The following table sets forth, with respect to our fiscal year ended March 31, 2007, all compensation earned by our CEO, and the five most highly compensated persons who were serving as executive officers at the end of our 2007 fiscal year or who would have been among the most highly compensated officers except for the fact that such person was not serving as an executive officer at the end of our 2007 fiscal year, in each case other than with respect to our CEO.
(1) See Footnote 1 to the Company’s Consolidated Financial Statements contained herein for a discussion of the assumptions made in the valuation of Stock Awards and Option Awards for financial reporting purposes.
(2) Chief Executive Officer from May 21, 2004 to April 26, 2007. In connection with the termination of Mr. Alfano’s employment with the Company, the vesting of all of his stock options and restricted stock units was accelerated and the Company recorded the associated expense during the 2007 fiscal year. The impact of this transaction is reported under the “Stock Award” and “Option Award” columns, since the associated expense was recorded in fiscal 2007.
(3) Senior Vice President and Chief Financial Officer since September 28, 2006.
(4) Senior Vice President and Chief Financial Officer from January 1, 2006 to September 13, 2006. In connection with the termination of Mr. El-Hillow’s employment with the Company, the vesting of all of his restricted stock units was accelerated and all of his stock options were forfeited.
(5) Chairman of the Board and Chief Financial Officer until May 21, 2004, and Executive Vice President until July 7, 2006.
Amounts shown as “Salary” include gross salary earned for the year ended March 31, 2007.
The “Stock Awards” column reports the dollar amount recognized for financial statement reporting purposes in fiscal 2007, in accordance with SFAS No. 123(R), for restricted stock units held, excluding the impact of estimated forfeitures related to service based vesting conditions. The Company adopted SFAS No. 123(R) effective April 1, 2006 using the modified prospective transition method.
The “Option Awards” column reports the dollar amount recognized for financial statement reporting purposes in fiscal 2007, in accordance with SFAS No. 123(R), for options held, excluding the impact of estimated forfeitures related to service based vesting conditions. The Company adopted SFAS No. 123(R) effective April 1, 2006 using the modified prospective transition method.
The amount reported for Mr. Alfano in “All Other Compensation” consists of post-termination consulting fees of $787,500, a one-time fee for entering into a severance and release agreement of $29,167, post-termination health benefits funded by the company of $14,350, and legal fee reimbursements of $5,000, in each case paid or accrued by the Company during fiscal 2007 in connection with the termination of Mr. Alfano’s employment.
The amount reported for Mr. Braukman in “All Other Compensation” consists of reimbursed relocation expenses in connection with Mr. Braukman’s hiring of $47,728.
The amount reported for Mr. El-Hillow in “All Other Compensation” includes post-termination consulting fees and accrued paid time off of $217,500 and post-termination health benefits funded by the company of $2,251, in each case paid or accrued by the Company during fiscal 2007 in connection with the termination of Mr. El-Hillow’s employment. It also includes reimbursed relocation expenses in connection with Mr. El-Hillow’s hiring of $45,288.
The amount reported for Mr. Rothman in “All Other Compensation” includes post-termination consulting fees of $447,500, a one-time fee for entering into a severance and release agreement of $3,500, and post-termination health benefits funded by the company of $10,045, in each case paid or accrued by the Company during fiscal 2007 in connection with the termination of Mr. Rothman’s employment. Also includes the payment by the Company of certain disability insurance payments for the benefit of Mr. Rothman of $2,532.
Essential to an understanding of the Summary Compensation Table is an understanding of the Employment Agreements of the named executive officers.
Frank Alfano. We entered into an employment agreement, dated June 28, 2006, with Francis J. Alfano (as amended, the “Alfano Employment Agreement”) to employ Mr. Alfano as our CEO. The Alfano Employment Agreement had an initial term of three (3) years (the “Initial Term”). Mr. Alfano was paid a base salary of $350,000 per annum and was eligible to receive an annual bonus based upon the achievement of performance targets established under the Company’s Management Bonus Plan of up to 75% of his base salary payable 67% in cash and 33% in common stock consisting of 35,000 shares of common stock, subject to certain limitations on the number of shares to be issued. Payment of the annual bonus was subject to the establishment of performance targets established under the Company’s Management Bonus Plan. For 2007 no performance targets were approved under the Management Bonus Plan and no award grants were made.
In March, 2007, the Company and Mr. Alfano reached an agreement in principle regarding Mr. Alfano’s departure as CEO of the Company. On April 12, 2007 the Company reported, among other things, that Mr. Alfano would be departing in the near term to pursue other opportunities and that simultaneous with his departure as CEO, Mr. Alfano would also resign from the Board of Directors. In furtherance of these transactions, we entered into a definitive Consulting Service Agreement on April 26, 2007 (the “Alfano Consulting Service Agreement”) with Mr. Alfano and Tory Ventures LLC (the “Consultant”). Mr. Alfano is the sole member of the Consultant. The Alfano Consulting Service Agreement commenced on April 26, 2007 and terminates on June 30, 2009. For services rendered under the Alfano Consulting Service Agreement, the Company paid or will pay Consultant, among other things (i) a signing bonus of $58,333.33 on May 15, 2007 in accordance with the normal payroll practices of the Company and (ii) fees at the rate of $29,166.67 per month, payable in arrears in twice monthly payments with the initial payment on May 15, 2007 in accordance with the normal payroll practices of the Company, provided that a lump sum payment on March 31, 2008 shall be made which shall include fees from April 1, 2008 through March 31, 2009. Upon a change of control of the Company all compensation under the Alfano Consulting Service Agreement shall become immediately due and payable; provided, however, that the March 31, 2008 payment shall, in no event be paid to Consultant prior to the date that is six months following the date of the Alfano Consulting Service Agreement. Additionally, in connection with these agreements the vesting of Mr. Alfano’s stock options and restricted stock units were accelerated. Termination and change in control payments and benefits are more fully described in the section of the Annual Report on Form 10-K entitled “Executive Compensation - Payments Upon Termination.”
Steve Stringer. We entered into an employment agreement, dated August 10, 2006, with Mr. Stringer (as amended, the “Stringer Employment Agreement”) to employ Mr. Stringer as our President and Chief Operating Officer. The Stringer Employment Agreement has an initial term ending December 31, 2009 (the “Initial Term Date”). On the Initial Term Date and each subsequent anniversary of the Initial Term Date, the term of the agreement shall
33
automatically be extended for an additional period of 12 months; provided, however, that either party may elect not to extend the agreement by giving written notice to the other party at least 12 months prior to the Initial Term Date or any anniversary date thereof. Mr. Stringer is paid a base salary of $335,000 per annum and is eligible to receive an annual bonus based upon the achievement of performance targets of up to 75% of his base salary payable 67% in cash and 33% in common stock consisting of 25,000 shares of common stock, subject to certain limitations on the number of shares to be issued. Payment of the annual bonus was subject to the establishment of performance targets established under the Company’s Management Bonus Plan. For 2007 no performance targets were approved under the Management Bonus Plan and no award grants were made.
