pavony's
two children. Mr. Pavony disclaims beneficial ownership of all of such
shares.
(6) Includes 1,000 shares held by the wife of Mr. Wong.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 24, 1996, the Company entered into a Conversion Agreement with
each of Messrs. Pavony and Rothman, pursuant to which, after the receipt
of the consent of the stockholders of the Company in August 1996, such
officers and certain trusts for the benefit of their children exchanged with
the Company 1,400,000 shares of Series A Preferred Stock for 980,000
shares of Common Stock. An independent appraiser had concluded that the
value of the Preferred Stock and Common Stock exchanged was approximately
equivalent.
The Company believes that the terms for the foregoing transaction
are on terms no less favorable than could be obtained from unrelated
third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements.
Independent Auditors/ Report F-1
Consolidated Balance Sheets at March 31, 1997 and 1996 F-2
Consolidated Statements of Income for
the years ended March 31, 1997, 1996 and 1995 F-3
Consolidated Statements of Changes in Shareholders/
Equity for the years ended March 31, 1997, 1996
and 1995 F-4
Consolidated Statements of Cash Flows for the
the years ended March 31, 1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
-24-
<PAGE>
(2) Financial Statement Schedules
Financial Statement Schedules have been omitted because of the
absence of the conditions under which they are required or because
the required information, where material, is shown in the Consolidated
Financial Statements or the notes thereto.
(3) Exhibits
2.1 Asset Purchase Agreement, dated as of May 1, 1996, by and
among Data.Com, Mr. Fries, the Company and the Company's
wholly-owned subsidiary.(4)
3.1 Certificate of Incorporation of the Company, as amended.(1)
3.2 Certificate of Amendment filed September 10, 1996. (6)
3.3 By-Laws of the Company.(1)
10.1 Revised 1993 Employee Stock Option Plan.(1)
10.2 Independent Computer Dealer Agreement between the Company and
MicroAge Computer Centers, Inc. dated February 23, 1993.(1)
10.3 Revolving Credit Line Agreement between The Bank of New York
and the Company.(1)
10.4 Modification and Extension Agreement dated November 12,
1992 between the Bank of New York and the Company.(1)
10.5 Remarketer/Integrator Agreement between Dell Marketing L.P.
and Company, as amended.(1)
10.6 Dealer Addendum, as amended, to IBM Agreement for
Authorized Dealers and Industry Remarketers.(1)
10.7 Master Purchase Agreement between Paine Webber Incorporated
and the Company.(1)
10.8 Agreement for Wholesale Financing between Deutsche Financial
Service (f/k/a/ ITT Commercial Finance Corp.) and the
Company.(1)
10.9 September 13, 1993 amendment to Paine Webber Incorporated
agreement.(1)
10.10 Extension Agreement between the Bank of New York and
the Company dated March 3, 1994.(2)
10.11 Amendment to Revolving Loan Agreement between the
Company and the Bank of New York, dated March 28, 1995.(3)
10.12 Pledge and Escrow Agreement dated as of May 6, 1996
among the Company, Data.Com and Mr. Fries.(4)
10.13 Employment Agreement dated as of May 6, 1996 between
the Company and Mr. Fries.(4)
10.14 Employment Agreement dated April 1, 1996 between the
Company and Mr. Mota.
-25-
<PAGE>
10.15 Form of Employment Agreement between the Company and
Steven H. Rothman, dated September 1, 1996.
10.16 Form of Employment Agreement between the Company and
Howard Pavony, dated September 1, 1996.
11.1 Statement Re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Company.(5)
27.1 Financial Data Schedule.
1. Incorporated by reference from the Company's Registration Statement
on Form SB-2 for October 26, 1993 (No. 33-62932-NY).
2. Incorporated by reference from the Company's Annual Report on
Form 10- KSB for the fiscal year ended March 31, 1994.
3. Incorporated by reference from the Company's Current Report on Form
8-K dated March 28, 1995.
4. Incorporated by reference from the Company's Current Report on Form
8-K dated May 6, 1996.
5. Incorporated by reference from the Company's Annual Report on Form 10-
K for the fiscal year ended March 31, 1996.
6. Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the
last quarter of Fiscal 1997.
-26-
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Micros-To-Mainframes, Inc.
We have audited the accompanying consolidated balance sheets of Micros-
To-Mainframes, Inc. as of March 31, 1997 and 1996 and the related
consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended March 31,
1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Micros-To-Mainframes, Inc. at March 31, 1997 and
1996 and the consolidated results of its operations and its cash flows
for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Stamford, Connecticut
May 15, 1997
F-1
<PAGE>
Micros-To-Mainframes, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
1997 1996
------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,879,578 $ 5,284,587
Accounts receivable - trade, less
allowance of $41,000 13,707,458 8,844,204
Inventory 1,458,467 1,331,000
Prepaid expenses and other current assets 410,817 412,460
Deferred income taxes 15,000 20,000
-------------------------
Total current assets 18,471,320 15,892,251
Property and equipment:
Leasehold improvements 97,426 24,363
Furniture, fixtures and other equipment 1,510,044 641,385
Transportation equipment 45,796 39,275
-------------------------
1,653,266 705,023
Less accumulated depreciation and amortization 626,940 457,884
-------------------------
1,026,326 247,139
Goodwill, net of accumulated amortization of $54,450 836,550 -
Other assets 94,294 69,162
-------------------------
Total assets $20,428,490 $16,208,552
=========================
Liabilities and shareholders' equity
Current liabilities:
Secured notes payable $ 5,000 $ 5,000
Accounts payable and accrued expenses 7,905,693 5,083,969
Income taxes payable 174,553 119,140
-------------------------
Total current liabilities 8,085,246 5,208,109
Shareholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares
authorized and none issued at March 31, 1997;
1,400,000 shares authorized and issued at
March 31, 1996; liquidation preference,
$140,000 at March 31, 1996 - 1,400
Common stock, $.001 par value; 10,000,000 shares
authorized; 4,450,374 and 3,363,374 shares issued
and outstanding at March 31, 1997 and 1996 4,450 3,363
Additional paid-in capital 12,807,900 12,374,774
Retained deficit (469,106) (1,379,094)
-------------------------
Total shareholders' equity 12,343,244 11,000,443
-------------------------
Total liabilities and shareholders' equity $20,428,490 $16,208,552
==========================
</TABLE>
See accompanying notes.
F-2
<PAGE>
Micros-To-Mainframes, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended March 31,
1997 1996 1995
--------------------------------------
<C> <C> <C>
Net revenues:
Products $51,646,003 $42,789,681 $40,752,849
Services 6,416,470 4,536,656 2,290,422
--------------------------------------
58,062,473 47,326,337 43,043,271
Costs and expenses:
Cost of products sold 47,548,895 40,452,206 37,530,399
Technical personnel salaries 2,419,527 1,108,941 777,619
Selling, general and
administrative
expenses 6,698,265 4,070,111 3,276,358
Compensatory stock arrangement - 4,655,000 -
Interest expense 6,136 13,325 39,570
------------------------------------
56,672,823 50,299,583 41,623,946
Other income 140,788 66,179 94,275
------------------------------------
Income (loss) from operations 1,530,438 (2,907,067) 1,513,600
before income taxes
Provision for income taxes 620,450 707,000 635,200
------------------------------------
Net income (loss) $ 909,988 $(3,614,067) $ 878,400
====================================
Net income (loss) per common share:
Primary $ .21 $ (1.10) $ .40
=====================================
Fully-diluted $ (.22)
=====================================
Weighted average number of common
and common equivalent shares used in
calculation:
Primary 4,436,059 3,251,042 2,193,991
====================================
Fully-diluted 3,182,508
====================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Micros-To-Mainframes, Inc.
Consolidated Statements of Changes in
Shareholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------- -------------- Retained
Number of Number of Additional Earnings/
Shares Amount Shares Amount Paid-In Capital (Deficit) Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 1,400,000 $ 1,400 2,175,810 $2,176 $ 2,624,687 $ 1,356,573 $ 3,984,836
Issuance of common
stock as compensation 1,600 2 2,798 2,800
Net income 878,400 878,400
--------------------------------------------------------------------------------------
Balance at March 31, 1995 1,400,000 1,400 2,177,410 2,178 2,627,485 2,234,973 4,866,036
Issuance of common stock:
Employee options exercised 7,500 7 14,680 14,687
Underwriter Representative
Warrants exercised 100,000 100 438,650 438,750
Warrants exercised and redeemed
less offering expenses of
$78,076 1,078,464 1,078 4,638,959 4,640,037
Compensatory stock 4,655,000 4,655,000
Net loss (3,614,067) (3,614,067)
------------------------------------------------------------------------------------
Balance at March 31, 1996 1,400,000 1,400 3,363,374 3,363 12,374,774 (1,379,094) 11,000,443
1996
Conversion of preferred stock (1,400,000)(1,400) 980,000 980 420 -
Issuance of common stock:
Employee options execised 20,000 20 24,980 25,000
Acquisition of subsidary 87,000 87 407,726 407,813
Net income 909,988 909,988
-------------------------------------------------------------------------------------
Balance at March 31, 1997 - $ - 4,450,374 $4,450 $12,807,900 $ (469,106) $12,343,244
=====================================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Micros-To-Mainframes, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended March 31,
1997 1996 1995
------------------------------------------
Operating activities
<S> <C> <C> <C>
Net income (loss) $ 909,988 $(3,614,067) $ 878,400
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Gain on sale of franchise rights - - (94,275)
Depreciation and amortization 223,506 90,269 96,290
Compensatory stock arrangement - 4,655,000 -
Other non-cash charges (credits) 5,000 (14,000) 10,800
Changes in operating assets and liabilities,
net of effects of acquisition:
Accounts receivable (3,418,345) (2,121,743) (1,864,712)
Inventory (96,068) (278,951) 71,164
Prepaid expenses and other current assets 22,609 (158,679) (68,339)
Other assets (25,132) (38,883) (15,829)
Accounts payable and accrued expenses 1,886,072 801,777 1,442,544
Income taxes payable 55,413 (147,314) 110,731
------------------------------------------
Net cash provided by (used in) operating
activities (436,957) (826,591) 566,774
Investing activities
Sale of franchise rights, net of expenses - - 103,059
Purchase of property and equipment (682,034) (149,304) (93,465)
Purchase of subsidiary, net of cash acquired (1,311,018) - -
-----------------------------------------
Net cash provided by (used in)
Investing activities (1,993,052) (149,304) 9,594
Net proceeds from issuance of common stock 25,000 5,093,474 -
Payments on secured notes payable - - (1,500,692)
----------------------------------------
Net cash provided by (used in)
financing activities 25,000 5,093,474 (1,500,692)
----------------------------------------
Increase (decrease) in cash (2,405,009) 4,117,579 (924,324)
Cash and cash equivalents at beginning of year 5,284,587 1,167,008 2,091,332
---------------------------------------
Cash and cash equivalents at end of year $2,879,578 $5,284,587 $1,167,008
=======================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Micros-To-Mainframes, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation and Nature of Operations
The accompanying consolidated financial statements include the
accounts of Micros-To-Mainframes, Inc. and its wholly-owned
subsidiaries, Data.Com RESULTS, Inc., "Data.Com" (see Note 7) and MTM
Advanced Technology, Inc. (see Note 6), hereafter, collectively
referred to as the "Company". Significant intercompany accounts and
transactions have been eliminated. The Company is an authorized direct
dealer and value-added computer reseller providing hardware, software,
consulting and integration services to customers primarily located in
the tri-state New York metropolitan area.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, certificates of
deposit, commercial paper and money market funds holding similar
investments. The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash
equivalents. Such investments are stated at cost which approximates
fair value, and are considered cash equivalents for purposes of
reporting cash flows.
Inventories
Inventories, comprised principally of computer hardware and software,
are stated at the lower-of-cost or market using the first-in, first-
out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost and are depreciated using
the straight-line method over the following useful lives:
Furniture, fixtures and other equipment 3-7
Transportation equipment 5
Leasehold improvements are depreciated over the shorter of the lease
term or economic life of the related improvement. Expenditures which
extend the useful lives of existing assets are capitalized.
Maintenance and repair costs are charged to operations as incurred.
The Company incurred approximately $169,000, $90,000 and $90,000 in
depreciation expense for the years ended March 31, 1997, 1996 and
1995, respectively.
Goodwill
Goodwill of $891,000 relates to the purchase of Data.Com in May 1996
(see Note 7). The goodwill is being amortized using the straight-line
method over 15 years.
F-5
<PAGE>
Micros-To-Mainframes, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
Deferred income taxes are provided, using the liability method, for
temporary differences between financial and tax reporting, which arise
principally from the deductions related to the allowances for doubtful
accounts, basis of inventory and differences arising from book versus
tax depreciation methods.
