<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 of (I.R.S. Employer Identification No.)
incorporation of organization)
614 Corporate Way, Valley Cottage, NY 10989
(Address of principal executive offices)
(914) 268-5000
(Registrant's telephone number )
Not applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1994
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, $.001 par value - 4,375,774 shares as of October 23, 1998
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Micros-to-Mainframes, Inc
Condensed Consolidated Balance Sheets
September 30, March 31,
1998 1998
(Unaudited)
---------------------------
Assets
Current Assets
Cash $ 2,856,484 $ 3,991,593
Accounts receivable, net 11,178,201 14,000,562
Inventory 1,295,100 1,332,322
Prepaid expenses and other current assets 526,386 396,618
Deferred income taxes 195,600 402,400
---------------------------
Total current assets 16,051,771 20,123,495
Property, plant and equipment 2,063,761 1,952,556
Less accumulated deprecation and amortization 1,029,182 877,683
---------------------------
1,034,579 1,074,873
Goodwill, net of accumulated amortization $143,519
and $113,819 747,480 777,181
Investment in and advances to Pivot, at cost 874,841
Other Assets 138,420 100,951
----------------------------
Total assets $18,847,091 $ 22,076,500
============================
Liabilities and Shareholders' Equity
Current liabilities:
Secured notes payable $ 5,000 $ 5,000
Accounts payable and accrued expenses 5,558,915 8,166,141
Income taxes payable - 373,284
Deferred revenue 270,000 810,000
--------------------------
Total current liabilities 5,833,915 9,354,425
Deferred income taxes 37,000 37,000
--------------------------
5,870,915 9,391,425
Shareholders' Equity
Common stock 4,396 4,450
Additional paid-in capital 12,676,914 12,807,900
Retained (deficit) 294,866 (127,275)
---------------------------
Total shareholders' equity 12,976,176 12,685,075
---------------------------
Total liabilities and shareholders' equity $ 18,847,091 $ 22,076,500
=============================
See accompanying footnotes
<PAGE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statements of Income
Unaudited
Three Months Ended September 30
1998 1997
--------------------------------
Revenue
Products sales $ 10,048,623 $ 13,751,325
Services related sales 5,017,507 3,586,271
-----------------------------
15,066,130 17,337,596
-----------------------------
Direct Cost
Products Cost 9,675,348 13,333,638
Cost related to services sales 3,002,556 1,992,309
-----------------------------
12,677,904 15,325,947
=============================
Selling, general and administrative expenses 2,317,137 1,809,808
Interest expenses 5,273 1,850
---------------------------
Total cost and expenses 15,000,314 17,137,605
Other Income 297,843 10,918
Income before income taxes 363,659 210,909
Provision for income taxes 149,000 83,000
----------------------------
Net income $ 214,659 $ 127,909
============================
Net income per common share:
Basic $ 0.05 $ 0.03
Diluted $ 0.05 $ 0.03
Weighted average number of common and
common equivalent shares used in calculation
for fully diluted per share
Basic 4,419,884 4,450,374
Diluted 4,430,109 4,495,119
See accompanying footnotes
<PAGE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statements of Income
Unaudited
Six months ended September 30
1998 1997
------------------------------
Revenue
Products sales $ 22,091,164 $ 28,402,469
Services related sales 10,047,525 6,511,002
-----------------------------
32,138,689 34,913,471
-----------------------------
Direct Cost
Products Cost 21,515,483 27,589,885
Cost related to services sales 5,908,034 3,278,924
-----------------------------
27,423,517 30,868,809
-----------------------------
Selling, general and administrative expenses 4,600,093 3,641,171
Interest expenses 8,236 2,335
----------------------------
Total cost and expenses 32,031,846 34,512,315
Other Income 608,298 30,147
Income before income taxes 715,141 431,303
Provision for income taxes 293,000 173,000
----------------------------
Net income $ 422,141 $ 258,303
============================
Net income per common share:
Basic $ 0.10 $ 0.06
Diluted $ 0.10 $ 0.06
Weighted average number of common and
common equivalent shares used in calculation
for fully diluted per share
Basic 4,435,129 4,450,374
Diluted 4,443,289 4,482,035
See accompanying footnotes
<PAGE>
Micros-to-Mainframes, Inc
Condensed Consolidated Statement of Cash Flows
Six Months Ended September 30
1998 1997
-------------------------------
Operating activities
Net income $ 422,141 $ 258,303
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 181,200 165,396
Deferred Revenue (540,000)
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable 2,822,361 (1,411,943)
Decrease (Increase) in inventory 37,222 (317,523)
Increase in prepaid expenses and
Other current assets (129,768) (121,216)
Decrease in deferred income taxes 206,800 -
Increase in other assets (37,469) -
Decrease in accounts payable
and accrued expenses (2,607,226) (1,386,388)
Decrease in income taxes payable (373,284) (174,553)
------------------------------
Net cash provided by (used in) operating
activities (18,023) (2,987,924)
------------------------------
Investing activities
Purchase of property and equipment (111,205) (175,472)
Investment in and advances to Pivot (874,841) -
------------------------------
Net cash used in investing activities (986,046) (175,472)
------------------------------
Financing activities
Principal payments on secured notes payable 450,000
Repurchase of common stock (131,040)
------------------------------
Net cash (used in)provided by financing
activities (131,040) 450,000
------------------------------
Increase (decrease) in cash (1,135,109) (2,713,396)
Cash at the beginning period 3,991,593 2,879,578
-----------------------------
$ 2,856,484 $ 166,182
-----------------------------
Supplement disclosures of cash flow information
Cash paid during the quarter for:
Income taxes $ 552,363 $ 534,785
Interest expense 8,236 2,335
See accompanying footnotes
<PAGE>
Micros-to-Mainframes, Inc.
Notes to Condensed Consolidated Financial Statements
1. Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Micros-to-Mainframes, Inc. and its wholly-owned subsidiaries
Data.Com Results Inc. and MTM Advanced Technology, Inc. hereafter referred to
as the "Company" have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the six months ended September 30,
1998 are not necessarily indicative of the results that may be
expected for the year ending March 31, 1999. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report Form
10-K (Commission file number 0-22122) for the fiscal year ended
March 31, 1998.
INVENTORIES
Inventories which are comprised principally of computer hardware
and software, are stated at the lower-of-cost or market using the
first-in, first-out (FIFO).
RECLASSIFICATION
Certain amounts have been reclassified to conform to the current year
presentation.
MARKETING AND SERVICE AGREEMENT
The Company entered into a cooperative marketing and service
agreement with BTG in February 1998, under which the Company
received a non-refundable payment of $900,000 from BTG for
consulting services to be provided during the 10 month period
ending December 31, 1998. The Company is recognizing this revenue
ratably over the term of the contract. The Company recognized
$540,000 of income during the six months ended September 30, 1998.
The Company is not required to provide services exceeding $900,000.
<PAGE>
INVESTMENT IN PIVOT
On May 18, 1998, the Company acquired 19.9% of Pivot Technologies,
Inc. ("Pivot"), a remote network servicer, and an option (the
"Option") to cause the merger of Pivot into a to be created wholly-
owned subsidiary of the Company. In consideration for the Option and
the Pivot Shares, Micros-to-Mainframes paid Pivot (exclusive of the
merger consideration payable upon any exercise of the Option)
$475,000 and agreed to make further payments if Pivot is in material
compliance with its Business Plan, as defined in the Purchase and
Option Agreement, up to an aggregate of $346,000 over a five month
period commencing one month after Closing. The Company furthers
agreed to lend Pivot up to an additional $125,000 in six (6) equal
monthly installments. Such loan is payable, without interest, twelve
months after its issuance, or upon redemption of MTM's interest in
the event the Option is exercised. No assurance can be given that
the Company will exercise the Option. Pursuant to the Option, the
shareholders of Pivot (exclusive of MTM) would receive 377,130
shares of MTM's Common Stock, five (5) year warrants to acquire
100,000 shares of MTM's Common Stock at $2.916767 per share, with
such warrants becoming first exercisable one-third at the end of
each of the first three years after the exercise of the Option, and
$337,600 in cash. The Option has a term of six (6) months, and may
be extended for up to three additional one month terms upon the
payment of an additional $80,000 prior to the expiration of the
Initial Option Period and the commencement of each additional
extension period, respectively. The Company will have certain other
rights if the Option is not exercised or if Pivot receives
additional funding.
During the six month period ended September 30, 1998, the Company paid Pivot
$475,000 as the initial payment, and made additional payments (in accordance
with the stock purchase and option agreement) totaling $271,000 for the
Option and Pivot's shares. In addition, the Company loaned Pivot $103,333 as
provided under the agreement.