Other Agreements. The Company entered into a severance agreement, dated September 28, 2006, with Mr. Braukman (the “Braukman Severance Agreement”) and severance agreement, dated May 21, 2004, with Mr. Kohler (as amended the “Kohler Severance Agreement” and together with the Braukman Severance Agreement the “Severance Agreements”) to employ Mr. Braukman as our Senior Vice President and Chief Financial Officer, and Mr. Kohler as our Senior Vice President and General Counsel. In the event of a termination of Mr. Braukman’s or Mr. Kohler’s employment during the first four years of his agreement by the Company other than for “cause” or by such executive for “good reason” or as a result of his death or permanent and total disability we shall provide such executive, among other things, a continuance of his then current base salary for a period equal to one year. Mr. Braukman is paid a base salary of $260,000 per annum, and Mr. Kohler is paid a base salary of $200,000.
The Company entered into a severance agreement, dated December 12, 2005, with Mr. El-Hillow (the “El-Hillow Severance Agreement”) to employ Mr. El-Hillow as our Senior Vice President and Chief Financial Officer. In the event of a termination of Mr. El-Hillow’s, employment during the first four years of his agreement by the Company other than for “cause” or by such executive for “good reason” or as a result of his death or permanent and total disability we were required to provide such executive, among other things, a continuance of his then current base salary for a period equal to one year. Mr. El-Hillow was paid a base salary of $290,000 per annum. Additionally, in the event of termination of the executive for other than “cause” or for “good reason,” any unvested stock options or restricted stock units shall become fully vested and immediately exercisable and shall remain exercisable for the remainder of their term. Effective September 12, 2006, Mr. El-Hillow’s employment with the Company was terminated and the parties entered into a Consulting Services Agreement (the “El-Hillow Consulting Services Agreement”). For services rendered under the El-Hillow Consulting Service Agreement, the Company will pay Mr. El-Hillow fees at the rate of $24,166.66 per month, payable in arrears in twice monthly payments with the final payment ending June 13, 2007 in accordance with the normal payroll practices of the Company. Additionally, in connection with these agreements the vesting of Mr. El-Hillow’s 35,000 restricted stock units was accelerated and he forfeited his 250,000 stock options. Termination and change in control payments and benefits are more fully described in the section of the Annual Report on Form 10-K entitled “Executive Compensation - Payments Upon Termination.”
The Company entered into an employment agreement, dated May 21, 2004, with Steven H. Rothman (the “Rothman Employment Agreement”) to employ Mr. Rothman as an Executive Vice President. The Rothman Employment Agreement had an initial term of three (3) years (the “Rothman Initial Term”). In the event of a termination of Mr. Rothman’s employment during the term of the agreement by the Company other than for “cause” or by Mr. Rothman for “good reason” or as a result of his death or permanent and total disability we were required to provide him, among other things, a continuance of his then current base salary for a period equal to the greater of (i) one year from the date of termination or (ii) the period ending on the last day of the Rothman Initial Term. Additionally, in the event of termination for other than “cause” or for “good reason,” any unvested stock options or restricted stock units shall become fully vested and immediately exercisable and shall remain exercisable for the remainder of their term. Mr. Rothman was paid a base salary of $265,000 per annum. Effective July 7, 2006, Mr. Rothman’s employment with the Company was terminated and the parties entered into a Consulting Service Agreement dated as of July 7, 2006 (the “Rothman Consulting Service Agreement”). The Rothman Consulting Service Agreement has a term commencing on July 7, 2006 and ending March 31, 2008. For services rendered under the Rothman Consulting Service Agreement, the Company will, during the period July 1, 2006 to December 31, 2007, pay Mr. Rothman consulting fees at the rate of $265,000 per annum, payable quarterly. In addition, the Company paid Rothman a one-time fee of $50,000. The Company also agreed to pay Mr. Rothman, in certain circumstances set forth in the Consulting Service Agreement, a transaction fee, subject to certain limitations and offsets, in an amount equal to one percent (1%) of the Aggregate Purchase Price (as defined) paid by the Company for certain acquisitions
34
by the Company. Termination and change in control payments and benefits are more fully described in the section of the Annual Report on Form 10-K entitled “Executive Compensation - Payments Upon Termination.”
Grants of Plan Based Awards
| | | | | | | | | | | | | | | | | | | | | | | |
Name | | Grant
Date | | Comp.
Committee.
Approval
Date | | All Other Stock
Awards;
Number of
Shares of Stock
or Units (#) | | All Other Option
Awards; Number of
Securities Underlying
Options (#) | | Exercise or
Base Price of
Option
Awards ($/Sh) | | Grant Date
Fair Value
of Stock
and Option
Awards | |
| |
| |
| |
| |
| |
| |
| |
Francis J. Alfano | | | 6/28/06 | | | 6/28/06 | | | | | | 200,000 | | | $ | 3.54 | | | | $ | 325,800 | | |
Steven Stringer | | | 8/10/06 | | | 8/10/06 | | | | | | 107,000 | | | $ | 3.03 | | | | $ | 193,563 | | |
| | | 8/10/06 | | | 8/10/06 | | | 20,000 | | | | | | | | | | | $ | 41,200 | | |
J.W. Braukman III | | | 9/28/06 | | | 9/12/06 | | | | | | 250,000 | | | $ | 2.20 | | | | $ | 321,750 | | |
| | | 9/28/06 | | | 9/12/06 | | | 35,000 | | | | | | | | | | | $ | 52,500 | | |
Grants of Plan Based Awards Table Narrative.
The “Grant Date Fair Value of Stock and Options Awards” column reports the dollar amount to be recognized over the applicable requisite service period for financial statement reporting purposes in accordance with SFAS No. 123(R), for the applicable grant.
Under the Company’s Management Bonus Plan, no non-equity incentive awards were granted for the fiscal year ended March 31, 2007. Additionally, no equity incentive awards were granted under the equity incentive provisions of the employment agreements with Mr. Alfano or Mr. Stringer for fiscal 2007.
The grant made June 28, 2006 to Mr. Alfano reflected under “All Other Option Awards; Number of Securities Underlying Options (#)” was made in connection with the Company entering into a new employment agreement with Mr. Alfano. The award agreement for this award provides, among other things, that in the event of termination of Mr. Alfano’s employment with the Company for other than “cause” or for “good reason,” any unvested stock options shall become fully vested and immediately exercisable and shall remain exercisable for the remainder of its term.