Revenue Recognition
The Company recognizes revenue upon the shipment of ordered
merchandise and as technical services are rendered.
Fair Value of Financial Instruments
The estimated fair value of amounts reported in the consolidated
financial statements have been determined by using available market
information and appropriate valuation methodologies. All current
assets and current liabilities are carried at their cost, which
approximates fair value, because of their short term nature.
Stock Based Compensation
The Company has granted stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares
at the date of grant. The Company has accounted for stock option
grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and intends to
continue to do so.
Earnings (Loss) Per Share
Primary and fully diluted earnings (loss) per common share have been
computed based upon the weighted average number of common and common
equivalent shares outstanding. Common equivalent shares result from
the assumed exercise of outstanding stock options, warrants, and
Representative's warrants that have a dilutive effect when applying
the treasury stock method.
Primary earnings per share assumes, in addition to the above, that the
Company's 1.4 million convertible preferred shares were converted to
980,000 common shares as of the beginning of the fourth quarter of
Fiscal 1996 (see Note 3).
Fully diluted earnings per share assumes, in addition to the above,
(i) that the Company's convertible preferred shares were converted to
common shares for all periods, (ii) that earnings were adjusted to
reflect the necessary earnings requirements for convertibility of the
preferred shares, and (iii) that the charge to income for the
compensatory element of the convertible preferred stock was recognized
for each period in the two year period ended March 31, 1996 based on
the current market price at the end of each period.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," which is effective for both
interim and annual financial statements for periods ending after
December 15, 1997. Earlier application is not permitted. The statement
which will be adopted by the Company in the third quarter of the year
ending March 31, 1998 and will simplify the calculation of earnings
per share. The adoption of Statement 128 will have a minimal effect on
the Company's results of operations.
F-7
<PAGE>
Micros-To-Mainframes, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
and cash equivalents and trade accounts receivable. The Company places
its cash with high credit quality institutions. At times, such amounts
may be in excess of the FDIC insurance limits.
The Company's customers are primarily mid to large size corporations
in diversified industries located in the New York tri-state area.
Receivables from two major customers at March 31, 1997 approximated
18% and 13%, respectively, of the Company's trade receivables.
Receivables from two major customers at March 31, 1996 approximated
22% and 10%, respectively, of the Company's trade receivables. Two
customers each accounted for approximately 13% of the Company's
revenue for fiscal 1997, 18% and 16%, respectively, of the Company's
revenue for fiscal 1996 and 29% and 11%, respectively, of the
Company's revenue for fiscal 1995. The loss of either principal
customer would be expected to have a material adverse effect on the
Company's operations during the short term until the Company is able
to generate replacement business, although there can be no assurance
of obtaining such business.
2. Credit Facilities
The Company has entered into several financing agreements for the
purchase of inventory. Lines of credit under these agreements
aggregate approximately $8,300,000 (approximately $3,145,000 unused)
at March 31, 1997 and $6,300,000 (approximately $3,764,000 unused) at
March 31, 1996, respectively, and generally provide for thirty day
repayment terms. These agreements are secured by the related inventory
and/or accounts receivable and liens against all assets of the
Company. In addition, one of these agreements provides for minimum
amounts of tangible net worth and specified financial ratios. All such
borrowings are subordinated to the bank financing, except as to
inventory and equipment, pursuant to an intercreditor agreement (see
below).
A revolving credit facility renewed in August 1994, amended in March
1995 and expiring June 29, 1997 allows the Company to borrow up to
$5,000,000 with an interest rate of either (1) the bank's Alternate
Base Rate (ABR); or (2) the Eurodollar rate plus 2%, depending on
certain factors as stipulated in the agreement. At March 31, 1997 and
1996, the Company had $5,000 outstanding under this facility with
interest payable at the bank's ABR of 8.50%, and 8.25%, respectively.
The revolving credit facility provides, among other matters for: (i) a
general security interest first lien on all of the Company's assets (a
second lien to the extent a first lien on inventory and/or accounts
receivable is held under the financing agreements described above);
(ii) unconditional guarantees of MTM Advanced Technology, Inc. and
(iii) requirements, including limitations on additional borrowings,
minimum levels of shareholders' equity, restrictions on certain
transactions, including the payment of dividends, and specified
financial ratios.
Interest paid during fiscal 1997, 1996 and 1995 aggregated
approximately $6,000, $1,000 and $40,000, respectively.
F-8
<PAGE>
Micros-To-Mainframes, Inc.
Notes to Consolidated Financial Statements (continued)
3. Shareholders' Equity
In connection with the Company's initial public offering of common
stock, the Company issued 1,000,000 Warrants entitling the holders to
purchase common shares, and 100,000 Representative's Warrants
entitling the holders to purchase units (consisting of one common
share and one warrant). The 1,000,000 Warrants entitled the holders to
purchase shares of common stock at an exercise price of $4.375 per
share from October 26, 1993 through October 26, 1997. The 100,000
Representative's Warrants entitled the holders to purchase units at an
exercise price of $4.3875 per unit, from October 26, 1994 through
October 26, 1998. During fiscal 1996, substantially all of the
Company's Warrants and all of the Representative's Warrants were
exercised resulting in the issuance of 1,178,464 shares of common
stock.
Preferred Shares
The 1,400,000 convertible preferred shares were convertible into
common stock (1 to 1) at the option of the holders, solely if the
Company's net sales in any four consecutive fiscal quarters aggregates
$50 million or more and its net income amounts to $1,500,000 or more,
or such proportionately higher amount of net income (3% of net sales)
on net sales in excess of $50 million.
In the fourth quarter of fiscal 1996, the thresholds for
convertibility were considered probable. In conjunction with this
determination, the Company and the holders of the preferred shares
committed to accelerate the convertibility and fix the amount of
compensation expense to be charged to earnings. The Board of Directors
and the preferred shareholders agreed subject to the receipt of
necessary stockholders' consent and an independent appraisal as to the
equivalent value of the preferred stock and the common stock, to the
conversion of the preferred shares into common shares. The appraisal
concluded that the 1,400,000 preferred shares were equivalent to
980,000 common shares. The conversion was consummated upon stockholder
approval at the August 20, 1996 meeting of Company stockholders. Based
on the market value of the Company's common stock at March 31, 1996,
the Company recognized a non-recurring, non-cash charge of $4,655,000.
In addition, at the Annual Meeting of Shareholders on August 20, 1996,
the Company amended its Certificate of Incorporation, eliminating the
old Series A Preferred Stock and authorizing a new class of 2,000,000
shares of "blank check" preferred stock, par value $.001 per share. As
of March 31, 1997, no preferred shares are issued and outstanding.
Employee Stock Option Plan
The 1993 Employee Stock Option Plan (the 1993 Plan) was adopted by the
Company in May 1993 and the 1996 Stock Option Plan (the 1996 Plan) was
approved by the shareholders of the Company on August 20, 1996. The
Plans provide for granting of options, including incentive stock
options, non-qualified stock options and stock appreciation rights to
qualified employees (including officers and directors) of the Company,
independent contractors, consultants and other individuals, to
purchase up to an aggregate of 250,000 and 350,000 shares of common
stock in the 1993 Plan and 1996 Plan, respectively. The exercise price
of options generally, may not be less than 100% of the fair market
value of the Company's common stock at the date of grant. Options may
not be exercised more than ten years after the date of grant. Options
granted under the Plans become exercisable in accordance with
different vesting schedules depending on the duration of the options.
F-9
<PAGE>
Micros-To-Mainframes, Inc.
Notes to Consolidated Financial Statements (continued)
3. Shareholders' Equity (continued)
Information regarding the Company's stock option plans is summarized
below:
<TABLE>
<CAPTION>
1993 Plan 1996 Plan
----------------------------------------------------
Number Option Number Option
of Exercise of Exercise
Options Price Per Options Price Per
Share Share
---------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at March 31, 1994 200,000 $1.25 -3.375
Terminated and canceled (5,000) $3.375
---------
Outstanding at March 31, 1995 195,000 $1.25 -$3.375
Terminated and canceled (2,500) $3.375
Options issued during the year 40,000 $5.125 -$7.00
Options exercised during the year (7,500) $1.25 -$3.375
--------
Outstanding at March 31, 1996 225,000 $1.25 -$7.00
Options during the year 15,000 $3.94 -$4.06 145,000 $2.50 -$4.43
Options exercised during the year (20,000) $1.25 -
--------- -------
Outstanding at March 31, 1997 220,000 $1.25 -$7.00 145,000 $2.50 -$4.43
</TABLE>
The weighted-average exercise price of the total options outstanding
at March 31, 1997 is $3.63 and the weight-average contractual life is
8.2 years.
The weighted-average fair value of options granted during fiscal 1997
and 1996 is $3.41 and $4.91, respectively.
There were 202,500 and 175,000 options exercisable at March 31, 1997
and 1996, under the 1993 Plan and 25,000 options exercisable at March
31, 1997 under the 1996 Plan.
The Company has elected to follow APB 25 and related interpretations
in accounting for its employee stock options because, as discussed
below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires
use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value
method of the Statement. The fair value of these options was estimated
at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for fiscal 1997 and 1996,
respectively: risk-free interest rates of 6.5% and 6.0%; no dividend
yield; a volatility factor of the expected market price of the
Company's Common Stock of 0.78 and 0.91 and an expected life of 8.5
and 8.1 years.
F-10
<PAGE>
Micros-To-Mainframes, Inc.
Notes to Consolidated Financial Statements (continued)
3. Shareholders' Equity (continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information are as follows:
Year ended March 31,
1997 1996
----------------------
Pro forma net income (loss) $883,825 $(3,702,449)
======================
Pro forma earnings (loss) per share - primary $ .20 $(1.14)
======================
In accordance with the provisions of Statement 123, the pro forma
disclosures include only the effect of stock options granted in fiscal
years beginning after December 15, 1994. The application of the pro
forma disclosures presented above are not representative of the
effects of Statement 123 may have on net earnings and earnings per
share in future years due to the timing of stock option grants and
considering that options vest over several years.
4. Income Taxes
The liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
The provision for income taxes consists of the following:
Year ended March 31,
1997 1996 1995
---------------------------
Federal:
Current $463,450 $568,300 $476,800
Deferred 5,000 (14,000) 8,000
---------------------------
468,450 554,300 484,800
State:
Current 152,000 152,700 150,400
---------------------------
$620,450 $707,000 $635,200
===========================
F-11
<PAGE>
Micros-To-Mainframes, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
The reconciliations of income tax computed at the federal statutory
tax rates to actual income tax expense are as follows:
Year ended March 31,
1997 1996 1995
-----------------------------
Tax expense (benefit) at statutory rates
applied to pretax earnings $520,000 $(988,000) $515,000
Compensatory stock arrangement
without tax benefit - 1,583,000 -
State income taxes, net of federal
benefit 100,000 101,000 99,000
Other 450 11,000 21,200
---------------------------------
$620,450 $707,000 $635,200
=================================
As of March 31, 1997, gross deferred tax assets totaled $47,000 and
gross deferred tax liabilities totaled $32,000.
Income taxes paid during fiscal 1997, 1996 and 1995 aggregated
approximately $560,000, $871,000 and $521,000, respectively.
5. Commitments and Contingencies
Leases
The Company leases three locations for its administrative and
operational functions under operating leases through July 1999. In
addition, the Company leases five cars for the use of certain
employees, including its officers, as well as office equipment.
Future minimum annual lease payments under operating leases are as
follows:
Twelve months ending:
March 31, 1998 $432,000
March 31, 1999 120,000
March 31, 2000 29,000
---------
$581,000
=========
Rental expense for operating leases approximated $460,000, $210,000
and $130,000, respectively, for fiscal 1997, 1996 and 1995.
Employee Savings Plan
In the current year, the Company established an employee savings plan.
This plan is currently being reviewed by the Internal Revenue Service
for qualification under Section 401(k) of the Internal Revenue Code.
Under the plan, all eligible and participating employees may defer up
to 15% of their pre-tax compensation, but not more than $9,500 per
calendar year. The Company matches 10% of six percent of the employees
contribution. The Company contributed approximately $12,000 to the
plan in fiscal 1997.
F-12
<PAGE>
Micros-To-Mainframes, Inc.
Notes to Consolidated Financial Statements (continued)
6. Sale of Franchise Rights
In March 1995, the Company sold the franchise rights of Richard Young
Products North, Inc. back to its franchisor for $108,000, resulting in
a gain, net of expenses, of $94,275 which is presented as other
income. The after-tax effect on net income per common share for 1995
was approximately $.025. In conjunction with this transaction, Richard
Young Products North, Inc. changed its name to MTM Advanced
Technologies, Inc.