<PAGE>
2 EMPLOYEE STOCK OPTION PLAN
The 1993 Employee Stock Option Plan (the 1993 Plan) was adopted by the
Company in May 1993 .The 1996 Stock Option Plan (the 1996 Plan) was
approved by the shareholders of the Company on August 20, 1996. The 1998
Stock Option Plan (the 1998 Plan) was approved by the shareholders of the
Company on October 16, 1998. 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, 350,000 and 250,000
shares of common stock in the 1993 Plan,1996 Plan and 1998 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.
Information regarding the Company's stock option plans is summarized
below:
1993 Plan 1996 Plan
-----------------------------------------------
Number Option Number Option
of Exercise of Exercise
Options Price Per Options Price Per
Share Share
Outstanding at March 31, 1998 220,000 $1.25-$7.00 180,700 $2.50-4.43
Options expired during
The First Quarter 1999 (150,000) $3.375
Options Terminated
The First Quarter 1999 (5,000) $3.875
Options issued during
The First Quarter 1999 20,000 $2.75
The Second Quarter 1999 150,000 $2.25
Options repriced during (50,000) $3.9375-$7.00
The Second Quarter 1999 50,000 $ 2.25
------- -------
220,000 $1.25-$7.00 195,700 $2.25-$4.43
======= =======
There have been no transactions relating to the 1998 Plan.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The following table sets forth for the periods indicated certain items in
the Company's Consolidated Statements of Income expressed as a percentage
of that period's net sales.
Percentage of Sales
Six Months ended Three Months ended
September 30, September 30,
1998 1997 1998 1997
Product Sales............... 68.74% 81.35% 66.70% 79.32%
Services related sales ..... 31.26 18.65 33.30 20.68
Net Sales ................... 100.00 100.00 100.00 100.00
Cost of products sales ( as a
% of Products sales)...... 97.39 97.14 96.29 96.96
Cost related to service (as a
% of services related sales) 58.80 50.36 59.84 55.55
Total Direct cost( as a % of
Total sales)............. 85.33 88.42 84.15 88.40
Selling, general and
administrative expenses. 14.31 10.43 15.38 10.44
Income before income taxes... 2.23 1.24 2.41 1.22
Net Income................... 1.31 0.74 1.52 0.74
The Company had net sales of approximately $32,139,000 for the Six Months
Ended September 30, 1998 (the "1999 Period"), as compared to approximately
$34,913,000 for the Six Months Ended September 30, 1997 (the "1998 Period").
The Company had net sales of approximately $15,066,000 for the Three Months
Ended September 30, 1998 (the "1999 Quarter"), as compared to $17,378,000 for
the Three Months Ended September 30, 1997 (the "1998 Quarter"). The decrease
in sales of approximately 8% and 13% for the 1999 Period and 1999 Quarter,
respectively, were primarily attributable to the planned decrease in the lower
margin product sales of $6,311,000 and $3,703,000 for the 1999 Period and 1999
Quarter, respectively, offset in part by an increase in the higher margin
service related sales of approximately $3,537,000 and $1,431,000 for the 1999
Period and Quarter. The revenue related to the service and consulting
business was approximately $10,048,000 for the 1999 Period and approximately
$5,018,000 in the 1999 Quarter as compared to approximately $6,511,000 for
the 1998 Period and approximately $3,586,000 for the 1998 Quarter. These
represent an increase in revenue of approximately 54% and 40% for the service
related sales for the 1999 Period and Quarter, respectively. The increase in
service related sales was due to the combination of increased sales to new and
existing customers.
As a percentage of net sales, total direct cost of products sold
decreased by approximately 3% and 4% for the 1999 Period and 1998 Quarter,
respectively, as compared to the prior year's comparable periods due to the
Company shifting the sales mix from lower margin products sales to higher
margin service related sales.
The Company increased its technical personnel salaries to approximately
$2,788,000 from approximately $2,036,000 or a 37% increase in the 1999 Period
as compared to the 1998 Period and an increase to approximately $1,407,000
from approximately $1,082,000 or a 30% increase in the 1999 Quarter as
compared to the 1998 Quarter . Technical services personnel, increased to 107
employees in the 1999 Period from 81 employees in the comparable period of the
prior year, an increase of 32%. This increase in personnel is due to customer
demand for the Company's technical and consulting services, as indicated by
the continued growth of the Company's Advanced Technology Group. The
Company expects to hire additional professional technicians and engineers to
handle the increased demand pertaining to its system consulting outsourcing
business in the future.
<PAGE>
Selling, general and administrative expenses ("SG&A") were approximately
$4,600,000 in the 1999 Period as compared to $3,641,000 in the 1998 Period
and $2,317,000 for the 1999 Quarter compared to $1,810,000 for the 1998
Quarter. This represented an increase of approximately 10% for SG&A during the
1999 Period and Quarter as compared to the 1998 Period and Quarter. The
increase is primarily attributable to an increase in salesperson compensation
and increased employee payroll, benefits and payroll taxes.
Other income increased to approximately $578,000 in the 1999 Period from
approximately $30,000 for the 1998 Period and increased to approximately
$298,000 in the 1999 Quarter from approximately $11,000 in the 1998 Quarter .
The increase was due to the Company recognizing in the 1999 Period and 1999
Quarter $540,000 and $270,000, respectively, as a result of the contractual
payment from BTG, Inc. in February 1998 for services contracted through the
third quarter of 1999. The Company will recognize the balance of the
contractual payment ($270,000) from BTG, Inc. in the Third Quarter of 1999.
The effective income tax rates for the 1999 Period and 1999 quarter as
compared to the 1998 Period and 1998 Quarter were approximately 41%.
As a result of the forgoing, the Company had net income of
approximately $422,000 in the 1999 Period compared to $258,000 in the 1998
Period, and $215,000 for the 1999 Quarter compared to $128,000 for the 1998
Quarter. This represents a increase of 63% in the 1999 Period as compared to
the 1998 Period and a 67% increase for the 1999 Quarter compared to the 1998
Quarter. The Company believes that its recent investments in personnel,
software and equipment, which has increased overhead and expenses in the 1999
Period and 1999 Quarter, will have long term benefits for the shareholders.
Liquidity and Capital Resources
The Company measures its liquidity in a number of ways, including the
following:
September 30, March 31
1998 1998
(Dollars in thousands,
except current ratio data)
Cash and cash equivalents............... $ 2,856 $ 3,992
Working capital ........................ $10,232 $10,769
Current ratio .......................... 2.75:1 3.15:1
Working capital line available ......... $ 9,038 $ 7,761
The Company had working capital of approximately $10,232,000 as of September
30, 1999, a decrease of approximately $537,000 from March 31, 1998.
During the 1999 Period, the Company had net cash used in operating activities
of approximately $18,000 derived primarily from $422,141 of net income,
a decrease in accounts payable of approximately $2,608,000, an increase
in accounts receivable of approximately $2,822,000, an increase in inventory
of approximately $181,000, an increase in other current assets of
approximately $37,000, the decrease of deferred revenue of $540,000 and a
decrease in income taxes payable of approximately $373,000.
The Company used net cash in investing activities of approximately $986,000
for the investment in Pivot Technologies, and purchase of office equipment.
<PAGE>
The Company used net cash in financing activities approximately $131,000 to
repurchase 52,600 shares of its common shares in the open market in the 1999
Period. Since the end of 1999 Quarter the Company has purchased an additional
22,000 of its common shares in the open market for $49,600.
As a result of the foregoing, the Company decreased its cash by approximately
$1,135,000.
The Company finances much of its business through a two-year
$5,000,000 revolving credit facility from a bank, and separately
arranged floor-plan financing agreements aggregating $6,800,000, which are
alternate credit lines provided by manufacturers or vendors. The floor-plan
agreements generally allow the Company to borrow for a period of 30 to 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. All of such borrowings are subordinated to the Company's bank
revolver except as to inventory, as to which the floor-planners hold a first
lien pursuant to intercreditor agreements.
On September 30, 1998, the Company's total outstanding debt under
these arrangements with floor-planners was approximately $2,757,000 and a
balance of $4,043,000 was available under such lines of credit. On September
30, 1997, the Company's outstanding debt under the bank revolver line of
credit was $5,000 with a balance of $4,995,000 available under such line of
credit.
The borrowing rate on the Company's $5,000,000 credit facility is the
"Alternate Bank Rate" as defined by the Bank. At September 30, 1998 such rate
was 8.25%. The credit facility ( originally expiring on September 30, 1998)
was extended to November 30, 1998. The credit facility provides, among other
matters, for: (i) a general security interest first lien on
substantially all of the Company's assets (a second lien to the extent a first
lien on inventory is held under the financing agreements described above);
(ii) unconditional guarantees of MTM Advanced Technology, Inc., and (iii)
financial covenants, including minimum amounts of working capital, tangible
net worth, restrictions on certain transactions, including the payment of
dividends, and specified financial ratios. The Company intends to obtain a
new credit line upon the expiration of this facility on market terms.