The grants made August 10, 2006 to Mr. Stringer reflected under “All Other Option Awards; Number of Securities Underlying Options (#)” and “All Other Option Awards; Number of Securities Underlying Options (#)” were made in connection with the Company entering into a new employment agreement with Mr. Stringer. The award agreements for these awards provide, among other things, that in the event of termination of Mr. Stringer’s employment with the Company for other than “cause” or for “good reason,” any unvested stock options or restricted stock units shall become fully vested and the options shall become immediately exercisable and shall remain exercisable for the remainder of their term.
The grants made September 28, 2006 to Mr. Braukman reflected under “All Other Option Awards; Number of Securities Underlying Options (#)” and “All Other Option Awards; Number of Securities Underlying Options (#)” were made in connection with Mr. Braukman’s hiring as Chief Financial Officer. The award agreements for these awards provide, among other things, that in the event of termination of Mr. Braukman’s employment with the Company for other than “cause” or for “good reason,” any unvested stock options or restricted stock units shall become fully vested and the options shall become immediately exercisable and shall remain exercisable for the remainder of their term.
35
Outstanding Equity Awards at Fiscal Year End
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | |
| |
| |
| |
| | Number of Securities Underlying
Unexercised Options (#) | | | | Option
Exercise
Price
($) | | Option
Expiration
Date | | Number of
Shares or Units of
Stock That
Have Not Vested | | | | Market Value
of Shares or
Units of Stock
That Have Not
Vested (1) | |
| |
| | | |
| |
| |
| |
Name | | Exercisable | | Unexercisable | | | | | | | | | | | | | | | | | | |
| |
| |
| | | | | | | | | | | | | | | | | | |
Francis J. Alfano (2) | | 233,333 | | 166,667 | | | | | | $ | 2.15 | | | 5/20/2014 | | | | 8,000 | | | | | $ | 9,920 | |
| | 16,000 | | 48,000 | | | | | | $ | 4.05 | | | 4/15/2015 | | | | | | | | | | | |
| | 0 | | 200,000 | | | | | | $ | 3.54 | | | 6/28/2016 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Steven Stringer | | 125,416 | | 89,584 | | | (3 | ) | | $ | 2.87 | | | 11/2/2014 | | | | 40,000 | | | (4 | ) | $ | 49,600 | |
| | 11,800 | | 35,400 | | | (5 | ) | | $ | 4.05 | | | 4/15/2015 | | | | 5,900 | | | (6 | ) | $ | 7,316 | |
| | 0 | | 107,000 | | | (7 | ) | | $ | 3.03 | | | 8/10/2016 | | | | 20,000 | | | (8 | ) | $ | 24,800 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
J.W. Braukman III | | 0 | | 250,000 | | | (9 | ) | | $ | 2.20 | | | 9/28/2016 | | | | 35,000 | | | (10 | ) | $ | 43,400 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
John F. Kohler | | 43,750 | | 31,250 | | | (11 | ) | | $ | 2.15 | | | 5/20/2014 | | | | 1,500 | | | (12 | ) | $ | 1,860 | |
| | 3,000 | | 9,000 | | | (13 | ) | | $ | 4.05 | | | 4/15/2015 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Steven H. Rothman | | 50,000 | | 0 | | | | | | $ | 2.25 | | | 7/12/2008 | | | | 2,000 | | | (14 | ) | $ | 2,480 | |
| | 5,200 | | 0 | | | | | | $ | 2.69 | | | 10/11/2009 | | | | | | | | | | | |
| | 50,000 | | 0 | | | | | | $ | 1.29 | | | 9/10/2011 | | | | | | | | | | | |
| | 2,000 | | 6,000 | | | (15 | ) | | $ | 4.05 | | | 4/15/2015 | | | | | | | | | | | |
| |
|
(1) | Market value is calculated by multiplying the closing market price of the Company’s common stock as of March 31, 2007 by the number of unvested restricted stock units. |
| |
(2) | The vesting and exercisability of all options and restricted stock units awards held by Mr. Alfano were subsequently accelerated in connection with the termination of his employment with the Company. |
| |
(3) | 44,792 options vest on November 2, 2007 and 2008, respectively. |
| |
(4) | All restricted stock units vest on November 2, 2009, provided that vesting will accelerate in the event that the Company’s common stock trades at $10 or higher for any thirty trading days within a sixty trading day period. |
| |
(5) | 11,800 options vest on April 15, 2007, 2008, and 2009, respectively. |
| |
(6) | All restricted stock units vest on April 15, 2010, provided that vesting will accelerate in the event that the Company’s common stock trades at $10 or higher for any thirty trading days within a sixty trading day period. |
| |
(7) | 26,750 options vest on August 10, 2007, 2008, 2009 and 2010, respectively. |
| |
(8) | 5,000 restricted stock units awards vest on August 10, 2007, 2008, 2009 and 2010, respectively. |
| |
(9) | 62,500 options vest on September 28, 2007, 2008, 2009, 2010, respectively. |
| |
(10) | 8,750 restricted stock units awards vest on September 28, 2007, 2008, 2009, 2010, respectively |
| |
(11) | 15,625 options vest on May 21, 2007 and 2008, respectively. |
| |
(12) | All restricted stock units vest on April 15, 2010, provided that vesting will accelerate in the event that the Company’s common stock trades at $10 or higher for any thirty trading days within a sixty trading day period. |
| |
(13) | 3,000 options vest on April 15, 2007, 2008 and 2009, respectively. |
| |
(14) | All restricted stock units vest on April 15, 2010, provided that vesting will accelerate in the event that the Company’s common stock trades at $10 or higher for any thirty trading days within a sixty trading day period. |
| |
(15) | 2,000 options vest on April 15, 2007, 2008 and 2009, respectively. |
Outstanding Equity Awards at Fiscal Year End Table Narrative.
The outstanding options listed under “Option Awards” primarily relate to options granted under the 2004 Equity Incentive Plan pursuant to option agreements, the principal terms of which are disclosed in the table.
The outstanding awards listed under “Stock Awards” primarily relate to restricted stock units under the 2004 Equity Incentive Plan pursuant to restricted stock unit agreements, the principal terms of which are disclosed in the table.
36
Options Exercised and Stock Vested Table
| | | | | | |
| | Stock Awards | |
| |
| |
Name | | Number of Shares
Acquired on
Vesting # | | Value Realized
on Vesting ($) | |
| |
| |
| |
Francis J. Alfano | | | | | | |
Steven Stringer | | | | | | |
J.W. Braukman III | | | | | | |
Michael El-Hillow | | 35,000 | | $ | 80,500 | |
John F. Kohler | | | | | | |
Steven H. Rothman | | | | | | |
Options Exercised and Stock Vested Table Narrative.