7. Acquisition of Data.Com RESULTS, Inc.
On May 6, 1996, a subsidiary of the Company, acquired substantially
all of the assets of Data.Com, in exchange for issuance of 87,000
shares of common stock of the company (valued at approximately
$407,000), and the assumption of certain of Data.Com's payables
(primarily trade). Data.Com is a data communication, wide area network
(WAN) and local area network (LAN) consultant and advanced technology
solutions provider primarily serving clients located in Connecticut.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to
the assets acquired and the liabilities assumed based upon the fair
values at the date of acquisition. The excess of the purchase price
over the fair values of the net assets acquired was approximately
$891,000 and has been recorded as goodwill, which is being amortized
on a straight-line basis over 15 years.
In addition to the above consideration, contingent consideration is
payable in the Company's common stock based upon defined future levels
of Data.Com's earnings before taxes, depreciation, and amortization
("EBDTA") through Fiscal 1999. The maximum number of shares to be
issued are 25,000, 25,000, and 35,000 in Fiscal 1997, 1998, and 1999,
respectively. The contingent consideration is not included in the
calculation of the acquisition cost. No shares were issued in Fiscal
1997. Compensation expense will be recognized during the target
period; when such targets are considered achievable, based on the
market value of the Company's common stock.
In addition to the above contingent consideration, the president of
Data.Com will be issued 5,000 and 10,000 stock options in Fiscal 1998
and 1999, respectively, if Data.Com's EBTDA is greater than $1.25
million and $1.35 million for 1998 and 1999, respectively. The option
price for any option so granted shall be 110% of the fair market value
of the Company's common stock as at the first day of the taxable year
in which the respective options, if any, are granted. The options
shall not vest until the first day of the taxable year following the
year of grant, at which time all such options shall vest. Compensation
expense will be recognized during the target period; when such targets
are considered achievable, based on the market value of the Company's
common stock.
The following summarized pro forma results of operations for the years
ended March 31, 1997 and 1996 and have been prepared assuming the
acquisition occurred at the beginning of the respective periods.
1997 1996
--------------------------
Net Sales $58,907,524 $52,518,181
Net Income (loss) 957,704 (3,775,433)
Earnings (loss) per share-primary .22 (1.13)
F-13
<PAGE>
Micros-To-Mainframes, Inc.
Notes to Consolidated Financial Statements (continued)
8. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for
the years ended March 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
June 30 September 30 December 31 March 31
------------------------------------------------
(In Thousands, except per-share data)
Fiscal 1997
<S> <C> <C> <C> <C>
Net revenues $13,311 $13,450 $13,679 $17,622
Cost of products sold 10,999 11,245 11,024 14,289
Technical personnel salaries 427 539 655 798
Net income (loss) 256 79 171 404
Net income (loss) per
common share:
Primary .06 .02 .04 .09
Fiscal 1996
Net revenues $10,934 $11,187 $13,414 $11,791
Cost of products sold 9,274 9,694 11,552 9,869
Technical personnel salaries 239 281 281 371
Net income (loss) 247 155 337 (4,353)
Net income (loss) per
common share:
Primary .11 .06 .12 (.99)
Fully-diluted (.86) (1.39) (.90)
Fiscal 1995
Net revenues $ 8,590 $ 9,596 $13,630 $11,227
Cost of products sold 7,462 8,354 12,270 9,444
Technical personnel salaries 170 195 207 206
Other income-sale of
franchise rights 94
Net income 109 122 177 470
Net income (loss) per
common share:
Primary .05 .06 .08 .21
Fully-diluted (.22) (.05) (.64)
</TABLE>
The results for the fourth quarter 1996, include a charge of
$4,655,000 relating to the conversion of the Company's preferred
shares (see Note 3). Earnings per common share calculations for each
of the quarters were based on the weighted average number of shares
outstanding for each period, and the sum of the quarters may not
necessarily be equal to the full year earnings per common share
amount.
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report t o be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 12, 1997
MICROS-TO-MAINFRAMES, INC.
By: /s/ Steven H. Rothman
Steven H. Rothman
CEO and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Howard Pavony Chairman of the Board June 12, 1997
- ---------------------
Howard Pavony
/s/ Steven H. Rothman President, June 12, 1997
- --------------------- Principal Executive
Steven H. Rothman Officer and Director
/s/ Frank T. Wong Vice President-Finance June 12, 1997
- ---------------------- (Principal Financial and
Frank T. Wong Accounting Officer),
Secretary and Director
/s/ Robert A. Fries Vice President June 12, 1997
- --------------------- and Director
Robert A. Fries
/s/ Ramon Mota Vice President-Technology June 12, 1997
- -------------------- and Director
Ramon Mota
Director June , 1997
- --------------------
Joseph J. Farley
/s/ William Lerner Director June 12, 1997
- --------------------
William Lerner
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
10.14 Employment Agreement dated April 1, 1996 between the Company
and Mr. Mota.
10.15 Form of Employment Agreement between the Company and Steven H.
Rothman, dated September 1, 1996.
10.16 Form of Employment Agreement between the Company and Howard
Pavony, dated September 1, 1996.
11.1 Statement Re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
AGREEMENT entered into as of the 1st day of April, 1996, by and
between Micros-to-Mainframes, Inc., a New York corporation with its
principal place of business at 614 Corporate Way, Valley Cottage, New
York 10989 (the "Company"), and Ramon Mota, residing at 311 West 56th
Street, Apartment 29H, New York, New York (the "Employee").
W I T N E S S E T H :
WHEREAS, the Employee and the Company are parties to an employment
agreement effective October 31, 1994 ("October Employment Agreement")
whereunder the Employee is engaged by the Company in the principal
capacity of MTM Director of Advanced Technology;
WHEREAS, the Company and the Employee are desirous of renegotiating
the October Employment Agreement upon the terms and conditions
contained herein, including, but not limited to, among other things,
extending the term thereof and increasing the fixed compensation to
Employee;
WHEREAS, effective upon the execution hereof, the October
Employment Agreement shall be terminated;
WHEREAS, the Company sells computer hardware and software, de
signs and installs computer systems, provides computer consulting
services and is engaged in the development of new products and new
procedures to enhance its business;
WHEREAS, the compensation to be paid to the Employee by the
Company is at least in part dependent upon profits which may accrue to
the Company through its ownership and/or operation of processes and
procedures, involving trade secrets and proprietary information
relating to its business;
WHEREAS, the Company is engaged in a highly competitive business;
and
WHEREAS, the Company must maintain its competitive position by
protecting its inventions, trade secrets, patents, know-how, and
proprietary information.
NOW, THEREFORE, in consideration of the mutual premises and
agreements contained herein and for other good and valuable
consideration by each of the parties, the parties hereby agree as
follows:
<PAGE>
1. Employment
The Company hereby employs the Employee and the Employee
hereby accepts employment upon the terms and conditions set forth
herein.
2. Term
The term of this Agreement (the "Term") shall commence as of
April 1, 1996 (the "Commencement Date") and conclude at 5:00 p.m. on
the third anniversary of the Commencement Date; provided, however, that
the term of this Agreement shall be automatically continued and extended
for additional consecutive twelve month periods commencing upon such
termination date, unless, at least thirty (30 ) days before the date of
termination of the initial term of this Agreement or of any such
extended term, the Company shall give the Employee, or the Employee
shall give the Company, a notice in writing electing to terminate this
Agreement as of such termination date.
3. Services To Be Rendered
During the term of this Agreement, the Employee shall serve
as either or both Co-President of the Company's to be created wholly-
owned corporation ("Newco") which will acquire substantially all of
the assets of Data.Com Results, Inc., a Connecticut corporation, and/or
MTM Advanced Technologies, Inc. (the "Subsidiaries"), as determine d by
the Company's Board of Directors in its sole discretion, and shall
perform such duties as are determined from time to time by the
Company's and the respective Subsidiaries' Board of Directors.
Attached hereto as Exhibit "A" is the general job description for such
position. Such job description shall not be deemed to be the sole
responsibilities of Employees, which responsibilities shall be
determined from time to time by the Company's and the respective
Subsidiaries' Board of Directors. The Company hereby agrees that it
will attempt to ensure that the Employee shall report to and be
supervised by Howard Pavony, the Company's current President, for so long
as Mr. Pavony remains as the Company's President or is engaged in a
similar executive capacity. If Mr. Pavony ceases to b e the Company's
President or to be engaged in a similar executive position, then the
Employee shall report to the person then serving as the Company's
President or Chief Executive Officer. If requested by Howard Pavony or
his successor as provided above, Employee shall serve as an
executive officer of one or more other subsidiaries of the Company
and shall in the performance of such duties, comply with the policies
of the Board of Directors of such subsidiary. If Employee shall during
the term of this Agreement, he will serve in such capacity without further
compensation. Unless prevented by death or disability, the
-2-
<PAGE>
Employee shall devote his full business time, allowing for vacations
and national holidays, as set forth in Sections 5(e) and (f) hereof,
and illnesses, exclusively to the business and affairs of the Company,
and shall use his best efforts, skill and abilities to promote its
interests. In the course of rendering his duties hereunder,
the Employee shall not be required to spend more than five overnights
away from his home per calendar month. Nothing herein contained
shall be construed as preventing the Employee from purchasing
securities in any publicly held entity, if such purchases
shall not result in his owning beneficially 2% or more of the equity
securities of such company, provided such investment is not made in a
company in competition with the Company.
4. Compensation
For the services rendered hereunder, the Company shall pay
and the Employee shall accept the following compensation:
(a) From the Commencement Date through the first anniversary
of the Commencement Date, the Employee shall receive a base
annual salary of $98,000; for the second year of the Term, the Employee
shall receive a base annual salary of $105,000 and for the third year
of the Term, the Employee shall receive a base annual salary of
$115,000.
(b) The Employee shall be entitled to a quarterly, non-
cumulative bonus during the term hereof based upon the performance of
MTM Advanced Technologies, Inc. and other divisions or subsidiaries of
the Company providing advanced technology services, other than Newco
through March 31, 1999, (the group upon whose performance the bonus is
based is hereinafter referred to as the "Advanced Technology Group") in
the event the average Advanced Tec thereof for the quarter, as
determined by the Company's independent public accountants equals the
amount set forth below:
ATG Average Monthly G.P. ATG Quarterly G.P. Bonus
More than $449,999 G.P. More than $1,139,999
but less than $470,000 G.P. but less than $1.170M $1,500
More than $469,999 G.P. More than $1,169,999
but less than $490,000 but less than $1.2M $2,000
More than $489,999 G.P. More than $1,199,999
but less than $510,000 but less than $1.260M $2,500
More than $509,999 G.P. More than $1,259,999
but less than $530,000 but less than $1.320M $3,000
More than $529,999 G.P. More than $1,319,999
but less than $550,000 but less than $1.350M $4,000
More than $549,999 G.P. More than $1,349,999
but less than $570,000 but less than $1.380M $4,500
More than $569,999 G.P. More than $1,379,999 $5,000
-3-
<PAGE>
In addition, for each quarter in which the average ATG monthly G.P .
for such quarter exceeds $590,000, Employee shall be entitled to an
additional bonus of $5, 000 for each full $20,000 increase in the
actual average ATG monthly G.P. for such quarter over $590,000.
(c) The Employee's salary shall be payable subject to such
deductions as are then required by law and such further deductions as
may be agreed to by the Employee, in accordance with the Company's
prevailing salary payroll practices.
(d) Employee shall receive options to purchase 5,000 shares
of the common stock of the Company on each of December 1, 1996 and
December 31, 1997 if Employee is employed hereunder at such respective
time, vesting on December 1, 1997 and December 1, 1998, respectively,
at the fair market value of such common stock at the close of business
on December 1, 1996 and December l, 1997, respectively, as determined
in good faith by the Board of Directors of the Company, expiring upon
the earlier of five (5) years from the date such options is deemed
received or Employee's termination of employment with the Company.
Employee agrees to be bound by all tax withholding requirements with
respect to such options and the exercise thereof and to execute such
investment representation letters as counsel for the Company shall
require in order to comply with applicable securities laws.
5. Benefits and Expenses
(a) Nothing in this Agreement shall prevent the Employee
from receiving or participating in, subject to the discretion of the
Board of Direct ors of the Company, all fringe benefits such as
medical, disability, hospital and health insurance plans, and profit
sharing, pension and stock option plans, life insurance and other
plans, if any, which the Company may generally make available to its
executive employees. The Employee shall also be included in the
Directors and Officers' indemnification insurance policy, if obtained.