The Company's current ratio increased to 2.75:1 at September 30, 1998 from
2.15:1 at March 31, 1998.
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.
<PAGE>
Year 2000 Issue
Many existing computer systems, including certain of the Company's
internal systems as well as those that the Company sells to customers,
use only the last two digits to identify years in the date field. As a
result, those systems may not accurately distinguish years in the 21st
century from years in the 20th century, or may not function properly
when faced with years later than 1999. This problem is generally
referred to as the "Year 2000 Issue." Computer systems that are able to
deal correctly with dates after 1999 are referred to as "Year-2000-
Compliant."
Year 2000 Readiness Disclosure
The Company has undertaken a complete and thorough review of all of its
operations to determine those aspects which involve or are dependent
upon a computer application. The Company is reviewing the software and
operating systems for each such application to determine if it is Year-
2000-Compliant. Any such system or application which is not Year-2000-
Compliant is being modified or upgraded to assure the Company's
continued ability to operate without interruption. This process has
been underway since January 1, 1998 and is currently on schedule for
completion by June 30, 1999. The Company is in the process of obtaining
assurances regarding Year 2000 compliance from other companies upon
which it may rely for products or services.
The Company expects to implement successfully the systems and
programming changes necessary to address the Year 2000 Issue. The
Company expects to implement these changes using primarily internal
information technology and other personnel. Moreover, the Company does
not expect the costs associated with that implementation to be material
to the Company's financial position or results of operations.
With respect to products sold to customers, the Company does not
warrant any products sold as Year-2000-Compliant. Instead, the Company
refers customers to warrantees provided by the product's manufacturers.
The Company believes the most reasonably likely worst case Year 2000
scenario would include a combination of some or all of the following:
- - Internal information technology modules or systems may fail to
operate or may give erroneous information. Such failure could result in
shipping delays, inability to generate or delays in generation of
financial reports and statements, inability of the Company to
communicate among its various offices, and computer network downtime
resulting in inefficiencies and higher payroll expenses.
- - Components in HVAC, lighting, telephone, security and similar systems
might fail, causing such systems to fail.
- - Communications with customers and vendors that the Company depends
upon may fail or give erroneous information. These types of problems
could result in such difficulties as the inability to receive or
process customer orders, shipping delays, or sale of products at
erroneous prices. Furthermore, customers may be unable to, or may
suffer delays, in remitting payments to the Company on timely basis. -
<PAGE>
The unavailability of products as a result of Year 2000 problems
experienced by one or more key vendors of the Company, or as a result
of changes in inventory levels at aggregators, VARs and similar
providers in response to an anticipated Year 2000 problem and/or the
inability of the Company to develop alternative sources for products.
- - Products sold to some of the Company's customers could fail to
perform some or all of their intended functions. In such a situation,
the Company's maximum obligation would be to repair or replace the
defective products to the extent the Company is required to do so under
manufacturer warranty.
The Company believes its plans for addressing the Year 2000 Issue as
outlined above are adequate to handle the most reasonably likely worst
case scenario. The Company does not believe it will incur a material
financial impact for the risk of failure, or from the costs associated
with assessing the risks of failure, arising from the Year 2000 Issue.
Consequently, the Company does not intend to create a contingency plan
other than as set forth above. In addition, if the Company's assessment
of its vendors, when completed, indicate that certain product shortages
can be anticipated, the Company may adjust its plans accordingly,
although the Company does believe that it has the capacity to maintain
significant levels of inventory.
The statements above describing the Company's plans and objectives for
handling the Year 2000 Issue and the expected impact of the Year 2000
Issue on the Company are forward-looking statements. Those statements
involve risks and uncertainties that could cause actual results to
differ materially from the results discussed above. Factors that might
cause such a difference include, but are not limited to, delays in
executing the plan outlined above and increased or unforeseen costs
associated with the implementation of the plan and any necessary
changes to the Company's systems. Any inability on the part of the
Company to implement necessary changes in a timely fashion could have
an adverse effect on future results of operations. Moreover, even if
the Company successfully implements the changes necessary to address
the Year 2000 Issue, there can be no assurance that the Company will
not be adversely affected by the failure of others to become Year-2000-
Compliant.
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on October 16, 1998
the following proposals were adopted by the vote specified below:
Proposal For Withheld
Election Authority
1. Election of Directors:
Howard Pavony 4,211,608 39,818
Steve Rothman 4,211,608 39,818
William Lerner 4,211,608 39,818
Aronld Wasserman 4,211,608 39,818
Alvin E. Nashman 4,211,608 39,818
2. Ratification of 1998 Stock Option Plan
For Against Abstain Broker Non-vote
2,170,070 302,889 12,250 312,761
3. Ratification of the appointment of Ernst & Young LLP as
independent auditors for fiscal year ending March 31, 1999
For Against Abstain Broker Non-vote
4,233,526 15,625 2,700 -0-
Item 6. Exhibits
4.1 1996 Stock Option Plan
4.2 1998 Stock Option Plan
27.1 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the Requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MICROS-TO-MAINFRAMES, INC.
Date : January 6, 1999 By: /s/ Howard A. Pavony
Howard A. Pavony
Chairman of the Board
of Directors
Date : January 6, 1999 By: /s/ Steven H. Rothman
Steven H. Rothman
Chief Executive Officer and
President and Director
Date : January 6, 1999 By: /s/ Frank T. Wong
Frank T. Wong
Vice President - Finance
(Principal Financial and
Accounting Officer) and
Secretary
<PAGE>
Exhibit 4.1
MICROS-TO-MAINFRAMES, INC.
1996 STOCK OPTION PLAN
1. Purposes.
The MICROS-TO-MAINFRAMES, INC. 1996 STOCK OPTION PLAN (the "Plan")
is intended to provide the employees, directors, independent contractors and
consultants of MICROS-TO-MAINFRAMES, INC., or any "subsidiary" or "parent",
as defined below (collectively, the "Company") with an added incentive to
commence employment with the Company, to continue their services to the
Company and to exert their maximum efforts toward the Company's success. By
thus encouraging employees, directors, independent contractors and
consultants, promoting their continued association with the Company and
aligning their interests more closely with those of the stockholders of the
Company through stock ownership, the Plan may be expected to benefit both the
Company and its stockholders. The Plan allows the Company to grant Incentive
Stock Options ("ISOs"), as defined in Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"), Non-Qualified Stock Options ("NQSOs")
not intended to qualify under Section 422(b) of the Code and ISOs or NQSOs in
tandem with Stock Appreciation Rights ("SARs"; collectively, "Options").
2. Shares Subject to the Plan.
The total number of shares of common stock of the Company, $.08
par value per share ("Common Stock"), that may be subject to Options granted
under the Plan shall be 350,000, subject to adjustment as provided in
Paragraph 8 of the Plan; however, the grant of an ISO or NQSO to an employee
together with a tandem SAR shall only require one share of Common Stock
available subject to the Plan to satisfy such joint Option. The Company
shall at all times, while the Plan is in force, reserve at least such number
of shares of Common Stock as will be sufficient to permit the exercise of all
outstanding Options granted under the Plan. In the event any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or
in part, the unpurchased shares subject thereto shall again be available for
granting of Options under the Plan.
3. Eligibility.
ISOs or ISOs in tandem with SARs (provided the SAR meets the
requirements set forth in Temp. Reg. Section 14a.422A-1, A-39, (a) through
(e) inclusive, under the Code) may be granted from time to time under the
Plan to one or more employees of the Company or of a "subsidiary" or "parent"
of the Company, as the quoted terms are defined within Section 424 of the
Code. An officer is an employee for the above purposes. However, a director
of the Company who is not otherwise an employee is not deemed an employee for
such purposes. NQSOs and NQSOs in tandem with SARs may be granted from time
to time under the Plan to one or more employees of the Company, officers,
members of the Board of Directors, independent contractors, consultants and
other individuals who are not employees of, but are involved in the
continuing development and success of the Company and/or of a subsidiary of
the Company, including persons who have previously been granted Options under
the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of
the Company as such Board of Directors may be composed from time to time
and/or by a Stock Option Committee (the "Committee") which shall be comprised
of at least two disinterested persons (the term "disinterested" having the
meaning ascribed to it by Rule 16b-3 of the Securities Exchange Act of 1934
<PAGE>
(the "1934 Act") appointed by the Board of Directors of the Company. As and
to the extent authorized by the Plan, the Committee may exercise the power
and authority vested in the Board of Directors under the Plan. Within the
limits of the express provisions of the Plan, the Board of Directors or
Committee shall have the authority, in its discretion, to determine the
individuals to whom, and the time or times at which, Options shall be
granted, the character of such Options (whether ISO, NQSO and/or SARs in
tandem with ISOs or NQSOs) and the number of shares of Common Stock to be
subject to each Option, the manner and form in which the optionee can tender
payment upon the exercise of his Option, and to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of Option agreements that may be entered
into in connection with Options (which need not be identical), subject to the
limitation that agreements granting ISOs must be consistent with the
requirements for the ISOs being qualified as "incentive stock options" as
provided in Section 422 of the Code, and to make all other determinations and
take all other actions necessary or advisable for the administration of the
Plan. In making such determinations, from time to time, the Board of
Directors or the Committee may take into account the nature of the services
rendered by such individuals, their present and potential contributions to
the Company's success, and such other factors as the Board of Directors or
the Committee, in its discretion, shall deem relevant. The Board of
Directors' or the Committee's determinations on the matters referred to in
this Paragraph shall be conclusive.