The vesting of all 414,667 unvested stock options and 8,000 restricted stock units awards held by Mr. Alfano were accelerated following the end of the 2007 fiscal year in connection with the termination of his employment with the Company. Mr. Alfano realized $9,440 in income on April 26, 2007 in connection with the vesting of his restricted stock units.
The vesting of all 35,000 restricted stock units held by Mr. El-Hillow were accelerated during the 2007 fiscal year in connection with the termination of his employment with the Company. In connection with the termination of his employment Mr. El-Hillow forfeited all of his 250,000 stock options.
Payments Upon Termination
Each named executive officer’s employment or severance agreement provides for certain severance payments and benefits in the event that his employment is terminated by the Company without “cause”, or by the executive with “good reason”, or upon the executive’s death or total disability. These payments and benefits are more fully described below.
Named Executive Officers who Terminated Employment During 2007.
In March, 2007, the Company and Mr. Alfano reached an agreement in principle regarding Mr. Alfano’s departure as Chief Executive Officer of the Company. On April 12, 2007 the Company reported, among other things, that Mr. Alfano would be departing in the near term to pursue other opportunities and that simultaneous with his departure as CEO, Mr. Alfano would also resign from the Board of Directors. In furtherance of these transactions, we entered into the Alfano Consulting Service Agreement on April 26, 2007 with Mr. Alfano and Consultant. Mr. Alfano is the sole member of the Consultant. The Alfano Consulting Service Agreement commenced on April 26, 2007 and terminates on June 30, 2009. For services rendered under the Alfano Consulting Service Agreement, the Company paid or will pay Consultant (i) a signing bonus of $58,333.33 on May 15, 2007 in accordance with the normal payroll practices of the Company and (ii) fees at the rate of $29,166.67 per month, payable in arrears in twice monthly payments with the initial payment on May 15, 2007 in accordance with the normal payroll practices of the Company, provided that a lump sum payment on March 31, 2008 shall be made which shall include fees from April 1, 2008 through March 31, 2009. Upon a change of control of the Company all compensation under the Alfano Consulting Service Agreement shall become immediately due and payable; provided, however, that the March 31, 2008 payment shall, in no event be paid to Consultant prior to the date that is six months following the date of the Alfano Consulting Service Agreement. In addition to the other payments, we are providing Mr. Alfano health benefits at no cost for the term of the Alfano Service Consulting Agreement. In connection with these arrangements, Mr. Alfano and the Company executed mutual releases and Mr. Alfano agreed that for a period ending on the earlier of (i) April 26, 2009 or (ii) the date of a valid termination of the Alfano Consulting Service Agreement by him, that he will be prohibited from engaging in any Business Activities on behalf of any person, firm or corporation, and, subject to certain limitations, he shall not acquire any financial interest in any entity which engages in Business Activities within 200 miles of any of the Company’s offices in operation on the commencement date of the Alfano Employment Agreement and within 100 miles of any office of the Company established after such commencement date. During the period that the foregoing non-competition restriction applies, Mr. Alfano shall not, without the written consent of the Company: (i) solicit any employee of the Company or any of the Company’s affiliates to terminate his employment, or (ii) solicit any customers, partners, resellers, vendors or suppliers of the Company on behalf of any individual or entity other than the Company or its
37
affiliates. As used herein, the term “Business Activities” shall mean conduct of business as a computer and communications technology management and/or consulting business providing information technology networking and data center services, including secure access, VOIP storage, security, messaging solutions, network and mainframe connectivity consulting, remote network monitoring and management, network and system diagnostics, product maintenance and support, training, and product procurement solutions.
Effective September 12, 2006, Mr. El-Hillow’s employment with the Company was terminated and the parties entered into a Consulting Services Agreement (the “El-Hillow Consulting Services Agreement”). For services rendered under the El-Hillow Consulting Service Agreement, the Company will pay Mr. El-Hillow fees at the rate of $24,166.66 per month, payable in arrears in twice monthly payments with the final payment ending June 13, 2007 in accordance with the normal payroll practices of the Company. Additionally, in connection with these agreements the vesting of Mr. El-Hillow’s 35,000 restricted stock units were accelerated and he forfeited his 250,000 stock options. In connection with these arrangements, Mr. El-Hillow and the Company executed mutual releases and Mr. El-Hillow agreed that for a period of two years that he will be prohibited from engaging in any Business Activities on behalf of any person, firm or corporation, and, subject to certain limitations, he shall not acquire any financial interest in any entity which engages in Business Activities within 200 miles of any of the Company’s offices in operation on the commencement date of the El-Hillow Employment Agreement and within 100 miles of any office of the Company established after such commencement date. During the period that the foregoing non-competition restriction applies, Mr. El-Hillow shall not, without the written consent of the Company: (i) solicit any employee of the Company or any of the Company’s affiliates to terminate his employment, or (ii) solicit any customers, partners, resellers, vendors or suppliers of the Company on behalf of any individual or entity other than the Company or its affiliates.As used herein, the term “Business Activities” shall mean conduct of business as a computer and communications technology management company providing IT networking and data center services, including VOIP, storage, security, collaboration, and messaging solutions..
Effective July 7, 2006, Mr. Rothman’s employment with the Company was terminated and the parties entered into a Consulting Service Agreement dated as of July 7, 2006 (the “Rothman Consulting Service Agreement”). The Rothman Consulting Service Agreement has a term of two years, commencing on July 7, 2006 and ending March 31, 2008. For services rendered under the Rothman Consulting Service Agreement, the Company will, during the period July 1, 2006 to December 31, 2007, pay Mr. Rothman consulting fees at the rate of $265,000 per annum, payable quarterly. In addition, the Company paid Rothman a one-time fee of $50,000. The Company also agreed to pay Mr. Rothman, in certain circumstances set forth in the Consulting Service Agreement, a transaction fee, subject to certain limitations and offsets, in an amount equal to one percent (1%) of the Aggregate Purchase Price (as defined) paid by the Company for certain acquisitions by the Company. In connection with these arrangements, Mr. Rothman and the Company executed mutual releases and Mr. Rothman agreed that for a period ending on November 30, 2007 he will be prohibited from engaging in any Business Activities on behalf of any person, firm or corporation, and, subject to certain limitations, he shall not acquire any financial interest in any entity which engages in Business Activities within 200 miles of any of the Company’s offices in operation on the commencement date of the Rothman Employment Agreement and within 100 miles of any office of the Company established after such commencement date. Additionally, until November 20, 2008 Mr. Rothman shall not, without the written consent of the Company: (i) solicit any employee of the Company or any of the Company’s affiliates to terminate his employment, or (ii) solicit any customers, partners, resellers, vendors or suppliers of the Company on behalf of any individual or entity other than the Company or its affiliates. As used herein, the term “Business Activities” shall mean conduct of business as a middle market information technology service provider focused on network management and monitoring, LAN-WAN broadband, security, storage, and messaging.