(b) In the event that the Employee's employment by the
Company is terminated for any reason, the Employee shall have the right
to purchase from the Company any insurance policies on his life owned
by the Company for a price equal to the cash surrender value of the
policies at the date of such termination, plus prepaid premiums.
The right to purchase shall exercised by the Employee by written notice
to the Company not less than seven (7) days after the date of such
termination, and the purchase price for such policies shall be paid by
the Employee to the Company on the date of termination.
-4-
<PAGE>
(c) During the term of this Agreement, the Company shall,
upon presentation of proper vouchers, also reimburse the Employee for
all reasonable expenses incurred by him directly in connection with
his performance of services as an officer and employee of the Company.
(d) The Company shall lease for the Employee a company car,
costing the Company no more than $300 per month until the current
leased vehicle being leased by the Company on Employee's behalf
expires and thereafter a car reasonably chose n by the Company and the
Employee, but costing the Company no more than $400 per month. The
Company shall be responsible for all insurance for said car not to
exceed $2,000 per year. The Employee shall be responsible for all
maintenance for said car. The Employee represents that his driver's
license is valid without restriction, and in the event his license is
suspended, revoked or restricted, the Employee agrees to immediately
inform the Company and discontinue his use o f the company car until
such time , and any income taxes shall be the responsibility of the
Employee . Notwithstanding anything contained herein to the contrary,
Employee agrees to reimburse the Company for 50% of amount paid by the
Company as a result of Employee exceeding the mileage amount permitted
under the lease without the Company bearing any additional mileage
charges.
(e) The Employee shall be entitled to three (3) weeks of
paid vacation per calendar year, provided that the Employee shall not
take more than two consecutive weeks of vacation during any year.
(f) The Employee shall receive as paid days off all
national holidays that the Company, pursuant to established policy,
recognizes and observe following training and certifications not to
exceed $10,000 per year:
(i) All prerequisite courses leading up to
and including CISCO Certification;
(ii) Enrollment in computer courses at Columbia
University for the period ending March, 1998;
(iii) Attendance at outside training classes
up to 10 days per calendar quarter;
-5-
<PAGE>
(iv) Attendance at training classes to obtain
Certification in client/server technology including SQL and Oracle
and/or Sybase, provided the Company agrees in advance to the specific
training desired by Employee; and
(v) Training toward receiving Certification in
Lotus Notes (if such Certification is deemed by the Company in its sole
discretion to be necessary for the conduct of the Company's business).
6. Disability and Death
If, during the term of this Agreement, the Employee becomes
so disabled or incapacitated by reason of any physical or mental
illness so as to be unable to perform the services required of him
pursuant to this Agreement for a continuous period of twelve (12)
months, then this Agreement shall terminate at the end of such twelve
(12) month period, provided that during such period, the Employee
shall be paid the full salary, benefits, and expenses otherwise payable
to him as set forth above, less the amount paid to the Employee from
mandatory disability insurance for the period of such illness or
incapacity. This agreement shall also terminate upon and as of the
date of death of the Employee at any time during the term of this
Agreement.
7. Covenants and Restrictions.
The Employee covenants that, except in carrying out his
duties hereunder, during the term of his employment and for a period of
one (1) year following the date of termination of employment hereunder
either for cause, as described in Section 10 below, or voluntarily by
Employee (unless such longer period of time is specifically set forth
herein):
(a) Employee will not, directly or indirectly, own any
interest in, participate or engage in, assist, render any services
(including advisory service s) to, become associated with, work for,
serve (in any capacity whatsoever, including, without limitation, as
an employee, consultant, advisor, agent, independent contractor,
officer or director) or otherwise become in any way or manner
connected with the ownership, management, operation, or control of,
any business, firm, corporation, partnership or other entity
(collectively referred to herein as a "Person") that engages
Maine, New Hampshire, Vermont, Massachusetts, Rhode Island,
Connecticut, New York, New Jersey, Pennsylvania, Delaware and Maryland;
provided, however, the above shall not be deemed to exclude Employee from
acting as director of a corporation for the benefit of the
Company with the consent of the Company's Board of Directors;
provided further, however, that the above shall not be deemed
to prohibit Employee from owning or acquiring securities issued
-6-
<PAGE>
by any corporation which neither directly nor indirectly
competes with the Company and whose securities are listed
with a national securities exchange or are traded in the over-the-
counter market, provided that Employee at no time owns, directly or
indirectly, beneficially or otherwise, two (2%) percent or more of any
class of any such corporation's outstanding capital stock.
(b) Employee will not knowingly provide or solicit to
provide to any Person or individual (i) any goods or services which are
competitive with those provided by the Company or which would be
competitive with the goods or services that the Company has planned to
provide, or (ii) any goods or services to any customer of the Company.
The term "customer" shall mean or services within the twenty-four (24)
month period prior to the termination of Employee's employment
hereunder. Notwithstanding anything herein to the contrary, no
limitation shall be imposed on Employee hereunder with respect to any
goods and services that the Company has planned to provide and which
are not actually being provided at the time of the termination of
Employee's employment hereunder or which are not actually provided
within eighteen (18) months following the termination of Employee's
employment hereunder.
(c) Employee agrees that he shall not divulge to others ,
nor shall he use to the detriment of the Company or in any business or
process of manufacture competitive with by the Company or any of its
subsidiary or affiliated companies, at any time during his employment
with the Company or d by him during the course of his employment with
the Company relating to sales, salesmen, sales volume or strategy,
customers, formulas, processes, methods, machines, manufactures,
compositions , ideas, improvements or inventions belonging to or
relating to the business of the Company , or its subsidiary or
affiliated companies.
(d) Employee will neither solicit, hire or seek to solicit
or hire any of the Company's personnel in any capacity whatsoever nor
shall Employee induce or attempt to induce any of the Company's
personnel to leave the employ of the Company to work for Employee or
otherwise.
(e) Employee acknowledges that his breach of any of the
restrictive covenants contained in this Section 7 may cause
irreparable damage to the Company for which remedies at law would be
inadequate. Accordingly, if Employee breaches or threaten s to breach
any of the provisions of this Section 7, the Company shall be entitled
to appropriate injunctive relief, including, without limitation,
preliminary and permanent injunctions, in any court of competent
jurisdiction, restraining Employee taking any action prohibited hereby.
This remedy shall be in addition to all other remedies available
to the Company at law or equity. If any portion of this Section 7
is adjudicated to be invalid or unenforceable, this Section 7 shall be
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deemed amended to delete therefrom the portion so adjudicated, such
deletion to apply only with respect to the operation of this
Section 7 in the jurisdiction in which such adjudication is made.
(f) The covenants and restrictions set forth in this
Section 7 shall be deemed null and void if the Company is in material
breach of this Agreement at a time the Employee is not in material
breach hereof, Employee has given the Company notice of s aid breach
specifying the particulars thereof and the Company not curing said
breach within 3 months of the delivery of such notice. The restrictions
and covenants hereunder shall remain in full force and effect until
the Employee gives the required notice and the lapsing, without cure,
of said three month period.
8. Proprietary Property
(a) The Employee agrees that any and all inventions or
improvements as well as any and all ideas, creations, know-how and
methods of applying and putting into practice any inventions or
improvements (all of the foregoing being hereinafter called
"Proprietary Property" and being more fully defined in subparagraph (b)
below) that are created, developed, conceived of or discovered either
(i) by the Employee (solely or jointly with others) either in the
course of his employment, on the Company's time, with the Company's
materials or facilities, relating to any subject matter with which his
work for the Company is or may be concerned, or relating to any
business in which the Company or any of its subsidiaries or affiliated
companies is involved, or (ii) by or for the Company, or (iii) by any
independent individual or Person and thereafter acquired by the
Company, and which are within the Employee's knowledge or procession in the
case of (i) during and in the course of the Employee's employment hereunder
in the case of (ii) or(iii) above, shall be, if created , developed,
conceived of or discovered by the Employee, promptly disclosed to the
Company, or shall be, if otherwise developed or acquired by the Company,
received by the Employee as an employee of the Company and not in any way
for his own benefit. Employee shall neither have nor obtain any right,
title or interest in or to such Proprietary Property unless and until
the Company shall expressly and in writing waive the rights that it has
therein and thereto under the provisions of this sentence. With respect
to any and all Proprietary Property that is invented, created, written,
developed, furnished or produced by the Employee, or suggested
by the Employee to the Company,
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<PAGE>
during the term of the Employee's employment under this Agreement,
Employee does hereby agree that all such Proprietary Property shall be
the exclusive property of the Company, and that the Employee shall
neither have nor retain any right, title or interest, of any kind
therein and thereto or in and to any results or proceeds therefrom. At
any time, whether during or after the tee request and at the expense
of the Company, (A) obtain patents or copyrights on, or (B ) permit the
Company to patent or copyright, any such Proprietary Property,
whichever (A) or (B) is appropriate, and/or (C) execute, acknowledge
and deliver any and all assignments, instruments of transfer, or other
documents, that the Company deems necessary or appropriate to transfer
to and vest in the Company all right, title and interest in and to such
Proprietary Property and to evidence t he Company's ownership of such
Proprietary Property, including, without limitation, taking all steps
necessary to enable the Company to publish or protect said Proprietary
Property by patents or otherwise in any and all countries and to
render all such assistance as the Company may require in any patent
office proceeding or litigation involving said Proprietary Property.
The Employee shall not, without limitation as to time or place, use any
Proprietary Property except on Company business, during or after his
period of employment, nor disclose the same to any other Person or
individual except for disclosure on Company business or as may be
required by law.
(b) As used in this Agreement, "Proprietary Property" means
proprietary technical information not generally known in the Company's
industry and which is disclosed to Employee on sequence of or through
his employment with the Company.
(c) During or subsequent to the Employee's employment by
Company, Employee will never, directly or indirectly, lecture upon,
publish articles concerning, use, disseminate, disclose, sell or offer
for sale any Proprietary Property without the Company's prior written
permission.
9. Prior Agreement
Employee represents that he is not now under any written
agreement, nor has he previously, at any time, entered into any
written agreement with any person, firm or corporation, which would or
could in any manner preclude or prevent him from giving freely and the
exclusive benefit of his services.
10. Termination Provisions
In addition to, and not in lieu of, the termination provisions
set forth in Section 6 hereof, the employment of the Employee hereunder may
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be terminated by the Company prior to the termination date of the initial
term or any renewal term thereafter (as set forth in Section 2 hereof)
in the event that the Employee is guilty of (i) reckless disregard to
perform his duties as set forth in Section 3 herein, or (ii) willful
misfeasance, or (iii) any act of dishonesty by the Employee with
respect to the Company. Termination of the Employee's employment by
the Company for either willful misfeasance or reckless disregard of
his duties to the Company as to be rendered pursuant to Section 3 hereof
shall constitute, and is referred to elsewhere herein, as termination
for "Cause". Such termination of the Employee's employment hereunder
for Cause shall be effective immediately upon delivery of written notice
to the Employee setting forth the reason or reasons for such termination.
Upon the termination of this Agreement in accordance with this Section 10,
the Company shall not be obligate d to make any further payments
hereunder to the Employee.
11. Directorship
The Company agrees that within seven (7) days from the d ate
this Agreement is executed, to cause Employee to be appointed a member
of or the Term hereof. Employee agrees to resign from the Board upon
termination hereunder.
12. Announcement
Employee shall not make any announcement of this Agreement
or give any details thereof without the consent of the Company or as
otherwise require d by law. The Company agrees to announce Employee's
engagement hereunder in conjunction with the closing of the Data.Com
Results, Inc. acquisition or in the event such acquisition is not
consummated in a timely fashion, at such time as the Company reasonably
believes to be prudent.
13. Miscellaneous
(a) This Agreement shall inure to the benefit of and be
binding upon the Company, its successors and assigns, and upon the
Employee, his heirs, executors, administrators, legatees and legal
representative.
(b) Should any part of this Agreement, for any reason
whatsoever, be declared invalid, illegal, or incapable of being
enforced in whole or in part, such decision shall not
affect the validity of any remaining portion, which remaining
portion shall remain in full force and effect as if this
Agreement had been executed with the invalid portion thereof
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eliminated, and it is hereby declared the intention of the
parties hereto that they would have executed the remaining
portion of this Agreement without including therein any portion
which may for any reason are declared invalid.
(c) This Agreement shall be construed and enforced in
accordance with the laws of the State of New York applicable to
agreements made and performed in such State without application to the
principles of conflicts of laws.
(d) This Agreement and all rights hereunder are personal to
the Employee and shall not be assignable, and any purported assignment
in violation there of shall be null and void. Any person, firm or
corporation succeeding to the business of the Comp any by merger,
consolidation, purchase of assets or otherwise, shall assume by
contract or operation of law the obligations of the Company hereunder;
provided, however, that the Company shall, notwithstanding such
assumption and/or assignment, remain liable and responsible for the
fulfillment of the terms and conditions of the Agreement on the part
of the Company.