(b) Notwithstanding anything contained herein to the contrary,
at any time during the period that the Company's Common Stock is registered
pursuant to Section 12(b) or 12(g) of the 1934 Act, the Committee, if one has
been appointed to administer the Plan with respect to grants to all persons
or solely with respect to persons subject to Section 16 of the 1934 Act,
shall have the exclusive right to grant Options to persons subject to Section
16 of the 1934 Act and to set forth the terms and conditions thereof. With
respect to persons subject to Section 16 of the 1934 Act, transactions under
the Plan are intended, to the extent possible, to comply with all applicable
conditions of Rule 16b-3, as amended from time to time (and its successor
provisions, if any), under the 1934 Act. To the extent any provision of the
Plan or action by the Board of Directors or Committee fails to so comply, it
shall be deemed null and void to the extent permitted by law and deemed
advisable by the Board of Directors.
5. Terms of Options.
Within the limits of the express provisions of the Plan, the Board
of Directors or the Committee may grant either ISOs or NQSOs and/or SARs in
tandem with ISOs or NQSOs. An ISO or an NQSO enables the optionee to
purchase from the Company, at any time during a specified exercise period, a
specified number of shares of Common Stock at a specified price (the "Option
Price"). The optionee, if granted a SAR in tandem with a NQSO or ISO, may
receive from the Company, in lieu of exercising his option to purchase shares
pursuant to his NQSO or ISO, during the exercise period of the NQSO or ISO or
at any specified time or times fixed for that purpose by the Board of
Directors or the Committee, the excess of the fair market value upon such
exercise (as determined in accordance with subparagraph (b) of this Paragraph
5) of one share of Common Stock over the Option Price per share specified
upon grant of the Option multiplied by the number of shares of Common Stock
covered by the SAR so exercised. The character and terms of each Option
granted under the Plan shall be determined by the Board of Directors and/or
the Committee consistent with the provisions of the Plan, including the
following:
(a) An Option granted under the Plan must be granted within 10
years from the date the Plan is adopted, or the date the Plan is approved by
the stockholders of the Company, whichever is earlier.
<PAGE>
(b) The Option Price of the shares of Common Stock subject to
each ISO and each SAR issued in tandem with an ISO shall not be less than the
fair market value of such shares of Common Stock at the time such ISO is
granted. Such fair market value shall be determined by the Board of
Directors and, if the shares of Common Stock are listed on a national
securities exchange or traded on the over-the-counter market, the fair market
value shall be the closing price on such exchange, or the mean of the closing
bid and asked prices of the shares of Common Stock on the over-the-counter
market, as reported by the National Association of Securities Dealers
Automated Quotation System (NASDAQ), the National Association of Securities
Dealers OTC Bulletin Board or the National Quotation Bureau, Inc., as the
case may be, on the day on which the Option is granted or, if there is no
closing price or bid or asked price on that day, the closing price or mean of
the closing bid and asked prices on the most recent day preceding the day on
which the Option is granted for which such prices are available. If an ISO
or SAR in tandem with an ISO is granted to any individual who, immediately
before the ISO is to be granted, owns (directly or through attribution) more
than 10% of the total combined voting power of all classes of capital stock
of the Company or a subsidiary or parent of the Company, the Option Price of
the shares of Common Stock subject to such ISO shall not be less than 110% of
the fair market value per share of the shares of Common Stock at the time
such ISO is granted.
(c) The Option Price of the shares of Common Stock subject to an
NQSO or a SAR in tandem with a NQSO granted pursuant to the Plan shall be
determined by the Board of Directors or the Committee, in its sole
discretion.
(d) In no event shall any Option granted under the Plan have an
expiration date later than 10 years from the date of its grant, and all
Options granted under the Plan shall be subject to earlier termination as
expressly provided in Paragraph 6 hereof. If an ISO or a SAR in tandem with
an ISO is granted to any individual who, immediately before the ISO is
granted, owns (directly or through attribution) more than 10% of the total
combined voting power of all classes of capital stock of the Company or of a
subsidiary or parent of the Company, such ISO shall by its terms expire and
shall not be exercisable after the expiration of five (5) years from the date
of its grant.
(e) With respect to the grant of SARs to Officers and Directors
of the Company, an SAR may be exercised at any time after six months from the
date of the grant thereof during the exercise period of the ISO or NQSO with
which it is granted in tandem and prior to the exercise of such ISO or NQSO,
but only within the specified 10 business day period referred to in
subsection (e)(3) of Rule 16b-3 of the 1934 Act (generally, the 10 business
days immediately following the publication of the Company's quarterly
financial information) if the Company's Common Stock is registered pursuant
to Section 12(b) or 12(g) of the 1934 Act. Notwithstanding the foregoing,
the Board of Directors and/or the Committee shall in their discretion
determine from time to time the terms and conditions of SAR's to be granted,
which terms may vary from the above-described conditions, and which terms
shall be set forth in a written stock option agreement evidencing the SAR
granted in tandem with the ISO or NQSO. The exercise of an SAR granted in
tandem with an ISO or NQSO shall be deemed to cancel such number of shares
subject to the unexercised Option as were subject to the exercised SAR. The
Board of Directors or the Committee also has the discretion to alter the
terms of the SARs if necessary to comply with Federal or state securities
law. Amounts to be paid by the Company in connection with a SAR may, in the
Board of Director's or the Committee's discretion, be made in cash, Common
Stock or a combination thereof.
(f) Unless otherwise provided in any Option agreement under the
Plan, an Option granted under the Plan shall become exercisable, in whole at
any time or in part from time to time, but in no case may an Option (i) be
<PAGE>
exercised as to less than one hundred (100) shares of Common Stock at any one
time, or the remaining shares of Common Stock covered by the Option if less
than one hundred (100), and (ii) become fully exercisable more than five
years from the date of its grant nor shall less than 20% of the Option become
exercisable in any of the first five years of the Option. The Board of
Directors or the Committee, in its sole discretion, may at such time or times
as it deems appropriate, if ever, accelerate all or part of the vesting
provisions with respect to one or more outstanding options. The acceleration
of one Option shall not infer that any other Option is or is to be
accelerated.
(g) An Option granted under the Plan shall be exercised by the
delivery by the holder thereof to the Company at its principal office (to the
attention of the Secretary) of written notice of the number of full shares of
Common Stock with respect to which the Option is being exercised, accompanied
by payment of the Option Price for such shares in full, which payment at the
option of the holder of the Option shall be in the form of (i) cash or
certified or bank check payable to the order of the Company or, (ii) if
permitted by the Committee or the Board of Directors, as determined by the
Committee or the Board of Directors in its sole discretion at the time of the
grant of the Option with respect to an ISO and at or prior to the time of
exercise with respect to a NQSO, by the delivery of shares of Common Stock
having a fair market value equal to the Option Price or the delivery of an
interest-bearing promissory note having an original principal balance equal
to the Option Price and an interest rate not below the rate which would
result in imputed interest under the Code (provided, in order to qualify as
an ISO, more than two years shall have passed since the date of grant and one
year from the date of exercise), or (iii) at the option of the Committee or
the Board of Directors, determined in its sole discretion at the time of the
grant of the Option with respect to an ISO and at or prior to the time of
exercise with respect to a NQSO, by any combination of cash, promissory note
and shares of Common Stock (subject to the restriction above) that have a
fair market value together with such cash and principal amount of any
promissory note that shall equal the Option Price, and, in the case of a
NQSO, at the discretion of the Committee or Board of Directors, by having the
Company withhold from the shares of Common Stock to be issued upon exercise
of the Option that number of shares having a fair market value equal to the
exercise price and the tax withholding amount due, or otherwise provide for
withholding as set forth in Paragraph 9(c) hereof, or in the event an
employee is granted an ISO or NQSO in tandem with a SAR and desires to
exercise such SAR, such written notice shall so state such intention. The
Option Price may also be paid in full by a broker-dealer to whom the holder
of the Option has submitted an exercise notice consisting of a fully endorsed
Option, or through any other medium of payment as the Board of Directors
and/or the Committee, in its discretion, shall authorize.