38
Termination Benefits for All Other Named Executive Officers.
The tables below provide an estimate of the payments that would be made to each of the named executive officers other than Messrs. Alfano, El-Hillow and Rothman under various termination scenarios. These include voluntary termination, termination by the Company without “cause” or by the executive with “good reason,” and “for cause” termination by the Company. The amounts shown are estimates assuming that such termination was effective as of March 31, 2007. The actual amounts to be paid can only be determined at the time of such executive’s termination of employment from the Company.
| | | | | | | | | | |
Steven Stringer - Executive
Benefits and Payments on
Termination | | Voluntary
Termination | | Involuntary
Termination
Without Cause or
for Good Reason | | For Cause
Termination | |
| |
| |
| |
| |
Severance Payments | | $ | 0 | | $ | 921,250 | | $ | 0 | |
Post Termination Employee Benefits | | | 0 | | | 56,327 | | | 0 | |
Acceleration of Equity Awards (1) | | | 0 | | | 565,818 | | | 0 | |
| |
|
| |
|
| |
|
| |
| | $ | 0 | | $ | 1,543,395 | | $ | 0 | |
(1) Represents the dollar amount recognized for financial statement reporting purposes in accordance with SFAS No. 123(R).
We entered into an employment agreement, dated August 10, 2006, with Mr. Stringer (as amended, the “Stringer Employment Agreement”) to employ Mr. Stringer as our President and Chief Operating Officer. The Stringer Employment Agreement has an initial term ending December 31, 2009 (the “Initial Term Date”).
In the event of a termination of Mr. Stringer’s employment during the term of the Stringer Employment Agreement by the Company other than for “cause” or by Mr. Stringer for “good reason” or as a result of his death or permanent and total disability, the Company shall provide to Mr. Stringer (or his legal representative):
| |
• | A continuance of his salary at one hundred percent (100%) of his then current base salary, as a severance payment, for a period equal to the greater of (i) one year from the date of termination of Mr. Stringer’s employment or (ii) the period ending on the Initial Term Date (the “Severance Period”). |
| |
• | Subject to certain limitations, during the Severance Period, Mr. Stringer will be entitled to a continuance of coverage under all health, life, disability and similar employee benefit plans and programs of the Company on the same basis as he was entitled to participate immediately prior to the commencement of the Severance Period. |
Additionally, the impact of Mr. Stringer’s termination of employment on the stock options or other equity incentives held by him (including the maximum period that any such option or other equity incentive shall remain exercisable) shall be governed by the applicable equity incentive plan and agreement. All stock options and other equity incentives granted to Mr. Stringer provide that, upon termination of his employment by the Company other than for “cause” or by him for “good reason”, any unvested shares subject to such options or other equity incentives shall become fully vested and immediately exercisable in connection with such termination.
In connection with any termination by the Company other than for “cause” or by Mr. Stringer for “good reason” or as a result of his death or permanent and total disability the Company is required to execute a release and waiver of claims in favor of Mr. Stringer, as consideration for the execution and non-revocation by Mr. Stringer of a release agreement in favor of the Company and its shareholders and their respective directors, officers and employees. The foregoing payments shall be in lieu of any other severance benefits to which Mr. Stringer is entitled pursuant to any other severance plans, programs, arrangements, or policies of the Company.
In the event that Mr. Stringer’s employment with the Company is terminated during the term of the Stringer Employment Agreement by the Company for “cause”, or by Mr. Stringer other than for “good reason”, the Company shall pay to him (or his legal representative) any earned but unpaid salary amounts and any unreimbursed expenses through his final date of employment with the Company, and the Company shall have no further obligations to him.
39
During the term of the Stringer Employment Agreement and for a period of: (i) two years thereafter upon Mr. Stringer’s non-renewal of that agreement, (ii) one year thereafter upon the Company’s non-renewal of that agreement, or (iii) two years thereafter upon termination of employment by either Mr. Stringer or the Company for any reason other than non-renewal, Mr. Stringer is prohibited from engaging in any Business Activities on behalf of any person, firm or corporation, and, subject to certain limitations, he shall not acquire any financial interest in any entity which engages in Business Activities within 200 miles of any of the Company’s offices in operation on the commencement date of the Stringer Employment Agreement and within 100 miles of any office of the Company established after such commencement date. During the period that the foregoing non-competition restriction applies, Mr. Stringer shall not, without the written consent of the Company: (i) solicit any employee of the Company or any of the Company’s affiliates to terminate his employment, or (ii) solicit any customers, partners, resellers, vendors or suppliers of the Company on behalf of any individual or entity other than the Company or its affiliates. As used herein, the term “Business Activities” shall mean conduct of business as a computer and communications technology management and/or consulting business providing information technology networking and data center services, including secure access, VOIP, storage, security, messaging solutions, network and mainframe connectivity consulting, remote network monitoring and management, network and system diagnostics, product maintenance and support, training, and product procurement solutions.
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Jay Braukman - Executive
Benefits and Payments on
Termination | | Voluntary
Termination | | Involuntary
Termination
Without Cause or
for Good Reason | | For Cause
Termination | |
| |
| |
| |
| |
Severance Payments | | $ | 0 | | $ | 260,000 | | $ | 0 | |
Post Termination Employee Benefits | | | 0 | | | 15,363 | | | 0 | |
Acceleration of Equity Awards (1) | | | 0 | | | 363,218 | | | 0 | |
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|
| |
|
| |
|
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| | $ | 0 | | $ | 638,581 | | $ | 0 | |
(1) Represents the dollar amount recognized for financial statement reporting purposes in accordance with SFAS 123R.
The Company entered into a severance agreement, dated September 28, 2006, with Mr. Braukman (the “Braukman Severance Agreement”) to employ Mr. Braukman as our Senior Vice President and Chief Financial Officer.
In the event of a termination of Mr. Braukman’s employment on or before the fourth anniversary date of the Braukman Severance Agreement by the Company other than for “cause” or by Mr. Braukman for “good reason” or as a result of his death or permanent and total disability, in each case the Company shall provide to Mr. Braukman (or his legal representative):
| |
• | A continuance of his salary at one hundred percent (100%) of his then current base salary, as a severance payment, for a period equal to one year from the date of termination of Mr. Braukman’s employment (the “Severance Period”). |
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• | Subject to certain limitations, during the Severance Period, Mr. Braukman will be entitled to a continuance of coverage under all health, life, disability and similar employee benefit plans and programs of the Company on the same basis as he was entitled to participate immediately prior to the commencement of the Severance Period. |
Additionally, the impact of Mr. Braukman’s termination of employment on the stock options or other equity incentives held by him (including the maximum period that any such option or other equity incentive shall remain exercisable) shall be governed by the applicable equity incentive plan and agreement.