(e) This Agreement constitutes the entire agreement between
the parties hereto with respect to the terms and conditions of the
Employee's employment by the Company, as distinguished from any other
contractual arrangements between the parties pertaining to or arising
out of their relationship, and this Agreement supersedes and renders
null and void any and all other prior oral or written agreements,
understandings, or commitments pertaining to the Employee's employment
by the Company. No variation hereof shall be deemed valid unless in
writing and signed by parties hereto,, and no discharge of the terms
hereof shall be deemed valid unless by full performance by the parties
hereto or by a writing signed by the parties hereto. No waiver by
either party of any provision or condition of this Agreement by him
or it to be performed shall be deemed a waiver of similar or
dissimilar provisions and conditions at the same time or any prior
or subsequent time.
(f) Any notice, statement, report, request or demand required
or permitted to be given by this Agreement shall be in writing, and
shall be sufficient if delivered in person or if addressed and sent by
certified mail, return receipt requested, to the parties at the
addresses set forth above, or at such other place that either party
may designate by notice in the foregoing manner to the other.
(g) The failure of either party to insist upon the strict
performance of any of the terms, conditions and provisions of this
Agreement shall not be construed as a waiver or relinquishment of
future compliance therewith, and said terms, conditions and provisions
shall remain in full force and effect. No waiver of any term or any
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condition of this Agreement on the part of either party shall be
effective any purpose whatsoever unless such waiver is in writing
signed by such party.
(h) The heading of the paragraphs herein inserted for
convenience and shall not affect interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
MICROS-TO-MAINFRAMES, INC.
By: /s/ Howard Pavony
---------------------------
Howard Pavony, President
/s/ Ramon Mota
--------------------------
Ramon Mota
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
WITH STEVEN H. ROTHMAN
AGREEMENT executed as of the 1st day of September, 1996 by and
between Micros-To-Mainframes, Inc. (the "Company") and Steven H.
Rothman (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is the Chief Executive Officer and President
of the Company and has served the Company since May, 1986.
WHEREAS, the Company desires to employ, retain and make secure
for itself the experience, abilities and services of the Employee for a
period of not less than five (5) years from the effective date of this
Agreement.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the adequacy and receipt of which
is hereby acknowledged, the Company and the Employee do hereby agree as
follows:
1. Employment. The Company hereby employs the Employee as Chief
Executive Officer and President, and the Employee hereby accepts such
employment, upon the terms and conditions hereinafter set forth.
2. Term. Subject to the provisions of Paragraphs 10 and 11
hereof, the term of Employee's employment shall commence on
September 1, 1996 (the "Commencement Date") and continue for an initial
period of five (5) years from the Commencement Date.
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3. Compensation and Certain Other Benefits. For services
rendered by the Employee hereunder, the Company shall pay to the
Employee the following compensation:
(a) Fixed Compensation. Fixed compensation, payable in
accordance with the normal payroll practices of the Company during
the term hereof, initially at the rate of Two Hundred Thousand
($200,000) Dollars per annum plus, on each anniversary of the
Commencement Date during the term of this Agreement, a cumulative
annual cost of living increase equal to the greater of (i) the
percentage increase indicated by the Consumer Price Index for all urban
consumers (New York, Northeastern New Jersey) as promulgated
by the U.S. Department of Labor (the "CPI") for the year then ended;
and (ii) $10,000 ("Fixed Compensation"); provided, however,
there shall be no increase in Employee's Fixed Compensation in any year
in which the Company's Board of Directors freeze all executive
employee salaries for economic reasons.
(b) Incentive Compensation. Such incentive compensation
("Incentive Compensation") in the form of a cash bonus, pursuant to
the Company's Incentive Bonus Program, as shall be determined by the
Compensation Committee of the Board of Directors from time to time.
(c) Other. In addition to the Fixed Compensation and
Incentive Compensation (Fixed Compensation and Incentive Compensation
are collectively herein referred to as "Total Compensation") which
Employee shall receive pursuant to subparagraphs (a) and (b) of this
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Paragraph 3, the Employee shall receive the following items of
reimbursement, compensation or benefits:
(i) Expenses. Employee is authorized hereunder to incur
reasonable expenses for promoting the business and
affairs of the Company, including, without limitation by
specification, expenses for entertainment, travel and
similar items. The Company will promptly reimburse
Employee for all such expenses upon presentation from
time to time by Employee to the Company of an itemized
account of such expenditures.
(ii) Stock Options. Employee shall partici- pate in the
Company's Incentive Stock Option Plan in accordance
with the provisions of Paragraph 5 hereof.
(iii) Life Insurance. The Company shall maintain either a
whole-life life insurance policy or policies or a
minimum deposit life insurance policy or policies (or
the equivalent thereof) on the life of the Employee
having an aggregate face value of not less
than One Million ($1,000,000) Dollars (collectively, the
"Policy"); provided, however, that the Company shall not
expend in excess of $10,000 per annum, on a cumulative
basis, for the Policy; provided further, however, that
to the extent the cost of the Policy exceeds $10,000 per
annum, on a cumulative basis, then, at Employee's
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option, either Employee shall pay all costs of the
Policy in excess of $10,000 or the face value of the
Policy shall be reduced to the amount of life insurance
which may be purchased for $10,000 per annum. The
proceeds of the Policy shall be payable to any
beneficiary or beneficiaries designated at any
time or from time to time by Employee. The Policy shall
be in addition to any key-man policy or group term
policy or policies insuring the life of Employee
maintained by the Company.
(iv) Automobile. The Company shall provide Employee with an
automobile compatible with his position and
responsibility hereunder or, in lieu thereof, at the
option of the Employee, a monthly stipend equal
to the cost of leasing such an automobile.
(v) Medical Benefits. The Company shall provide Employee
with such health and medical benefits as the Company
normally accords its executive officers.
(vi) Vacations. Employee shall be entitled during each
fiscal year during the period of his employment
hereunder to such vacation time as the Company normally
accords its executive officers who have been employed by
it for a length of time similar to the length of
Employee's employment. Employee may take
such vacation over such period or periods of time as
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Employee in his discretion shall select. While on
vacation, the compensation to which Employee is entitled
shall be paid in full.
(d) The Company agrees that nothing contained herein is
intended to or shall be deemed to be granted to the Employee in lieu of
or as a limitation upon any rights and privileges which the Employee
may otherwise be entitled to as an executive employee of the Company
under any retirement, pension, insurance, hospitalization or other
employee benefit plan of any type (including, without limitation by
specification, any incentive, profit sharing, bonus or stock option
plan), which may now be in effect or which may hereafter be adopted by
the Company, it being understood that the Employee shall have the same
rights and privileges to participate in such Company benefit plans as
any other executive employee of the Company.
4. Duties; Time and Effort
(a) During the period of his employment hereunder Employee,
subject to the supervision and control of the Board of Directors of the
Company, shall supervise the operations of the Company. Employee
presently is Chief Executive Officer of the Company and holds the title
of President of the Company, and the parties contemplate that Employee
will continue to serve in such capacity throughout the period of his
employment hereunder.
(b) Employee agrees to devote his full time and effort to
the business of the Company during the term of his employment hereunder
and, if elected, to serve as a member of the Company's Board of
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Directors. The Employee shall perform his duties faithfully,
diligently and to the best of his ability. Employee, at all times,
shall use his best efforts to preserve, protect, enhance and maintain
the trade, business and goodwill of the Company and shall not act or
conduct himself at any time in a manner inimical or in any way contrary
to the best interests of the Company.
5. Incentive Stock Options.
(a) Simultaneously with the execution of this Agreement
and pursuant to the Company's 1996 Stock Option Plan (the "Plan"),
the Company does hereby grant to the Employee incentive stock options
(the "Option") to purchase a total of 50,000 shares of the
Common Stock, $.001 par value per share, of the Company (the "Stock")
at $4.43 (one hundred ten (110%) percent of the fair market value the
Stock as of the date of this Agreement). The Employee may exercise the
Option for up to twenty (20%) percent of the Stock immediately
upon the execution of this Agreement. Thereafter, Employee may exercise
the Option for an additional twenty (20%) percent of the Stock on each
of the first through the fourth anniversaries of this Agreement.
Subject to the terms of the Plan, any portion of the Option, once
exercisable shall remain exercisable until the fifth anniversary
of the date of this Agreement. The remaining terms governing the Option
granted hereby are described in the Stock Option Agreement attached
as Exhibit A hereto. The Option granted hereby is granted pursuant to
the Plan , and in the event of any inconsistency between the terms
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<PAGE>
hereof and the terms of the Plan, the terms of the Plan shall govern.
(b) During the term hereof, from time to time, the Employee
shall receive options under the Plan in a number, to be determined by
the Compensation Committee, competitive with the option package given
to senior executives by comparably sized companies. The Company agrees
to take such steps, if any, as shall be necessary to amend the Plan
from time to time to increase the number of shares of Common Stock of
the Company which may be issued thereunder to its employees so as to
enable the Company to fulfill its commitments hereunder.
6. Covenants and Restrictions. Subject to the provisions o f
Paragraph 10(e) hereof, Employee covenants that, except in carrying
out his duties hereunder, during the term of his employment and for a
period of five (5) years following the date of termination of
employment hereunder (unless such longer period of time is specifically
set forth herein):
(a) Employee will not directly or indirectly, own any
interest in, participate or engage in, assist, render any services
(including advisory services) to, become associated with, work for,
serve (in any capacity whatsoever, including, without limitation, as an
employee, consultant, advisor, agent, independent contractor , officer
or director) or otherwise become in any way or manner connected with
the ownership, management, operation, or control of , any business,
firm, corporation, partnership or other entity (collectively referred
to herein as a "Person") that engages in, or assists others in
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<PAGE>
engaging in or conducting any business, which deals, directly or
indirectly, in products or services similar to or competitive with the
Company's product line or services in the United States, Canada, or
Western Europe; provided, however, the above shall not be deemed to
exclude Employee from acting as director of a corporation for the
benefit of the Company with the consent of the Company's Board of
Directors; provided further, however, that the above shall not be
deemed to prohibit Employee from owning or acquiring securities issued
by any corporation which neither directly nor indirectly competes with
the Company and whose securities are listed with a national securities
exchange or are traded in the over-the-counter market, provided that
Employee at no time owns, directly or indirectly, beneficially or
otherwise, five (5%) percent or more of any class of any such
corporation's outstanding capital stock.
(b) Employee will not knowingly provide or solicit to
provide to any Person or individual (i) any goods or services which
are competitive with those provided by the Company or which would be
competitive with the goods or services that the Company has planned to
provide, or (ii) any goods or services to any customer of the Company.
The term "customer" shall mean any Person or individual to whom the
Company has provided goods or services within the twenty-four (24)
month period prior to the termination of Employee's employment
hereunder. Notwithstanding anything herein to the contrary, no
limitation shall be imposed on Employee hereunder with respect to
any goods and services that the Company has planned to provide and
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which are not actually being provided at the time of the termination
of Employee's employment hereunder or which are not actually
provided within eighteen (18) months following the termination
of Employee's employment hereunder.
(c) Employee agrees that he shall not divulge to others,
nor shall he use to the detriment of the Company or in any business or
process of manufacture competitive with or similar to any business or
process of manufacture engaged in by the Company or an y of its
subsidiary or affiliated companies, at any time during his employment
with the Company or thereafter, any confidential or trade secret
information obtained by him during the course of his employment with
the Company relating to sales, salesmen, sales volume or strategy,
customers, formulas, processes, methods, machines, manufactures,
compositions, ideas, improvements or inventions belonging to or
relating to the business of the Company , or its subsidiary or
affiliated companies.
(d) Employee will neither solicit, hire or seek to solicit
or hire any of the Company's personnel in any capacity whatsoever nor
shall Employee induce or attempt to induce any of the Company's
personnel to leave the employ of the Company to work for Employee
or otherwise.
(e) Employee acknowledges that his breach of any of the
restrictive covenants contained in this Paragraph 6 may cause
irreparable damage to the Company for which remedies at law would be
inadequate. Accordingly, if Employee breaches or threatens to breach
any of the provisions of this Paragraph 6, the Company shall
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<PAGE>
be entitled to appropriate injunctive relief, including, without
limitation, preliminary and permanent injunctions, in the Supreme Court
of the State of New York located in the County of New York or the
United States District Court, Southern District of New York,
restraining Employee from taking any action prohibited hereby. This
remedy shall be in addition to all other remedies available to the
Company at law or equity. If any portion of this Paragraph 6 is
adjudicated to be invalid or unenforceable, this Paragraph 6 shall be
deemed amended to delete therefrom the portion so adjudicated, such
deletion to apply only with respect to the operation of this Paragraph
6 in the jurisdiction in which such adjudication is made.