(h) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares of Common Stock covered by such
holder's Option until such shares of Common Stock shall be issued to such
holder upon the exercise of the Option.
(i) Options shall not be transferable otherwise than by will or
the laws of descent and distribution, and any ISO or SAR in tandem with an
ISO granted under the Plan may be exercised during the lifetime of the holder
thereof only by the holder. No Option shall be subject to execution,
attachment or other process.
(j) For any holder, the aggregate fair market value, determined
as of the time any ISO or SAR in tandem with an ISO is granted and in the
manner provided for by Subparagraph (b) of this Paragraph 5, of the shares of
Common Stock with respect to which ISOs granted under the Plan (and any other
stock option plan of the Company or its parent or subsidiaries) are
exercisable for the first time during any calendar year shall not exceed
<PAGE>
$100,000. Any grant of Options in excess of such amount shall be deemed a
grant of a NQSO.
(k) Notwithstanding anything contained herein to the contrary, a
SAR which was granted in tandem with an ISO shall (i) expire no later than
the expiration of the underlying ISO; (ii) be for no more than 100% of the
spread at the time the SAR is exercised; (iii) only be transferable when the
underlying ISO is transferable; (iv) only be exercised when the underlying
ISO is eligible to be exercised; and (v) only be exercisable when there is a
positive spread.
(l) In no event shall an employee be granted Options to purchase
more than 50,000 shares of Common Stock during any calendar year; provided,
however, that the limitation set forth in this Section shall be subject to
adjustment as provided in Section 8 herein.
(m) In no event shall an individual be granted Options in
excess of 10% of the shares of Common Stock to be outstanding immediately
thereafter if such grantee, immediately before such grant, holds in excess of
10% of the total combined voting power or value of all classes of stock of
the Company.
6. Death or Termination of Employment.
(a) Subject to the provisions of subparagraph (d) of this
Paragraph 6, and except as otherwise determined by the Board of Directors or
the Committee in its sole discretion, if the employment of a holder of an ISO
or ISO in tandem with an SAR under the Plan shall be terminated for any
reason other than cause or the death or disability of the holder or a
holder's voluntary termination of his employment with the Company, such
holder's ISO or ISO in tandem with an SAR shall expire three (3) months after
such termination. Except as otherwise determined by the Board of Directors
or the Committee in its sole discretion, if the employment of a holder of an
ISO or ISO in tandem with an SAR shall terminate for cause or if a holder
shall voluntarily terminate his employment by the Company, then any
unexercised Option granted to the holder shall expire at the time of
termination. If the employment of a holder of an Option (exclusive of his
ISOs) shall be terminated for any reason other than cause or the death or the
disability of the holder, such holder's Options, other than his ISOs or ISO
in tandem with an SAR, may be exercised during the earlier of (i) the
respective terms thereof, or (ii) the subsequent death or disability of the
respective holder, subject to the provisions of subparagraphs (b) and (d) of
this Paragraph 6, unless the Board of Directors or the Committee shall in its
sole discretion shall set forth an earlier termination provision in the
holder's Option Agreement.
(b) If the holder of an Option granted under the Plan dies (i)
while employed by the Company or a subsidiary or parent corporation or (ii)
within three (3) months after the termination of such holder's employment,
such Options may, subject to the provisions of subparagraph (d) of this
Paragraph 6, be exercised by a legatee or legatees of such Option under such
individual's last will or by such individual's personal representatives or
distributees at any time within such period as determined by the Board of
Directors or the Committee in its sole discretion, but in no event for less
than six months after the individual's death, to the extent such Options were
exercisable as of the date of death or date of termination of employment,
whichever date is earlier.
(c) If the holder of an Option under the Plan becomes disabled
within the definition of section 22(e)(3) of the Code while employed by the
Company or a subsidiary or parent corporation, such Option may, subject to
the provisions of subparagraph (d) of this Paragraph 6, be exercised at any
time within six months after such holder's termination of employment due to
the disability.
<PAGE>
(d) Except as otherwise determined by the Board of Directors or
the Committee in its sole discretion, an Option may not be exercised pursuant
to this Paragraph 6 except to the extent that the holder was entitled to
exercise the Option at the time of termination of employment or death, and in
any event may not be exercised after the original expiration date of the
Option.
7. Leave of Absence.
For the purposes of the Plan, an individual who is on military or
sick leave or other bona fide leave of absence (such as temporary employment
by the Government) shall be considered as remaining in the employ of the
Company or of a subsidiary or parent corporation for ninety (90) days or such
longer period as such individual's right to reemployment is guaranteed either
by statute or by contract.
8. Adjustment Upon Changes in Capitalization.
(a) In the event that the outstanding shares of Common Stock are
hereafter changed by reason of recapitalization, reclassification, stock
split, combination or exchange of shares of Common Stock or the like, or by
the issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Board of Directors, as determined by the
Board of Directors and/or the Committee, in the aggregate number of shares of
Common Stock available under the Plan, in the number of shares of Common
Stock issuable upon exercise of outstanding Options and in the Option Price
per share. In the event of any consolidation or merger of the Company with
or into another company, or the conveyance of all or substantially all of the
assets of the Company to another company, each then outstanding Option shall
upon exercise thereafter entitle the holder thereof to such number of shares
of Common Stock or other securities or property to which a holder of shares
of Common Stock of the Company would have been entitled upon such
consolidation, merger or conveyance; and in any such case appropriate
adjustment, as determined by the Board of Directors of the Company (or
successor entity) shall be made as set forth above with respect to any future
changes in the capitalization of the Company or its successor entity. In the
event that the dissolution or liquidation of the Company is approved by the
Board of Directors, all outstanding Options under the Plan will automatically
terminate, unless otherwise provided by the Board of Directors of the Company
or any authorized committee thereof.
(b) Any Option granted under the Plan, unless waived by the
Board of Directors or the Committee, may, at the discretion of the Board of
Directors of the Company and said other corporation, be exchanged for options
to purchase shares of capital stock of another corporation with which the
Company or a subsidiary thereof is merged, reorganized or consolidated, or to
which the Company sells all or a substantial portion of its property or
stock. The terms, provisions and benefits to the optionee of such substitute
option(s) shall in all respects be identical to the terms, provisions and
benefits of optionee under his Option(s) prior to said substitution. To the
extent the above may be inconsistent with Sections 424(a)(1) and (2) of the
Code, the above shall be deemed interpreted so as to comply therewith.
(c) Any adjustment in the number of shares of Common Stock shall
apply proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of shares of Common Stock would result from any such
adjustment, the adjustment shall be revised to the next higher whole number
of shares of Common Stock.
9. Further Conditions of Exercise.
(a) Unless the shares of Common Stock issuable upon the exercise
of an Option have been registered with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended, prior to the exercise of
<PAGE>
the Option, an optionee must represent in writing to the Company that such
shares of Common Stock are being acquired his own account for investment
purposes only and not with a view towards the further resale or distribution
thereof, and must supply to the Company such other documentation as may be
required by the Company, unless in the opinion of counsel to the Company such
representation, agreement or documentation is not necessary to comply with
said Act.
(b) The Company shall not be obligated to deliver any shares of
Common Stock until they have been listed on each securities exchange and
trading association on which the Common Stock shall then be listed or until
there has been qualification under or compliance with such state or federal
laws, rules or regulations as the Company may deem applicable.
(c) The Board of Directors or Committee may make such provisions
and take such steps as it may deem necessary or appropriate for the
withholding of any taxes that the Company is required by any law or
regulation of any governmental authority, whether federal, state or local,
domestic or foreign, to withhold in connection with the exercise of any
Option, including, but not limited to, (i) the withholding of payment of all
or any portion of such Option until the holder reimburses the Company for the
amount the Company is required to withhold with respect to such taxes, or
(ii) the cancelling of any number of shares of Common Stock issuable upon
exercise of such Option in an amount sufficient to reimburse the Company for
the amount it is required to so withhold (iii) the selling of any property
contingently credited by the Company for the purpose of exercising such
Option, in order to withhold or reimburse the Company for the amount it is
required to so withhold or (iv) withholding the amount due from such
employee's wages if the employee is employed by the Company or any subsidiary
thereof.
10. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan)
shall terminate ten (10) years from the earlier of the date of its adoption
by the Board of Directors or the date the Plan is approved by the
stockholders of the Company, or shall terminate as hereinafter provided, and
no Option shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified or
amended by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote thereon.
(c) The Board of Directors of the Company may at any time
terminate the Plan or from time to time make such modifications or amendments
of the Plan as it may deem advisable; provided, however, that the Board of
Directors shall not, without approval by the affirmative vote of the holders
of a majority of the outstanding shares of capital stock of the Company
entitled to vote thereon, increase (except as provided by Paragraph 8) the
maximum number of shares of Common Stock as to which Options or shares may be
granted under the Plan, materially change the standards of eligibility under
the Plan or amend any provision hereof which requires stockholder approval in
order to preserve the status of the Plan as a plan qualifying under Rule
16b-3 of the 1934 Act if the Plan would otherwise qualify thereunder. Any
amendment to the Plan which, in the opinion of counsel to the Company, will
be deemed to result in the adoption of a new Plan, will not be effective
until approved by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote thereon.
(d) No termination, modification or amendment of the Plan may
adversely affect the rights under any outstanding Option without the consent
of the individual to whom such Option shall have been previously granted.
11. Effective Date of the Plan.
<PAGE>
The Plan shall become effective upon adoption by the Board of
Directors of the Company. The Plan shall be subject to approval by the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company entitled to vote thereon within one year before
or after adoption of the Plan by the Board of Directors.
12. Not a Contract of Employment.
Nothing contained in the Plan or in any option agreement executed
pursuant hereto shall be deemed to confer upon any individual to whom an
Option is or may be granted hereunder any right to remain in the employ of
the Company or of a subsidiary or parent of the Company or in any way limit
the right of the Company, or of any parent or subsidiary thereof, to
terminate the employment of any employee.
13. Other Compensation Plans.
The adoption of the Plan shall not affect any other stock option
plan, incentive plan or any other compensation plan in effect for the
Company, nor shall the Plan preclude the Company from establishing any other
form of stock option plan, incentive plan or any other compensation plan.
<PAGE>
Exhibit 4.2
MICROS-TO-MAINFRAMES, INC.
1998 STOCK OPTION PLAN
1. Purposes.
The MICROS-TO-MAINFRAMES, INC. 1998 STOCK OPTION PLAN (the "Plan") is
intended to provide the employees, directors, independent contractors and
consultants of Micros-to-Mainframes, Inc. (the "Company") and/or any
subsidiary or parent thereof with an added incentive to commence and/or
continue their services to the Company and to induce them to exert their
maximum efforts toward the Company's success. By thus encouraging employees,
directors, independent contractors and consultants and promoting their
continued association with the Company, the Plan may be expected to benefit
the Company and its stockholders. The Plan allows the Company to grant
Incentive Stock Options ("ISOs") (as defined in Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), Non-Qualified Stock Options
("NQSOs") not intended to qualify under Section 422(b) of the Code and Stock
Appreciation Rights ("SARs") (collectively the "Options"). The vesting of one
or more Options granted hereunder may be based on the attainment of specified
performance goals of the participant or the performance of the Company, one or
more subsidiaries, parent and/or division of one or more of the above.
2. Shares Subject to the Plan.
The total number of shares of Common Stock of the Company, $.001 par
value per share, that may be subject to Options granted under the Plan shall
be two hundred fifty thousand (250,000) in the aggregate, subject to
adjustment as provided in Paragraph 8 of the Plan; however, the grant of an
ISO to an employee together with a tandem SAR or any NQSO to an employee
together with a tandem SAR shall only require one share of Common Stock
available subject to the Plan to satisfy such joint Option. The Company shall
at all times while the Plan is in force reserve such number of shares of
Common Stock as will be sufficient to satisfy the requirement of outstanding
Options granted under the Plan. In the event any Option granted under the
Plan shall expire or terminate for any reason without having been exercised in
full or shall cease for any reason to be exercisable in whole or in part, the
unpurchased shares subject thereto shall again be available for granting of
Options under the Plan.
3. Eligibility.
ISO's or ISO's in tandem with SAR's (provided the SAR meets the
requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a) through (e)
inclusive) may be granted from time to time under the Plan to one or more
employees of the Company or of a "subsidiary" or "parent" of the Company, as
the quoted terms are defined within Section 424 of the Code. An Officer is an
employee for the above purposes. However, a director of the Company who is
not otherwise an employee is not deemed an employee for such purposes. NQSOs
and NQSO's in tandem with SARs may be granted from time to time under the Plan
to one or more employees of the Company, Officers, members of the Board of
Directors, independent contractors, consultants and other individuals who are
not employees of, but are involved in the continuing development and success
of the Company and/or of a subsidiary of the Company, including persons who
have previously been granted Options under the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of the
Company as such Board of Directors may be composed from time to time and/or by
<PAGE>
a Stock Option Committee or Compensation Committee (the "Committee") which
shall be comprised of solely of at least two Outside Directors (as such term
is defined in regulations promulgated from time to time with respect to
Section 162(m)(4)(C)(i) of the Code) appointed by such Board of Directors of
the Company. As and to the extent authorized by the Board of Directors of the
Company, the Committee may exercise the power and authority vested in the
Board of Directors under the Plan. Within the limits of the express
provisions of the Plan, the Board of Directors or Committee shall have the
authority, in its discretion, to determine the individuals to whom, and the
time or times at which, Options shall be granted, the character of such
Options (whether ISOs, NQSOs, and/or SARs in tandem with NQSOs, and/or SARs in
tandem with ISOs) and the number of shares of Common Stock to be subject to
each Option, the manner and form in which the optionee can tender payment upon
the exercise of his Option, and to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the terms and
provisions of Option agreements that may be entered into in connection with
Options (which need not be identical), subject to the limitation that
agreements granting ISOs must be consistent with the requirements for the ISOs
being qualified as "incentive stock options" as provided in Section 422 of the
Code, and to make all other determinations and take all other actions
necessary or advisable for the administration of the Plan. In making such
determinations, the Board of Directors and/or the Committee may take into
account the nature of the services rendered by such individuals, their present
and potential contributions to the Company's success, and such other factors
as the Board of Directors and/or the Committee, in its discretion, shall deem
relevant. The Board of Directors' and/or the Committee's determinations on
the matters referred to in this Paragraph shall be conclusive.
(b) Notwithstanding anything contained herein to the contrary, at
anytime during the period the Company's Common Stock is registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934 (the "1934 Act"), the
Committee, if one has been appointed to administer all or part of the Plan,
shall have the exclusive right to grant Options to Covered Employees as
defined under Section 162(m)(3) of the Code (generally persons subject to
Section 16 of the 1934 Act) and set forth the terms and conditions thereof.
With respect to persons subject to Section 16 of the 1934 Act, transactions
under the Plan are intended, to the extent possible, comply with all
applicable conditions of Rule 16b-3, as amended from time to time, (and its
successor provisions, if any) under the 1934 Act and Section 162(m)(4)(C) of
the Code of 1986, as amended. To the extent any provision of the Plan or
action by the Board of Directors or Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by
the Board of Directors and/or such Committee.
5. Terms of Options.
Within the limits of the express provisions of the Plan, the Board of
Directors or the Committee may grant either ISOs or NQSOs or SARs in tandem
with NQSOs or SARs in tandem with ISOs. An ISO or an NQSO enables the
optionee to purchase from the Company, at any time during a specified exercise
period, a specified number of shares of Common Stock at a specified price (the
"Option Price"). The optionee, if granted a SAR in tandem with a NQSO or ISO,
may receive from the Company, in lieu of exercising his option to purchase
shares pursuant to his NQSO or ISO, at one of the certain specified times
during the exercise period of the NQSO or ISO as set by the Board of Directors
or the Committee, the excess of the fair market value upon such exercise (as
determined in accordance with subparagraph (b) of this Paragraph 5) of one
share of Common Stock over the Option Price per share specified upon grant of
the NQSO or ISO/SAR multiplied by the number of shares of Common Stock covered
by the SAR so exercised. The character and terms of each Option granted under
the Plan shall be determined by the Board of Directors and/or the Committee
consistent with the provisions of the Plan, including the following:
<PAGE>
(a) An Option granted under the Plan must be granted within 10 years
from the date the Plan is adopted, or the date the Plan is approved by the
stockholders of the Company, whichever is earlier.
(b) The Option Price of the shares of Common Stock subject to each ISO
and each SAR issued in tandem with an ISO shall not be less than the fair
market value of such shares of Common Stock at the time such ISO is granted.