In connection with any termination by the Company other than for “cause” or by Mr. Braukman for “good reason” or as a result of his death or permanent and total disability the Company is required to execute a release and waiver of claims in favor of Mr. Braukman, as consideration for the execution and non-revocation by Mr. Braukman of a release agreement in favor of the Company and its shareholders and their respective directors, officers and employees. The foregoing payments shall be in lieu of any other severance benefits to which Mr. Braukman is entitled pursuant to any other severance plans, programs, arrangements, or policies of the Company.
40
In the event that Mr. Braukman’s employment with the Company is terminated by the Company for “cause”, or by Mr. Braukman other than for “good reason”, the Company shall pay to him (or his legal representative) any earned but unpaid salary amounts and any unreimbursed expenses through his final date of employment with the Company, and the Company shall have no further obligations to him.
During the term of Mr. Braukman’s employment and for a period of: (i) two years following Mr. Braukman’s termination of his employment, (ii) one year following the Company’s termination of his employment, Mr. Braukman is prohibited from engaging in any Business Activities on behalf of any person, firm or corporation, and, subject to certain limitations, he shall not acquire any financial interest in any entity which engages in Business Activities within 200 miles of any of the Company’s offices in operation on the commencement date of the Braukman Employment Agreement and within 100 miles of any office of the Company established after such commencement date. During the period that the foregoing non-competition restriction applies, Mr. Braukman shall not, without the written consent of the Company: (i) solicit any employee of the Company or any of the Company’s affiliates to terminate his employment, or (ii) solicit any customers, partners, resellers, vendors or suppliers of the Company on behalf of any individual or entity other than the Company or its affiliates. As used herein, the term “Business Activities” shall mean conduct of business as a computer and communications technology management and/or consulting business providing information technology networking and data center services, including secure access, VOIP, storage, security, messaging solutions, network and mainframe connectivity consulting, remote network monitoring and management, network and system diagnostics, product maintenance and support, training, and product procurement solutions.
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John Kohler – Executive
Benefits and Payments on
Termination | | Voluntary
Termination | | Involuntary
Termination
Without Cause or
for Good Reason | | For Cause
Termination | |
| |
| |
| |
| |
Severance Payments | | $ | 0 | | $ | 200,000 | | $ | 0 | |
Post Termination Employee Benefits | | | 0 | | | 19,080 | | | 0 | |
Acceleration of Equity Awards (1) | | | 0 | | | 51,602 | | | 0 | |
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|
| |
|
| |
|
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| | $ | 0 | | $ | 270,682 | | $ | 0 | |
(1) Represents the dollar amount recognized for financial statement reporting purposes in accordance with SFAS 123R.
The Company entered into a severance agreement, dated May 21, 2004, with Mr. Kohler (as amended the “Kohler Severance Agreement”) to employ Mr. Kohler as our Senior Vice President and General Counsel.
In the event of a termination of Mr. Kohler’s employment on or before the fourth anniversary date of the Kohler Severance Agreement by the Company other than for “cause” or by Mr. Kohler for “good reason” or as a result of his death or permanent and total disability, in each case the Company shall provide to Mr. Kohler (or his legal representative):
| | |
| • | A continuance of his salary at one hundred percent (100%) of his then current base salary, as a severance payment, for a period equal to one year from the date of termination of Mr. Kohler’s employment (the “Severance Period”). |
| | |
| • | Subject to certain limitations, during the Severance Period, Mr. Kohler will be entitled to a continuance of coverage under all health, life, disability and similar employee benefit plans and programs of the Company on the same basis as he was entitled to participate immediately prior to the commencement of the Severance Period. |
Additionally, the impact of Mr. Kohler’s termination of employment on the stock options or other equity incentives held by him (including the maximum period that any such option or other equity incentive shall remain exercisable) shall be governed by the applicable equity incentive plan and agreement.
In connection with any termination by the Company other than for “cause” or by Mr. Kohler for “good reason” or as a result of his death or permanent and total disability the Company is required to execute a release and waiver of claims in favor of Mr. Kohler, as consideration for the execution and non-revocation by Mr. Kohler of a release agreement in favor of the Company and its shareholders and their respective directors, officers and employees. The
41
foregoing payments shall be in lieu of any other severance benefits to which Mr. Kohler is entitled pursuant to any other severance plans, programs, arrangements, or policies of the Company.
In the event that Mr. Kohler’s employment with the Company is terminated by the Company for “cause”, or by Mr. Kohler other than for “good reason”, the Company shall pay to him (or his legal representative) any earned but unpaid salary amounts and any unreimbursed expenses through his final date of employment with the Company, and the Company shall have no further obligations to him.
During the term of Mr. Kohler’s employment and for a period of: (i) two years following Mr. Kohler’s termination of his employment, (ii) one year following the Company’s termination of his employment, Mr. Kohler is prohibited from engaging in any Business Activities on behalf of any person, firm or corporation, and, subject to certain limitations, he shall not acquire any financial interest in any entity which engages in Business Activities within 200 miles of any of the Company’s offices in operation on the commencement date of the Kohler Employment Agreement and within 100 miles of any office of the Company established after such commencement date. During the period that the foregoing non-competition restriction applies, Mr. Kohler shall not, without the written consent of the Company: (i) solicit any employee of the Company or any of the Company’s affiliates to terminate his employment, or (ii) solicit any customers, partners, resellers, vendors or suppliers of the Company on behalf of any individual or entity other than the Company or its affiliates. As used herein, the term “Business Activities” shall mean conduct of business as a computer and communications technology management and/or consulting business providing information technology networking and data center services, including secure access, VOIP, storage, security, messaging solutions, network and mainframe connectivity consulting, remote network monitoring and management, network and system diagnostics, product maintenance and support, training, and product procurement solutions.
Director Compensation
The following table shows the compensation of each Director for services rendered in that capacity during the year ended March 31, 2007.
| | | | | | | | | | | | | | | | | | | | | | |
Name | | Fees
Earned
or Cash
Paid | | Stock
Awards | | Option
Awards | | Non-Equity
Incentive Plan
Compensation | | Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings | | All Other
Compensation | | Total | |
| | | |
| |
| |
| |
| |
| |
| |
Arnold Wasserman (1) | | $ | 57,375 | | $ | 22,800 | | N/A | | | N/A | | | N/A | | | N/A | | | $ | 80,175 | |
Alvin Nashman (2) | | $ | 44,000 | | $ | 22,800 | | | | | | | | | | | | | | $ | 66,800 | |
William Lerner (3) | | $ | 50,000 | | $ | 22,800 | | | | | | | | | | | | | | $ | 72,800 | |
| | | | | | | | | | | | | | | | | | | | | | |
(1)As of June 20, 2007, Mr. Wasserman held options to purchase 108,000 shares of common stock.