7. Proprietary Property. Subject to the provisions of Paragraph
10(e) hereof:
(a) The Employee agrees that any and all inventions or
improvements as well as any and all ideas, creations, know-how and
methods of applying and putting into practice any inventions or
improvements (all of the foregoing being hereinafter called
"Proprietary Property" and being more fully defined in subparagraph
(b) below) that are created, developed, conceived of or discovered
either (i) by the Employee (solely or jointly with others) either in
the course of his employment, on the Company's time, with the Company's
materials or facilities, relating to any subject matter with which his
work for the Company is or may be concerned, or relating to any
business in which the Company or any of its subsidiaries or affiliated
companies is involved, or (ii) by or for r the Company, or (iii) by any
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<PAGE>
independent individual or Person and thereafter acquired by the
Company, and which are within the Employee's knowledge or possession in
the case of (i) above or that come into the Employee's knowledge or
possession during and in the course of the Employee's employment
hereunder in the case of (ii) or (iii) above, shall be, if created,
developed, conceived of or discovered by the Employee, promptly disclosed
to the Company, or shall be, if otherwise developed or acquired by the
Company, received by the Employee as an employee of the Company
and not in any way for his own benefit. Employee shall neither
have nor obtain any right, title or interest in or to such
Proprietary Property unless and until the Company shall expressly
and in writing waive the rights that it has therein and
thereto under the provisions of this sentence. With respect
to any and all Proprietary Property that is invented, created,
written, developed , furnished or produced by the Employee, or
suggested by the Employee to the Company, during the term of the
Employee's employment under this Agreement, Employee does hereby agree
that all such Proprietary Property shall be the exclusive property
of the Company, and that the Employee shall neither have interest,
of any kind therein and thereto or in and to any results or
proceeds therefrom. At any time, whether during or after the
term of this Agreement, the Employee will, upon the request and at
the expense of the Company, (A) obtain patents or copyrights on, or
(B) permit the Company to patent or copyright, any such Proprietary
Property, whichever (A) or (B) is appropriate, and/or (C) execute,
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<PAGE>
acknowledge and deliver any and all assignments, instruments of
transfer, or other documents, that the Company deems necessary or
appropriate to transfer to and vest in the Company all right, title
and interest in and to such Proprietary Property and to evidence the
Company's ownership of such Proprietary Property, including, without
limitation, taking all steps necessary to enable the Company to publish
or protect said Proprietary Property by patents or otherwise
in any and all countries and to render all such assistance
as the Company may require in any patent office proceeding or
litigation involving said Proprietary Property. The Employee
shall not, without limitation as to time or place, use any
Proprietary Property except on Company business, during or after his
period of employment, nor disclose the same to any other Person or
individual except for disclosure on Company business or as may be
required by law.
(b) As used in this Agreement, "Proprietary Property" means
proprietary technical information not generally known in the
Company's industry and which is disclosed to Employee or known or
developed by Employee as a consequence of or through his employment
with the Company.
(c) During or subsequent to the Employee's employment by
Company, Employee will never, directly or indirectly, lecture upon ,
publish articles concerning, use, disseminate, disclose, sell or offer
for sale any Proprietary Property without the Company's prior written
permission.
8. Disability
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(a) Subject to the terms of subparagraph (b) hereof, in
the event Employee becomes disabled during the term of this Agreement,
he shall continue to receive one hundred (100%) percent
of the Fixed Compensation to which he was entitled at the time he
became disabled for any period of disability not in excess of twelve
(12) consecutive calendar months. Immediately following the twelfth
consecutive calendar month of disability, the term hereof shall end,
and no further compensation shall be due hereunder. For the purpose
of this subparagraph (a), the terms "disabled" and "disability" shall
mean disability which, in the opinion of a doctor reasonably
satisfactory to the Company, renders the Employee unable to perform
his duties hereunder. The date such disability commences shall be the
date Employee first absents himself from work during a continuous
period of disability as so determined by the doctor hereinabove set
forth.
(b) The Company agrees to provide long-term disability
benefits or disability insurance coverage to Employee in an amount
which shall be, when added to all social security benefits receive d or
to be received by Employee as a result of the permanent disability,
equal to $150,000 per annum; provided, however, that event shall the
premiums paid by the Company for maintaining the Disability Policy (as
such term is defined below) exceed $15,000 per annum. The Employee's
entitlement to disability benefits shall be pursuant to the terms of
this Agreement and a disability insurance policy (the "Disability
Policy") to be obtained and maintained by the Company, naming the
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Employee as the insured thereunder. Notwithstanding the foregoing, in
the event Employee' s disability is either not covered under the
Disability Policy or Employee is covered for less than $150,000 per
annum or if coverage under the Disability Policy terminates during the
period of disability for any reason whatsoever, then for the balance of
Employee's then current term of employment the Company will pay
Employee $150,000 per annum or, if Employee is receiving benefits under
the Disability Policy, the Company will supplement the insurance
payments which Employee is entitled to receive so that Employee
receives a total of $150,000 per annum and, thereafter, the Company
will pay to Employee, or supplement the benefits Employee receives
under said Disability Policy, so that Employee receives the lesser of
(i) $150,000 per annum or (ii) fifty (50%) percent of Employee's Fixed
Compensation until Employee attains the age of 65. Once Employee
reaches age 66, the Company shall have n o further obligation to make
disability payments to Employee or to otherwise supplement the amounts
Employee receives under the Disability Policy except to the extent that
it is the Company's then current policy to continue to cover or provide
benefits to permanently disabled executive officers beyond age 66.
Notwithstanding anything to the contrary set forth in this subparagraph
(b), in the event the Employee reassumes the full performance of his duties
hereunder prior to the first anniversary of disability, the Employee shall
be entitled to one hundred (100%) percent of his Total Compensation from the
date of his return.
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(c) Payments of disability compensation under subparagraphs
(a) and (b) above shall be reduced by the amounts actually received by
the Employee under any policy or policies of disability, health,
accident, or wage continuation insurance paid for by the Company as
well as by all social security benefits actually received by Employee.
9. Severability of Provisions. In the event any court of
competent jurisdiction determines that any term or provision of this
Agreement shall be unenforceable, the invalidity of such term
or provision shall not affect the validity of the remainder hereof.
10. Termination; Severance; Death
(a) The Employee's employment shall terminate upon his
death, and may be terminated, at the option of (i) the Employee, for
"Good Reason" as defined in Paragraph 11 below, or (ii) the Company,
upon proper written notice to the Employee (A) upon 12 consecutive
months of disability, as defined in Paragraph 8(b) hereof, or (B) for
cause. Termination "for cause" shall mean termination only for (x)
willful misconduct by Employee during the course of his employment
which injures the Company; or acts of moral turpitude, including
the conviction of Employee for any felony offense, the admission
by Employee of drug and/or alcohol abuse or addiction or upon
clear and convincing proof that Employee has become addicted to
or abuses drugs and/or alcohol, unless, in the judgment of the Board of
Directors, the Executive is substantially able to perform his duties to
the Company.
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(b) If Employee's employment is terminated by the Company
for cause, the Company shall have no further obligation to
pay compensation or benefits to Employee, other than those accrued
through the date of termination.
(c) If Employee dies during the term of his employment
hereunder, the Company shall promptly pay to the Employee's estate
or promptly distribute to the beneficiary or beneficiaries named by
Employee all life insurance proceeds under the Policy, if received by
the Company for any reason, as well as any term life insurance policy
or policies which the Company maintained on the life of and for
the benefit of the Employee; provided, however, all fringe benefits
shall cease, upon Employee's death.
11. Termination by Employee. This Agreement may be terminated by
the Employee at any time after three years, for any reason, or may be
terminated at any time by him for Good Reason. If the Employee
terminates this Agreement for Good Reason, the executive will receive
2.9 times his Fixed Compensation as then in effect. "Good Reason"
shall mean any one or more of the following (unless the Employee
consents thereto in writing):
(a) The assignment of duties not comparable to his present
duties, or any material reduction in responsibilities or status.
(b) Reduction in salary or the non-payment of a bonus
pursuant to the Incentive Compensation Plan.
(c) The Company's requiring the executive to be based at a
location in excess of 50 miles from Valley Cottage, New York.
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<PAGE>
(d) Failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and agree to
perform this Agreement.
(e) A "change of control" of the Company during Employee's
employment hereunder. A "change of control" shall be deemed to occur
when any person, corporation, partnership, association or entity,
directly or indirectly (through a subsidiary or otherwise), (i)
acquires or is granted the right to acquire, directly or through a
merger or similar transaction, a majority of Company's outstanding
voting securities, or (ii) acquires all or substantially all of
the Company's assets; provided that a "change of control" is not
deemed to exist if Employee agrees to the transaction as an officer,
director or shareholder of the Company.
In the event that any of the above events takes place, then, if
Employee elects to terminate his employment pursuant to this Paragraph
11, the Company shall promptly pay two and nine-tenths (2.9) times his
current Fixed Compensation within thirty (30) days of receipt
of Employee's resignation notice; provided, however, that in
no event shall the amount paid to Employee pursuant to this Paragraph
11 exceed the maximum payment permitted by Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code") and to the extent any
"excess parachute payment", as that phrase is defined in Section
280G(b) of the Code would result from the application of the formulas
set forth in (a) or (b) above, then the amount Employee would otherwise
receive shall be reduced so that no "excess parachute payment" is made
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<PAGE>
by the Company or received by Employee; provided further, however, this
Paragraph 11 shall not apply to any change in control supported by the
Employee either as an officer, a director or as a stockholder of the
Company.
12. Arbitration. Except as specifically provided above, any
dispute, controversy or claim arising out of or pursuant to this
Agreement or the breach hereof shall be settled by arbitration in the
City of New York, State of New York. Such arbitration shall be
effected by arbitrators selected as hereinafter provided and shall
be conducted in accordance with the Rules, existing at the date
thereof, of the American Arbitration Association. The dispute,
controversy or claim shall be submitted to three arbitrators, one
arbitrator to be selected by the Company, one arbitrator to be selected
by the Employee and the third arbitrator to be selected b y the two so
selected by the Company and Employee, or if they cannot agree on
a third, by the American Arbitration Association. In the
event that either the Company or Employee, within one month after
notification of any demand for arbitration hereunder, shall not have
selected its arbitrator and given notice thereof to the other
party, the arbitrator for such party shall be selected by the American
Arbitration Association. Meetings of the arbitrators shall be held in
New York City, New York at such place or places a s may be agreed upon
by the arbitrators. The results of final determination of any such
arbitration proceedings shall be binding on the parties hereto
and a judgment may be entered in any court having jurisdiction.
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<PAGE>
13. Notices. Any notice required or permitted to be given
pursuant to the provisions hereof shall be deemed given when personally
delivered, on the third day after being sent by registered or certified
mail, return receipt requested, or the day after being sent by overnight
courier to the Company or Employee at their respective addresses
set forth above or to such other address as may be given by similar
notice by the Company or Employee.
14. Waiver of Breach. The waiver by the Company or Employee
of a breach of any provision hereof by the other shall not operate
or be construed to operate as a waiver by such party of any subsequent
breach by the other of the same or any other provision hereof.
15. Benefits and Burdens. The rights and obligations hereunder
shall inure to the benefit of and shall be binding upon the Company,
the Employee and their respective legal or personal representatives,
successors and assigns.
16. Entire Agreement, Modification and Construction. This
Agreement contains the entire understanding between the Company and
Employee with respect to the subject matter hereof. The terms and
conditions hereof may be changed only by an agreement in writing signed
by the Company and Employee. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
applicable to contracts made and to be performed therein,
without giving effect to the principles thereof relating to conflicts
of law.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
signed and its seal affixed by a duly authorized officer and the
Employee has signed this Agreement as of the day and year firs t above
written.
MICROS-TO-MAINFRAMES,INC.
By: /s/Howard Pavony
-----------------------
EMPLOYEE:
/s/ Steven H. Rothman
------------------------
Steven H. Rothman
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<PAGE>
Exhibit A
STOCK OPTION AGREEMENT
Omitted
Registrant will furnish to the Securities and Exchange Commission
a copy of this Exhibit upon request.
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
WITH HOWARD PAVONY
AGREEMENT executed as of the 1st day of September, 1996 by and
between Micros-To-Mainframes, Inc. (the "Company") and Howard Pavony
(the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is the Chairman of the Board of Directors
of the Company and has served the Company since May, 1986.