Such fair market value shall be determined by the Board of Directors and, if
the shares of Common Stock are listed on a national securities exchange or
traded on the over-the-counter market, the fair market value shall be the
closing price on such exchange, or the mean of the closing bid and asked
prices of the shares of Common Stock on the over-the-counter market, as
reported by the Nasdaq Stock Market, the National Association of Securities
Dealers OTC Bulletin Board or the National Quotation Bureau, Inc., as the case
may be, on the day on which the Option is granted or, if there is no closing
price or bid or asked price on that day, the closing price or mean of the
closing bid and asked prices on the most recent day preceding the day on which
the Option is granted for which such prices are available. If an ISO or SAR
in tandem with an ISO is granted to any individual who, immediately before the
ISO is to be granted, owns (directly or through attribution) more than 10% of
the total combined voting power of all classes of capital stock of the Company
or a subsidiary or parent of the Company, the Option Price of the shares of
Common Stock subject to such ISO shall not be less than 110% of the fair
market value per share of the shares of Common Stock at the time such ISO is
granted.
(c) The Option Price of the shares of Common Stock subject to an NQSO
or an SAR in tandem with a NQSO granted pursuant to the Plan shall be
determined by the Board of Directors or the Committee, in its sole discretion,
but in no event less than 85% of the fair market value per share of the shares
of Common Stock at the time of grant.
(d) In no event shall any Option granted under the Plan have an
expiration date later than 10 years from the date of its grant, and all
Options granted under the Plan shall be subject to earlier termination as
expressly provided in Paragraph 6 hereof. If an ISO or an SAR in tandem with
an ISO is granted to any individual who, immediately before the ISO is
granted, owns (directly or through attribution) more that 10% of the total
combined voting power of all classes of capital stock of the Company or of a
subsidiary or parent of the Company, such ISO shall by its terms expire and
shall not be exercisable after the expiration of five (5) years from the date
of its grant.
(e) An SAR may be exercised at any time during the exercise period of
the ISO or NQSO with which it is granted in tandem and prior to the exercise
of such ISO or NQSO. Notwithstanding the foregoing, the Board of Directors
and/or the Committee shall in their discretion determine from time to time the
terms and conditions of SAR's to be granted, which terms may vary from the
afore-described conditions, and which terms shall be set forth in a written
stock option agreement evidencing the SAR granted in tandem with the ISO or
NQSO. The exercise of an SAR granted in tandem with an ISO or NQSO shall be
deemed to cancel such number of shares subject to the unexercised Option as
were subject to the exercised SAR. The Board of Directors or the Committee
has the discretion to alter the terms of the SARS if necessary to comply with
Federal or state securities law. Amounts to be paid by the Company in
connection with an SAR may, in the Board of Director's or the Committee's
discretion, be made in cash, Common Stock or a combination thereof.
(f) An Option granted under the Plan shall become exercisable, in whole
at any time or in part from time to time, but in no event may an Option (i) be
exercised as to less than one hundred (100) shares of Common Stock at any one
time, or the remaining shares of Common Stock covered by the Option if less
than one hundred (100), and (ii) except with respect to performance based
Options, become fully exercisable more than five years from the date of its
<PAGE>
grant nor shall less than 20% of the Option become exercisable in any of the
first five years of the Option, if not terminated as provided in Section 6
hereof. The Board of Directors or the Committee, if applicable, shall, in the
event it so elects in its sole discretion, set one or more performance
standards with respect to one or more Options upon which vesting is
conditioned (which performance standards may vary among the Options).
(g) An Option granted under the Plan shall be exercised by the delivery
by the holder thereof to the Company at its principal office (to the attention
of the Secretary) of written notice of the number of full shares of Common
Stock with respect to which the Option is being exercised, accompanied by
payment in full, which payment at the option of the optionee shall be in the
form of (i) cash or certified or bank check payable to the order of the
Company, of the Option Price of such shares of Common Stock, or, (ii) if
permitted by the Committee or the Board of Directors, as determined by the
Committee or the Board of Directors in its sole discretion at the time of the
grant of the Option with respect to an ISO and at or prior to the time of
exercise with respect to a NQSO, by the delivery of shares of Common Stock
having a fair market value equal to the Option Price or the delivery of an
interest-bearing promissory note having an original principal balance equal to
the Option Price and an interest rate not below the rate which would result in
imputed interest under the Code (provided, in order to qualify as an ISO, more
than one year shall have passed since the date of grant and one year from the
date of exercise), or (iii) at the option of the Committee or the Board of
Directors, determined by the Committee or the Board of Directors in its sole
discretion at the time of the grant of the Option with respect to an ISO and
at or prior to the time of exercise with respect to a NQSO, by a combination
of cash, promissory note and/or such shares of Common Stock (subject to the
restriction above) held by the employee that have a fair market value together
with such cash and principal amount of any promissory note that shall equal
the Option Price, and, in the case of a NQSO, at the discretion of the
Committee or Board of Directors by having the Company withhold from the shares
of Common Stock to be issued upon exercise of the Option that number of shares
having a fair market value equal to the exercise price and/or the tax
withholding amount due, or otherwise provide for withholding as set forth in
Paragraph 9(c) hereof, or in the event an employee is granted an ISO or NQSO
in tandem with an SAR and desires to exercise such SAR, such written notice
shall so state such intention. To the extent allowed by applicable Federal
and state securities laws, the Option Price may also be paid in full by a
broker-dealer to whom the optionee has submitted an exercise notice consisting
of a fully endorsed Option, or through any other medium of payment as the
Board of Directors and/or the Committee, in its discretion, shall authorize.
(h) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares of Common Stock covered by such
holder's Option until such shares of Common Stock shall be issued to such
holder upon the exercise of the Option.
(i) All ISOs or SARs in tandem with ISOs granted under the Plan shall
not be transferable otherwise than by will or the laws of descent and
distribution and may be exercised during the lifetime of the holder thereof
only by the holder. The Board or the Committee, in its sole discretion, shall
determine whether an Option other than an ISO or SAR in tandem with an ISO
shall be transferable. No Option granted under the Plan shall be subject to
execution, attachment or other process.
(j) The aggregate fair market value, determined as of the time any ISO
or SAR in tandem with an ISO is granted and in the manner provided for by
Subparagraph (b) of this Paragraph 5, of the shares of Common Stock with
respect to which ISOs granted under the Plan are exercisable for the first
time during any calendar year and under incentive stock options qualifying as
such in accordance with Section 422 of the Code granted under any other
incentive stock option plan maintained by the Company or its parent or
<PAGE>
subsidiary corporations, shall not exceed $100,000. Any grant of Options in
excess of such amount shall be deemed a grant of a NQSO.
(k) Notwithstanding anything contained herein to the contrary, an SAR
which was granted in tandem with an ISO shall (i) expire no later than the
expiration of the underlying ISO; (ii) be for no more than 100% of the spread
at the time the SAR is exercised; (iii) shall only be transferable when the
underlying ISO is transferable; (iv) only be exercised when the underlying ISO
is eligible to be exercised; and (v) only be exercisable when there is a
positive spread.
(l) In no event shall an employee be granted Options for more than
50,000 shares of Common Stock during any calendar year period; provided,
however, that the limitation set forth in this Section 5(l) shall be subject
to adjustment as provided in Section 8 herein.
6. Death or Termination of Employment/Consulting Relationship.
(a) Except as provided herein, or otherwise determined by the Board of
Directors or the Committee in its sole discretion, upon termination of
employment with the Company voluntarily by the employee or termination of a
consulting relationship with the Company prior to the termination of the term
thereof, a holder of an Option under the Plan may exercise such Options to the
extent such Options were exercisable as of the date of termination at any time
within thirty (30) days after termination, subject to the provisions of
Subparagraph (d) of this Paragraph 6. Except as provided herein, or otherwise
determined by the Board of Directors or the Committee in its sole discretion,
if such employment or consulting relationship shall terminate for any reason
other than death, voluntary termination by the employee or for cause, then
such Options may be exercised at anytime within three (3) months after such
termination. Notwithstanding anything contained herein to the contrary, unless
otherwise determined by the Board of Directors or the Committee in its sole
discretion, any options granted hereunder to an Optionee and then outstanding
shall immediately terminate in the event the Optionee is terminated for cause,
and the other provisions of this Section 6 shall not be applicable thereto.
For purposes of this Section 6, termination for cause shall be deemed the
decision of the Company, in its sole discretion, that Optionee has not
adequately performed the services for which he/she/it was hired.
(b) If the holder of an Option granted under the Plan dies (i) while
employed by the Company or a subsidiary or parent corporation or while
providing consulting services to the Company or a subsidiary or parent
corporation or (ii) within three (3) months after the termination of such
holder's employment/consulting, such Options may, subject to the provisions of
subparagraph (d) of this Paragraph 6, be exercised by a legatee or legatees of
such Option under such individual's last will or by such individual's personal
representatives or distributees at any time within such time as determined by
the Board of Directors or the Committee in its sole discretion, but in no
event less than six months after the individual's death, to the extent such
Options were exercisable as of the date of death or date of termination of
employment, whichever date is earlier.