(2)As of June 20, 2007, Dr. Nashman held options to purchase 85,500 shares of common stock.
(3)As of June 20, 2007, Mr. Lerner held options to purchase 85,500 shares of common stock.
Directors who are employees of the Company or who are designated as a director by Pequot or Constellation, receive no compensation for their service as directors. As a result, we did not pay any compensation to Mr. Poch, Mr. Heitzmann, or Mr. Thomas Wasserman for serving on our Board of Directors.
For the first three fiscal quarters of 2007, the Company provided the following cash compensation to directors: each director received an annual fee of $16,000 as compensation for serving on our Board of Directors, plus an additional $1,500 for each board meeting attended in person and $750 for each board meeting attended by telephonic conference call. Each member of the board’s Audit, Compensation and Corporate Governance and Nominating Committees receives $2,500 per year, and each chairman of the committees receives $3,500 (except the chairman of the audit committee who receives $5,000), as compensation for serving on such committees, as well as an additional $1,000 for each committee meeting attended in person and $500 for each committee meeting attended by telephonic conference call, in each case if the committee meeting is held on a day other than a day on which the board itself is meeting.
42
On February 16, 2007 the Company established new director compensation effective from and after January 1, 2007 as follows: each director receives an annual fee of $25,000 as compensation for serving on our Board of Directors. Each such member of the board’s Audit, Compensation and Corporate Governance and Nominating Committees receives $2,500 per year, and each chairman of the committees receives $3,500 (except the chairman of the Audit Committee who receives $5,000), as compensation for serving on such committees.
The Company does not provide non-equity plan compensation or pension benefits to directors; nor does it provide any compensation deferred programs for directors.
The “Fees Earned or Cash Paid” column includes the aggregate of all fees earned or paid in cash for services as a director, including annual retainer fees, committee and/or chairman fees, and meeting fees.
The “Stock Awards” column reports the dollar amount recognized for financial statement reporting purposes for the applicable fiscal year, in accordance with SFAS No. 123(R), for common stock grants in 2007.
Performance Graph
The following graph and table sets forth the annual changes for the five-year period indicated in a theoretical cumulative total shareholder return of an investment of $100 in our common stock and each comparison indices, assuming reinvestment of dividends, if any.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Assumes $100 invested at the close of trading on 3/31/02 in MTM Technologies, Inc. common stock, Standard & Poors Small Cap and Peer Group.
43
Cumulative total return assumes reinvestment of dividends.
| | | | | | | | | | | | | | | | | | | |
| | 3/31/2002 | | 3/31/2003 | | 3/31/2004 | | 3/31/2005 | | 3/31/2006 | | 3/31/2007 | |
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| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | |
MTM Technologies, Inc. | | 100 | | 42.34 | | 105.84 | | 325.56 | | 279.57 | | 90.51 | |
Standard & Poors Small Cap | | 100 | | 74.53 | | 115.63 | | 129.58 | | 159.26 | | 166.15 |
Peer Group | | 100 | | 69.99 | | 93.60 | | 77.66 | | 85.19 | | 88.86 | |
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
Our Current Beneficial Owners
Our Series A Preferred Stock and common stock are the only classes of our voting securities presently outstanding. The Series A Preferred Stock votes on an “as converted” basis, such that each share of Series A Preferred Stock is entitled to that number of votes as equals the number of shares of common stock that the holder of such share of Series A Preferred Stock would receive upon conversion of the share of Series A Preferred Stock, provided that for the Series A-1, A-2, and A-3 shares, such number of votes shall not exceed such number of shares of common stock which would be received based on a conversion price of $1.45 per preferred share and for the Series A-4, A-5, A-6, and A-7 shares shall not exceed one vote per share.
The following table sets forth as of June 20, 2007 the beneficial ownership of the following persons:
| | |
| • | each person known by us to beneficially own 5% or more of our Series A Preferred Stock and/or our common stock, based on filings with the SEC and certain other information; |
| | |
| • | each of our “named executive officers” and directors; and |
| | |
| • | all of our executive officers and directors as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power. In addition, under SEC rules, a person is deemed to be the beneficial owner of securities which may be acquired by such person upon the exercise of options and warrants or the conversion of convertible securities within 60 days from the date on which beneficial ownership is to be determined. Our “named executive officers,” in accordance with SEC rules, are those executive officers who are required to be listed in the Summary Compensation Table provided in Item 11 of this Annual Report on Form 10-K. Except as otherwise indicated in the notes to the Beneficial Ownership Table, we believe that all shares are beneficially owned, and investment and voting power is held by, the persons named as owners; and the address for each beneficial owner listed in the table, except where otherwise noted, is MTM Technologies, Inc., 1200 High Ridge Road, Stamford, Connecticut 06905.
44
| | | | | | | | | | | | | |
| | Series A Preferred Stock | | Common Stock | |
| |
| |
| |
Name of Shareholder | | Amount and Nature
of Beneficial
Ownership | | Percentage of
Outstanding
Shares | | Amount and Nature
of Beneficial
Ownership | | Percentage of
Outstanding
Shares | |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | |
Pequot Capital Management, Inc. (1) | | 21,587,928 | (2) | | 77.2 | % | | 27,652,137 | (3) | | 67.6 | % | |
Gerald A. Poch (4) | | 21,587,928 | (5) | | 77.2 | % | | 27,712,137 | (6) | | 67.8 | % | |
Constellation Group (7) | | 6,379,929 | (8) | | 22.8 | % | | 8,284,829 | (9) | | 38.5 | % | |
Clifford Rucker (10) | | 0 | | | 0.0 | % | | 3,377,566 | | | 25.5 | % | |
Howard A. Pavony | | 0 | | | 0.0 | % | | 795,656 | (11) | | 6.0 | % | |
Steven H. Rothman | | 0 | | | 0.0 | % | | 897,303 | (12) | | 6.7 | % | |
Arnold Wasserman | | 0 | | | 0.0 | % | | 145,750 | (13) | | 1.1 | % | |
William Lerner | | 0 | | | 0.0 | % | | 112,250 | (14) | | 0.8 | % | |
Alvin E. Nashman | | 0 | | | 0.0 | % | | 112,250 | (15) | | 0.8 | % | |
Steven Stringer | | 0 | | | 0.0 | % | | 180,766 | (16) | | 1.3 | % | |
J.W. Braukman III | | 0 | | | 0.0 | % | | 0 | (17) | | 0.0 | % | |
John F. Kohler | | 0 | | | 0.0 | % | | 65,375 | (18) | | 0.5 | % | |
Richard R. Heitzmann (19) | | 0 | (20) | | 0.0 | % | | 0 | (21) | | 0.0 | % | |
Thomas Wasserman (22) | | 0 | (23) | | 0.0 | % | | 0 | (24) | | 0.0 | % | |
All directors and executive officers as a group (persons) | | 27,967,857 | (25) | | 100.0 | % | | 36,613,357 | (26) | | 73.7 | % | |