WHEREAS, the Company desires to employ, retain and make secure
for itself the experience, abilities and services of the Employee for a
period of not less than five (5) years from the effective date of this
Agreement.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the adequacy and receipt of which
is hereby acknowledged, the Company and the Employee do hereby agree as
follows:
1. Employment. The Company hereby employs the Employee as
Chairman of the Board of Directors, and the Employee hereby accepts such
employment, upon the terms and conditions hereinafter set forth.
2. Term. Subject to the provisions of Paragraphs 10 and 11
hereof, the term of Employee's employment shall commence on
September 1, 1996 (the "Commencement Date") and continue for an initial
period of five (5) years from the Commencement Date.
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<PAGE>
3. Compensation and Certain Other Benefits. For services
rendered by the Employee hereunder, the Company shall pay to the
Employee the following compensation:
(a) Fixed Compensation. Fixed compensation, payable in
accordance with the normal payroll practices of the Company during
the term hereof, initially at the rate of Two Hundred Thousand
($200,000) Dollars per annum plus, on each anniversary of the
Commencement Date during the term of this Agreement, a cumulative
annual cost of living increase equal to the greater of (i) the
percentage increase indicated by the Consumer Price Index for all urban
consumers (New York, Northeastern New Jersey) as promulgated
by the U.S. Department of Labor (the "CPI") for the year then ended;
and (ii) $10,000 ("Fixed Compensation"); provided, however,
there shall be no increase in Employee's Fixed Compensation in any year
in which the Company's Board of Directors freeze all executive
employee salaries for economic reasons.
(b) Incentive Compensation. Such incentive compensation
("Incentive Compensation") in the form of a cash bonus, pursuant to
the Company's Incentive Bonus Program, as shall be determined by the
Compensation Committee of the Board of Directors from time to time.
(c) Other. In addition to the Fixed Compensation and
Incentive Compensation (Fixed Compensation and Incentive Compensation
are collectively herein referred to as "Total Compensation") which
Employee shall receive pursuant to subparagraphs (a) and (b) of this
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<PAGE>
Paragraph 3, the Employee shall receive the following items of
reimbursement, compensation or benefits:
(i) Expenses. Employee is authorized hereunder to incur
reasonable expenses for promoting the business and
affairs of the Company, including, without limitation by
specification, expenses for entertainment, travel and
similar items. The Company will promptly reimburse
Employee for all such expenses upon presentation from
time to time by Employee to the Company of an itemized
account of such expenditures.
(ii) Stock Options. Employee shall partici- pate in the
Company's Incentive Stock Option Plan in accordance
with the provisions of Paragraph 5 hereof.
(iii) Life Insurance. The Company shall maintain either a
whole-life life insurance policy or policies or a
minimum deposit life insurance policy or policies (or
the equivalent thereof) on the life of the Employee
having an aggregate face value of not less
than One Million ($1,000,000) Dollars (collectively, the
"Policy"); provided, however, that the Company shall not
expend in excess of $10,000 per annum, on a cumulative
basis, for the Policy; provided further, however, that
to the extent the cost of the Policy exceeds $10,000 per
annum, on a cumulative basis, then, at Employee's
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<PAGE>
option, either Employee shall pay all costs of the
Policy in excess of $10,000 or the face value of the
Policy shall be reduced to the amount of life insurance
which may be purchased for $10,000 per annum. The
proceeds of the Policy shall be payable to any
beneficiary or beneficiaries designated at any
time or from time to time by Employee. The Policy shall
be in addition to any key-man policy or group term
policy or policies insuring the life of Employee
maintained by the Company.
(iv) Automobile. The Company shall provide Employee with an
automobile compatible with his position and
responsibility hereunder or, in lieu thereof, at the
option of the Employee, a monthly stipend equal
to the cost of leasing such an automobile.
(v) Medical Benefits. The Company shall provide Employee
with such health and medical benefits as the Company
normally accords its executive officers.
(vi) Vacations. Employee shall be entitled during each
fiscal year during the period of his employment
hereunder to such vacation time as the Company normally
accords its executive officers who have been employed by
it for a length of time similar to the length of
Employee's employment. Employee may take
such vacation over such period or periods of time as
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<PAGE>
Employee in his discretion shall select. While on
vacation, the compensation to which Employee is entitled
shall be paid in full.
(d) The Company agrees that nothing contained herein is
intended to or shall be deemed to be granted to the Employee in lieu of
or as a limitation upon any rights and privileges which the Employee
may otherwise be entitled to as an executive employee of the Company
under any retirement, pension, insurance, hospitalization or other
employee benefit plan of any type (including, without limitation by
specification, any incentive, profit sharing, bonus or stock option
plan), which may now be in effect or which may hereafter be adopted by
the Company, it being understood that the Employee shall have the same
rights and privileges to participate in such Company benefit plans as
any other executive employee of the Company.
4. Duties; Time and Effort
(a) During the period of his employment hereunder Employee,
subject to the supervision and control of the Board of Directors of the
Company, shall supervise the operations of the Company. Employee
presently is Chief Executive Officer of the Company and holds the title
of President of the Company, and the parties contemplate that Employee
will continue to serve in such capacity throughout the period of his
employment hereunder.
(b) Employee agrees to devote his full time and effort to
the business of the Company during the term of his employment hereunder
and, if elected, to serve as a member of the Company's Board of
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<PAGE>
Directors. The Employee shall perform his duties faithfully,
diligently and to the best of his ability. Employee, at all times,
shall use his best efforts to preserve, protect, enhance and maintain
the trade, business and goodwill of the Company and shall not act or
conduct himself at any time in a manner inimical or in any way contrary
to the best interests of the Company.
5. Incentive Stock Options.
(a) Simultaneously with the execution of this Agreement
and pursuant to the Company's 1996 Stock Option Plan (the "Plan"),
the Company does hereby grant to the Employee incentive stock options
(the "Option") to purchase a total of 50,000 shares of the
Common Stock, $.001 par value per share, of the Company (the "Stock")
at $4.43 (one hundred ten (110%) percent of the fair market value the
Stock as of the date of this Agreement). The Employee may exercise the
Option for up to twenty (20%) percent of the Stock immediately
upon the execution of this Agreement. Thereafter, Employee may exercise
the Option for an additional twenty (20%) percent of the Stock on each
of the first through the fourth anniversaries of this Agreement.
Subject to the terms of the Plan, any portion of the Option, once
exercisable shall remain exercisable until the fifth anniversary
of the date of this Agreement. The remaining terms governing the Option
granted hereby are described in the Stock Option Agreement attached
as Exhibit A hereto. The Option granted hereby is granted pursuant to
the Plan , and in the event of any inconsistency between the terms
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<PAGE>
hereof and the terms of the Plan, the terms of the Plan shall govern.
(b) During the term hereof, from time to time, the Employee
shall receive options under the Plan in a number, to be determined by
the Compensation Committee, competitive with the option package given
to senior executives by comparably sized companies. The Company agrees
to take such steps, if any, as shall be necessary to amend the Plan
from time to time to increase the number of shares of Common Stock of
the Company which may be issued thereunder to its employees so as to
enable the Company to fulfill its commitments hereunder.
6. Covenants and Restrictions. Subject to the provisions o f
Paragraph 10(e) hereof, Employee covenants that, except in carrying
out his duties hereunder, during the term of his employment and for a
period of five (5) years following the date of termination of
employment hereunder (unless such longer period of time is specifically
set forth herein):
(a) Employee will not directly or indirectly, own any
interest in, participate or engage in, assist, render any services
(including advisory services) to, become associated with, work for,
serve (in any capacity whatsoever, including, without limitation, as an
employee, consultant, advisor, agent, independent contractor , officer
or director) or otherwise become in any way or manner connected with
the ownership, management, operation, or control of , any business,
firm, corporation, partnership or other entity (collectively referred
to herein as a "Person") that engages in, or assists others in
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<PAGE>
engaging in or conducting any business, which deals, directly or
indirectly, in products or services similar to or competitive with the
Company's product line or services in the United States, Canada, or
Western Europe; provided, however, the above shall not be deemed to
exclude Employee from acting as director of a corporation for the
benefit of the Company with the consent of the Company's Board of
Directors; provided further, however, that the above shall not be
deemed to prohibit Employee from owning or acquiring securities issued
by any corporation which neither directly nor indirectly competes with
the Company and whose securities are listed with a national securities
exchange or are traded in the over-the-counter market, provided that
Employee at no time owns, directly or indirectly, beneficially or
otherwise, five (5%) percent or more of any class of any such
corporation's outstanding capital stock.
(b) Employee will not knowingly provide or solicit to
provide to any Person or individual (i) any goods or services which
are competitive with those provided by the Company or which would be
competitive with the goods or services that the Company has planned to
provide, or (ii) any goods or services to any customer of the Company.
The term "customer" shall mean any Person or individual to whom the
Company has provided goods or services within the twenty-four (24)
month period prior to the termination of Employee's employment
hereunder. Notwithstanding anything herein to the contrary, no
limitation shall be imposed on Employee hereunder with respect to
any goods and services that the Company has planned to provide and
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<PAGE>
which are not actually being provided at the time of the termination
of Employee's employment hereunder or which are not actually
provided within eighteen (18) months following the termination
of Employee's employment hereunder.
(c) Employee agrees that he shall not divulge to others,
nor shall he use to the detriment of the Company or in any business or
process of manufacture competitive with or similar to any business or
process of manufacture engaged in by the Company or an y of its
subsidiary or affiliated companies, at any time during his employment
with the Company or thereafter, any confidential or trade secret
information obtained by him during the course of his employment with
the Company relating to sales, salesmen, sales volume or strategy,
customers, formulas, processes, methods, machines, manufactures,
compositions, ideas, improvements or inventions belonging to or
relating to the business of the Company , or its subsidiary or
affiliated companies.
(d) Employee will neither solicit, hire or seek to solicit
or hire any of the Company's personnel in any capacity whatsoever nor
shall Employee induce or attempt to induce any of the Company's
personnel to leave the employ of the Company to work for Employee
or otherwise.
(e) Employee acknowledges that his breach of any of the
restrictive covenants contained in this Paragraph 6 may cause
irreparable damage to the Company for which remedies at law would be
inadequate. Accordingly, if Employee breaches or threatens to breach
any of the provisions of this Paragraph 6, the Company shall
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<PAGE>
be entitled to appropriate injunctive relief, including, without
limitation, preliminary and permanent injunctions, in the Supreme Court
of the State of New York located in the County of New York or the
United States District Court, Southern District of New York,
restraining Employee from taking any action prohibited hereby. This
remedy shall be in addition to all other remedies available to the
Company at law or equity. If any portion of this Paragraph 6 is
adjudicated to be invalid or unenforceable, this Paragraph 6 shall be
deemed amended to delete therefrom the portion so adjudicated, such
deletion to apply only with respect to the operation of this Paragraph
6 in the jurisdiction in which such adjudication is made.
7. Proprietary Property. Subject to the provisions of Paragraph
10(e) hereof:
(a) The Employee agrees that any and all inventions or
improvements as well as any and all ideas, creations, know-how and
methods of applying and putting into practice any inventions or
improvements (all of the foregoing being hereinafter called
"Proprietary Property" and being more fully defined in subparagraph
(b) below) that are created, developed, conceived of or discovered
either (i) by the Employee (solely or jointly with others) either in
the course of his employment, on the Company's time, with the Company's
materials or facilities, relating to any subject matter with which his
work for the Company is or may be concerned, or relating to any
business in which the Company or any of its subsidiaries or affiliated
companies is involved, or (ii) by or for r the Company, or (iii) by any
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<PAGE>
independent individual or Person and thereafter acquired by the
Company, and which are within the Employee's knowledge or possession in
the case of (i) above or that come into the Employee's knowledge or
possession during and in the course of the Employee's employment
hereunder in the case of (ii) or (iii) above, shall be, if created,
developed, conceived of or discovered by the Employee, promptly disclosed
to the Company, or shall be, if otherwise developed or acquired by the
Company, received by the Employee as an employee of the Company
and not in any way for his own benefit. Employee shall neither
have nor obtain any right, title or interest in or to such
Proprietary Property unless and until the Company shall expressly
and in writing waive the rights that it has therein and
thereto under the provisions of this sentence. With respect
to any and all Proprietary Property that is invented, created,
written, developed , furnished or produced by the Employee, or
suggested by the Employee to the Company, during the term of the
Employee's employment under this Agreement, Employee does hereby agree
that all such Proprietary Property shall be the exclusive property
of the Company, and that the Employee shall neither have interest,
of any kind therein and thereto or in and to any results or
proceeds therefrom. At any time, whether during or after the
term of this Agreement, the Employee will, upon the request and at
the expense of the Company, (A) obtain patents or copyrights on, or
(B) permit the Company to patent or copyright, any such Proprietary
Property, whichever (A) or (B) is appropriate, and/or (C) execute,
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<PAGE>
acknowledge and deliver any and all assignments, instruments of
transfer, or other documents, that the Company deems necessary or
appropriate to transfer to and vest in the Company all right, title
and interest in and to such Proprietary Property and to evidence the
Company's ownership of such Proprietary Property, including, without
limitation, taking all steps necessary to enable the Company to publish
or protect said Proprietary Property by patents or otherwise
in any and all countries and to render all such assistance
as the Company may require in any patent office proceeding or
litigation involving said Proprietary Property. The Employee
shall not, without limitation as to time or place, use any
Proprietary Property except on Company business, during or after his
period of employment, nor disclose the same to any other Person or
individual except for disclosure on Company business or as may be
required by law.