(c) If the holder of an Option under the Plan becomes disabled within
the definition of section 22(e)(3) of the Code while employed by the Company
or a subsidiary or parent corporation, such Option may, subject to the
provisions of subparagraph (d) of this Paragraph 6, be exercised at any time
within six months less one day after such holder's termination of employment
due to the disability.
(d) Except as otherwise determined by the Board of Directors or the
Committee in its sole discretion, an Option may not be exercised pursuant to
this Paragraph 6 except to the extent that the holder was entitled to exercise
the Option at the time of termination of employment, consulting relationship
or death, and in any event may not be exercised after the original expiration
<PAGE>
date of the Option. Notwithstanding anything contained herein which may be to
the contrary, such termination or death prior to vesting shall, unless
otherwise determined by the Board of Directors or Committee, in its sole
discretion, be deemed to occur at a time the holder was not entitled to
exercise the Option.
(e) The Board of Directors or the Committee, in its sole discretion, may
at such time or times as it deems appropriate, if ever, accelerate all or part
of the vesting provisions with respect to one or more outstanding options.
The acceleration of one Option shall not infer that any Option is or to be
accelerated.
7. Leave of Absence.
For the purposes of the Plan, an individual who is on military or sick
leave or other bona fide leave of absence (such as temporary employment by the
Government) shall be considered as remaining in the employ of the Company or
of a subsidiary or parent corporation for ninety (90) days or such longer
period as such individual's right to reemployment is guaranteed either by
statute or by contract.
8. Adjustment Upon Changes in Capitalization.
(a) In the event that the outstanding shares of Common Stock are
hereafter changed by reason of recapitalization, reclassification, stock
split-up, combination or exchange of shares of Common Stock or the like, or by
the issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Board of Directors, as determined by the Board
of Directors and/or the Committee, in the aggregate number of shares of Common
Stock available under the Plan, in the number of shares of Common Stock
issuable upon exercise of outstanding Options, and the Option Price per share.
In the event of any consolidation or merger of the Company with or into
another company, or the conveyance of all or substantially all of the assets
of the Company to another company for solely stock and/or securities, each
then outstanding Option shall upon exercise thereafter entitle the holder
thereof to such number of shares of Common Stock or other securities or
property to which a holder of shares of Common Stock of the Company would have
been entitled to upon such consolidation, merger or conveyance; and in any
such case appropriate adjustment, as determined by the Board of Directors of
the Company (or successor entity) shall be made as set forth above with
respect to any future changes in the capitalization of the Company or its
successor entity. In the event of the proposed dissolution or liquidation of
the Company, or, except as provided in (b) below, the sale of substantially
all the assets of the Company for other than stock and/or securities, all
outstanding Options under the Plan will automatically terminate, unless
otherwise provided by the Board of Directors of the Company or any authorized
committee thereof.
(b) Any Option granted under the Plan, may, at the discretion of the
Board of Directors of the Company and said other corporation, be exchanged for
options to purchase shares of capital stock of another corporation which the
Company, and/or a subsidiary thereof is merged into, consolidated with, or all
or a substantial portion of the property or stock of which is acquired by said
other corporation or separated or reorganized into. The terms, provisions and
benefits to the optionee of such substitute option(s) shall in all respects be
identical to the terms, provisions and benefits of optionee under his
Option(s) prior to said substitution. To the extent the above may be
inconsistent with Sections 424(a)(1) and (2) of the Code, the above shall be
deemed interpreted so as to comply therewith.
(c) Any adjustment in the number of shares of Common Stock shall apply
proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of shares of Common Stock would result from any such
<PAGE>
adjustment, the adjustment shall be revised to the next higher whole number of
shares of Common Stock.
9. Further Conditions of Exercise.
(a) Unless the shares of Common Stock issuable upon the exercise of an
Option have been registered with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended, prior to the exercise of
the Option, an optionee must represent in writing to the Company that such
shares of Common Stock are being acquired for investment purposes only and not
with a view towards the further resale or distribution thereof, and must
supply to the Company such other documentation as may be required by the
Company, unless in the opinion of counsel to the Company such representation,
agreement or documentation is not necessary to comply with said Act.
(b) The Company shall not be obligated to deliver any shares of Common
Stock until they have been listed on each securities exchange on which the
shares of Common Stock may then be listed or until there has been
qualification under or compliance with such state or federal laws, rules or
regulations as the Company may deem applicable.
(c) The Board of Directors or Committee may make such provisions and
take such steps as it may deem necessary or appropriate for the withholding of
any taxes that the Company is required by any law or regulation of any
governmental authority, whether federal, state or local, domestic or foreign,
to withhold in connection with the exercise of any Option, including, but not
limited to, (i) the withholding of payment of all or any portion of such
Option and/or SAR until the holder reimburses the Company for the amount the
Company is required to withhold with respect to such taxes, or (ii) the
canceling of any number of shares of Common Stock issuable upon exercise of
such Option and/or SAR in an amount sufficient to reimburse the Company for
the amount it is required to so withhold, (iii) the selling of any property
contingently credited by the Company for the purpose of exercising such
Option, in order to withhold or reimburse the Company for the amount it is
required to so withhold, or (iv) withholding the amount due from such
employee's wages if the employee is employed by the Company or any subsidiary
thereof.
10. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the earliest of the date of its adoption by the
Board of Directors, or the date the Plan is approved by the stockholders of
the Company, or such date of termination, as hereinafter provided, and no
Option shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified or amended
by the affirmative vote of the holders of a majority of the outstanding shares
of capital stock of the Company entitled to vote thereon.
(c) The Board of Directors of the Company may at any time, prior to
ten (10) years from the earlier of the date of the adoption of the Plan by
such Board of Directors or the date the Plan is approved by the stockholders,
terminate the Plan or from time to time make such modifications or amendments
of the Plan as it may deem advisable; provided, however, that the Board of
Directors shall not, without approval by the affirmative vote of the holders
of a majority of the outstanding shares of capital stock of the Company
entitled to vote thereon, increase (except as provided by Paragraph 8) the
maximum number of shares of Common Stock as to which Options or shares may be
granted under the Plan, or materially change the standards of eligibility
under the Plan. Any amendment to the Plan which, in the opinion of counsel to
the Company, will be deemed to result in the adoption of a new Plan, will not
be effective until approved by the affirmative vote of the holders of a
<PAGE>
majority of the outstanding shares of capital stock of the Company entitled to
vote thereon.
(d) No termination, modification or amendment of the Plan may
adversely affect the rights under any outstanding Option without the consent
of the individual to whom such Option shall have been previously granted.
11. Effective Date of the Plan.
The Plan shall become effective upon adoption by the Board of Directors
of the Company. The Plan shall be subject to approval by the affirmative vote
of the holders of a majority of the outstanding shares of capital stock of the
Company entitled to vote thereon within one year before or after adoption of
the Plan by the Board of Directors.
12. Not a Contract of Employment or for Services.
Nothing contained in the Plan or in any option agreement executed
pursuant hereto shall be deemed to confer upon any individual to whom an
Option is or may be granted hereunder any right to remain in the employ of the
Company or of a subsidiary or parent of the Company or in any way limit the
right of the Company, or of any parent or subsidiary thereof, to terminate the
employment of any employee.
13. Other Compensation Plans.
The adoption of the Plan shall not affect any other stock option plan,
incentive plan or any other compensation plan in effect for the Company, nor
shall the Plan preclude the Company from establishing any other form of stock
option plan, incentive plan or any other compensation plan.
14. Distribution of Financial Statements.
The Company shall provide copies of the Company's annual financial
statements for its most recently completed fiscal year to each person granted
or exercising an option pursuant to the Plan as long as that person continues
to hold such options or shares. The Company shall not be required to provide
such financial statements to key employees whose duties in connection with the
Company assure their access to equivalent information.
<PAGE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 2,856
<SECURITIES> 0
<RECEIVABLES> 11,178
<ALLOWANCES> 0
<INVENTORY> 1,295
<CURRENT-ASSETS> 16,052
<PP&E> 2,064
<DEPRECIATION> 1,035
<TOTAL-ASSETS> 19,576
<CURRENT-LIABILITIES> 5,834
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 12,677
<TOTAL-LIABILITY-AND-EQUITY> 18,847
<SALES> 32,139
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 27,424
<OTHER-EXPENSES> 4,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 715
<INCOME-TAX> 293
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422
<EPS-PRIMARY> 0.10
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</TABLE>