(b) As used in this Agreement, "Proprietary Property" means
proprietary technical information not generally known in the
Company's industry and which is disclosed to Employee or known or
developed by Employee as a consequence of or through his employment
with the Company.
(c) During or subsequent to the Employee's employment by
Company, Employee will never, directly or indirectly, lecture upon ,
publish articles concerning, use, disseminate, disclose, sell or offer
for sale any Proprietary Property without the Company's prior written
permission.
8. Disability
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<PAGE>
(a) Subject to the terms of subparagraph (b) hereof, in
the event Employee becomes disabled during the term of this Agreement,
he shall continue to receive one hundred (100%) percent
of the Fixed Compensation to which he was entitled at the time he
became disabled for any period of disability not in excess of twelve
(12) consecutive calendar months. Immediately following the twelfth
consecutive calendar month of disability, the term hereof shall end,
and no further compensation shall be due hereunder. For the purpose
of this subparagraph (a), the terms "disabled" and "disability" shall
mean disability which, in the opinion of a doctor reasonably
satisfactory to the Company, renders the Employee unable to perform
his duties hereunder. The date such disability commences shall be the
date Employee first absents himself from work during a continuous
period of disability as so determined by the doctor hereinabove set
forth.
(b) The Company agrees to provide long-term disability
benefits or disability insurance coverage to Employee in an amount
which shall be, when added to all social security benefits receive d or
to be received by Employee as a result of the permanent disability,
equal to $150,000 per annum; provided, however, that event shall the
premiums paid by the Company for maintaining the Disability Policy (as
such term is defined below) exceed $15,000 per annum. The Employee's
entitlement to disability benefits shall be pursuant to the terms of
this Agreement and a disability insurance policy (the "Disability
Policy") to be obtained and maintained by the Company, naming the
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<PAGE>
Employee as the insured thereunder. Notwithstanding the foregoing, in
the event Employee' s disability is either not covered under the
Disability Policy or Employee is covered for less than $150,000 per
annum or if coverage under the Disability Policy terminates during the
period of disability for any reason whatsoever, then for the balance of
Employee's then current term of employment the Company will pay
Employee $150,000 per annum or, if Employee is receiving benefits under
the Disability Policy, the Company will supplement the insurance
payments which Employee is entitled to receive so that Employee
receives a total of $150,000 per annum and, thereafter, the Company
will pay to Employee, or supplement the benefits Employee receives
under said Disability Policy, so that Employee receives the lesser of
(i) $150,000 per annum or (ii) fifty (50%) percent of Employee's Fixed
Compensation until Employee attains the age of 65. Once Employee
reaches age 66, the Company shall have n o further obligation to make
disability payments to Employee or to otherwise supplement the amounts
Employee receives under the Disability Policy except to the extent that
it is the Company's then current policy to continue to cover or provide
benefits to permanently disabled executive officers beyond age 66.
Notwithstanding anything to the contrary set forth in this subparagraph
(b), in the event the Employee reassumes the full performance of his duties
hereunder prior to the first anniversary of disability, the Employee shall
be entitled to one hundred (100%) percent of his Total Compensation from the
date of his return.
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<PAGE>
(c) Payments of disability compensation under subparagraphs
(a) and (b) above shall be reduced by the amounts actually received by
the Employee under any policy or policies of disability, health,
accident, or wage continuation insurance paid for by the Company as
well as by all social security benefits actually received by Employee.
9. Severability of Provisions. In the event any court of
competent jurisdiction determines that any term or provision of this
Agreement shall be unenforceable, the invalidity of such term
or provision shall not affect the validity of the remainder hereof.
10. Termination; Severance; Death
(a) The Employee's employment shall terminate upon his
death, and may be terminated, at the option of (i) the Employee, for
"Good Reason" as defined in Paragraph 11 below, or (ii) the Company,
upon proper written notice to the Employee (A) upon 12 consecutive
months of disability, as defined in Paragraph 8(b) hereof, or (B) for
cause. Termination "for cause" shall mean termination only for (x)
willful misconduct by Employee during the course of his employment
which injures the Company; or acts of moral turpitude, including
the conviction of Employee for any felony offense, the admission
by Employee of drug and/or alcohol abuse or addiction or upon
clear and convincing proof that Employee has become addicted to
or abuses drugs and/or alcohol, unless, in the judgment of the Board of
Directors, the Executive is substantially able to perform his duties to
the Company.
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<PAGE>
(b) If Employee's employment is terminated by the Company
for cause, the Company shall have no further obligation to
pay compensation or benefits to Employee, other than those accrued
through the date of termination.
(c) If Employee dies during the term of his employment
hereunder, the Company shall promptly pay to the Employee's estate
or promptly distribute to the beneficiary or beneficiaries named by
Employee all life insurance proceeds under the Policy, if received by
the Company for any reason, as well as any term life insurance policy
or policies which the Company maintained on the life of and for
the benefit of the Employee; provided, however, all fringe benefits
shall cease, upon Employee's death.
11. Termination by Employee. This Agreement may be terminated by
the Employee at any time after three years, for any reason, or may be
terminated at any time by him for Good Reason. If the Employee
terminates this Agreement for Good Reason, the executive will receive
2.9 times his Fixed Compensation as then in effect. "Good Reason"
shall mean any one or more of the following (unless the Employee
consents thereto in writing):
(a) The assignment of duties not comparable to his present
duties, or any material reduction in responsibilities or status.
(b) Reduction in salary or the non-payment of a bonus
pursuant to the Incentive Compensation Plan.
(c) The Company's requiring the executive to be based at a
location in excess of 50 miles from Valley Cottage, New York.
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<PAGE>
(d) Failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and agree to
perform this Agreement.
(e) A "change of control" of the Company during Employee's
employment hereunder. A "change of control" shall be deemed to occur
when any person, corporation, partnership, association or entity,
directly or indirectly (through a subsidiary or otherwise), (i)
acquires or is granted the right to acquire, directly or through a
merger or similar transaction, a majority of Company's outstanding
voting securities, or (ii) acquires all or substantially all of
the Company's assets; provided that a "change of control" is not
deemed to exist if Employee agrees to the transaction as an officer,
director or shareholder of the Company.
In the event that any of the above events takes place, then, if
Employee elects to terminate his employment pursuant to this Paragraph
11, the Company shall promptly pay two and nine-tenths (2.9) times his
current Fixed Compensation within thirty (30) days of receipt
of Employee's resignation notice; provided, however, that in
no event shall the amount paid to Employee pursuant to this Paragraph
11 exceed the maximum payment permitted by Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code") and to the extent any
"excess parachute payment", as that phrase is defined in Section
280G(b) of the Code would result from the application of the formulas
set forth in (a) or (b) above, then the amount Employee would otherwise
receive shall be reduced so that no "excess parachute payment" is made
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<PAGE>
by the Company or received by Employee; provided further, however, this
Paragraph 11 shall not apply to any change in control supported by the
Employee either as an officer, a director or as a stockholder of the
Company.
12. Arbitration. Except as specifically provided above, any
dispute, controversy or claim arising out of or pursuant to this
Agreement or the breach hereof shall be settled by arbitration in the
City of New York, State of New York. Such arbitration shall be
effected by arbitrators selected as hereinafter provided and shall
be conducted in accordance with the Rules, existing at the date
thereof, of the American Arbitration Association. The dispute,
controversy or claim shall be submitted to three arbitrators, one
arbitrator to be selected by the Company, one arbitrator to be selected
by the Employee and the third arbitrator to be selected b y the two so
selected by the Company and Employee, or if they cannot agree on
a third, by the American Arbitration Association. In the
event that either the Company or Employee, within one month after
notification of any demand for arbitration hereunder, shall not have
selected its arbitrator and given notice thereof to the other
party, the arbitrator for such party shall be selected by the American
Arbitration Association. Meetings of the arbitrators shall be held in
New York City, New York at such place or places a s may be agreed upon
by the arbitrators. The results of final determination of any such
arbitration proceedings shall be binding on the parties hereto
and a judgment may be entered in any court having jurisdiction.
-18-
<PAGE>
13. Notices. Any notice required or permitted to be given
pursuant to the provisions hereof shall be deemed given when personally
delivered, on the third day after being sent by registered or certified
mail, return receipt requested, or the day after being sent by overnight
courier to the Company or Employee at their respective addresses
set forth above or to such other address as may be given by similar
notice by the Company or Employee.
14. Waiver of Breach. The waiver by the Company or Employee
of a breach of any provision hereof by the other shall not operate
or be construed to operate as a waiver by such party of any subsequent
breach by the other of the same or any other provision hereof.
15. Benefits and Burdens. The rights and obligations hereunder
shall inure to the benefit of and shall be binding upon the Company,
the Employee and their respective legal or personal representatives,
successors and assigns.
16. Entire Agreement, Modification and Construction. This
Agreement contains the entire understanding between the Company and
Employee with respect to the subject matter hereof. The terms and
conditions hereof may be changed only by an agreement in writing signed
by the Company and Employee. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
applicable to contracts made and to be performed therein,
without giving effect to the principles thereof relating to conflicts
of law.
-19-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
signed and its seal affixed by a duly authorized officer and the
Employee has signed this Agreement as of the day and year firs t above
written.
MICROS-TO-MAINFRAMES,INC.
By: /s/Steven H. Rothman
-----------------------
EMPLOYEE:
/s/ Howard Pavony
------------------------
Howard Pavony
-20-
<PAGE>
Exhibit A
STOCK OPTION AGREEMENT
Omitted
Registrant will furnish to the Securities and Exchange Commission
a copy of this Exhibit upon request.
<PAGE>
Exhibit 11.1
Year Ended March 31,
1997 1996 1995
Primary:
Actual net income (loss) 909,988 (3,614,067) 878,400
Add 6% (assumed T-Bill rate)
interest net of federal
income tax effect 45,643
-----------------------------------------
Net income as adjusted for
calculation 909,988 (3,568,424) 878,400
=========================================
Average shares outstanding 4,425,073 2,774,421 2,176,301
Net effect of dilutive stock
options and warrants--based
on treasury stock method using
average market price 10,986 476,621 17,690
Average shares outstanding -----------------------------------------
as adjusted for calculation 4,436,059 3,251,042 2,193,991
=========================================
Per share amount $0.21 ($1.10) $0.40
=========================================
Fully diluted:
Actual net income (loss) 909,988 (3,614,067) 878,400
Adjustment to reflect
additional earnings to reach - 459,069 621,600
earnings targets
Adjustments to recognize
compensatory nature of
Preferred Stock (2,196,180)
add 6% (assumed T-Bill rate)
interest net of federal
income tax effect 22,736
Net income as adjusted for -------------------------------------
calculation 909,988 (3,132,262) (696,180)
=====================================
Average shares outstanding 4,425,073 3,512,777 3,156,301
Net effect of dilutive stock
options and warrants--based
on treasury stock method using
ending market price (1995 )
average market price (1996 and 1997) (433) 351,177 26,207
Average shares outstanding -------------------------------------
as adjusted for calculation 4,424,640 3,863,954 3,182,508
-------------------------------------
Per share amount $0.21 ($0.81) ($0.22)
======================================
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,880
<SECURITIES> 0
<RECEIVABLES> 13,748
<ALLOWANCES> ( 41)
<INVENTORY> 1,458
<CURRENT-ASSETS> 426
<PP&E> 1,653
<DEPRECIATION> (627)
<TOTAL-ASSETS> 20,428
<CURRENT-LIABILITIES> 8,085
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 12,339
<TOTAL-LIABILITY-AND-EQUITY> 20,428
<SALES> 58,062
<TOTAL-REVENUES> 58,062
<CGS> 47,549
<TOTAL-COSTS> 49,968
<OTHER-EXPENSES> 6,698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 1,530
<INCOME-TAX> 620
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 910
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