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(1) | According to a Schedule 13D/A filed with the SEC on February 4, 2004, as amended, Pequot Capital Management, Inc. (“Pequot Capital”) is the investment advisor/manager for both the Pequot Fund and Pequot Partners and holds voting and dispositive power over all shares held by such entities. Arthur J. Samberg is the executive officer, director and controlling shareholder of Pequot Capital. Gerald A. Poch, the chairman of our board of directors since May 21, 2004, and Richard R. Heitzmann, one of our directors since May 21, 2004, are each employees of Pequot Capital and, along with Mr. Samberg, disclaim beneficial ownership of these securities except to the extent of their pecuniary interest. The address for Pequot Capital., as well as the Pequot Fund and Pequot Partners is 500 Nyala Farm Road, Westport, Connecticut 06880. |
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(2) | Represents (a) 3,026,611 shares of Series A-1 Preferred Stock owned of record by the Pequot Fund, (b) 426,653 shares of Series A-1 Preferred Stock owned of record by Pequot Partners, (c) 1,859,203 shares of Series A-2 Preferred Stock owned of record by the Pequot Fund, (d) 262,087 shares of Series A-2 Preferred Stock owned of record by Pequot Partners, (e) 1,787,696 shares of Series A-3 Preferred Stock owned of record by Pequot Fund, (f) 252,006 shares of Series A-3 Preferred Stock owned of record by Pequot Partners, (g) 4,741,606 shares of Series A-4 Preferred Stock owned of record by Pequot Fund, (h) 668,411 shares of Series A-4 Preferred Stock owned of record by Pequot Partners, (i) 2,431,267 shares of Series A-5 Preferred Stock owned of record by Pequot Fund, (j) 342,728 shares of Series A-5 Preferred Stock owned of record by Pequot Partners, (k) 1,784,918 shares of Series A-6 Preferred Stock owned of record by Pequot Fund, (l) 251,615 shares of Series A-6 Preferred Stock owned of record by Pequot Partners, (m) 3,289,425 shares of Series A-7 Preferred Stock owned of record by Pequot Fund, and (n) 463,702 shares of Series A-7 Preferred Stock owned of record by Pequot Partners. Does not include any shares of Series A Preferred Stock that we may issue in lieu of cash dividends on the Series A Preferred Stock for any period after May 21, 2007. Accrual of dividends on the Series A Preferred Stock commenced on May 21, 2006. |
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| (footnotes continued on next page) |
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(footnotes continued from previous page) |
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(3) | Represents (a) the maximum 23,250,091 shares of our common stock issuable upon conversion of all of the Series A Preferred Stock currently owned of record by Pequot Fund and Pequot Partners, as discussed in note (2) to this Beneficial Ownership Table, which shares are convertible within the 60 days following the date of the Beneficial Ownership Table, (b) 3,858,170 shares of our common stock issuable upon exercise of warrants held of record by the Pequot Fund, which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table, (c) 543,876 shares of our common stock issuable upon exercise of warrants held of record by Pequot Partners, which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table. The numbers of shares of our common stock issuable upon conversion of the Series A Preferred Stock and exercise of the warrants which the Pequot Fund and Pequot Partners own of record are subject to anti-dilution adjustment. Does not include any shares of Series A Preferred Stock that we may issue in lieu of cash dividends on the Series A Preferred Stock for any period after May 21, 2007. Accrual of dividends on the Series A Preferred Stock commenced May 21, 2006. |
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(4) | The address for Mr. Poch is c/o Pequot Capital Management, Inc., 500 Nyala Farm Road, Westport, Connecticut 06880. |
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(5) | Includes the shares of Series A Preferred Stock beneficially owned by Pequot Capital Management, Inc. (see note (2) to this Beneficial Ownership Table), of which Mr. Poch is a Managing Director. Mr. Poch disclaims beneficial ownership to the Series A Preferred Stock beneficially owned by Pequot Capital Management, Inc., except to the extent of his pecuniary interest therein. |
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(6) | Represents 60,000 shares of our common stock held by Mr. Poch in his personal account plus the 27,652,137 shares of our common stock beneficially owned by Pequot Capital (see note (3) to this Beneficial Ownership Table), of which Mr. Poch is a Managing Director. Mr. Poch disclaims beneficial ownership to our common stock beneficially owned by Pequot Capital Management, Inc., except to the extent of his pecuniary interest therein. |
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(7) | The Constellation Group consists of (i) Constellation Venture, Constellation Offshore, BSC and CVC (collectively, “Constellation”), (ii) Constellation Ventures Management II, LLC, which is the sole general partner of Constellation Venture, the sole general partner of Constellation Offshore and the sole managing general partner of BSC, (iii) Bear Stearns Asset Management Inc., which is the managing member of CVC and the investment adviser to each Constellation fund, (iv) Clifford Friedman, who is a member of Constellation Ventures Management II, LLC and a senior managing director of Bear Stearns Asset Management Inc., and (v) Bear Stearns Companies Inc., which is the sole managing member of Constellation Ventures Management II, LLC and the parent corporation of Bear Stearns Asset Management Inc. Constellation Ventures Management II, LLC, Bear Stearns Asset Management Inc. and Mr. Friedman share investment and voting control of shares beneficially owned by Constellation Venture, Constellation Offshore and BSC. Bear Stearns Asset Management Inc. exercises sole investment and voting control of the shares beneficially owned by CVC. The address for each entity and person in the Constellation Group is 383 Madison Avenue, New York, New York 10179. |
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(8) | Represents (a) 1,018,292 shares of Series A-3 Preferred Stock owned of record by Constellation Venture, (b) 541,887 shares of Series A-3 Preferred Stock owned of record by Constellation Offshore, (c) 454,094 shares of Series A-3 Preferred Stock owned of record by BSC, (d) 25,428 shares of Series A-3 Preferred Stock owned of record by CVC, (e) 1,453,646 shares of Series A-4 Preferred Stock owned of record by Constellation Venture, (f) 773,562 shares of Series A-4 Preferred Stock owned of record by Constellation Offshore, (g) 648,234 shares of Series A-4 Preferred Stock owned of record by BSC, (h) 36,299 shares of Series A-4 Preferred Stock owned of record by CVC, (i) 244,389 shares of Series A-5 Preferred Stock owned of record by Constellation Venture (j) 130,052 shares of Series A-5 Preferred Stock owned of record by Constellation Offshore, (k) 108,981 shares of Series A-5 Preferred Stock owned of record by BSC, (l) 6,102 shares of Series A-5 Preferred Stock owned of record by CVC, (m) 260,575 shares of Series A-6 Preferred Stock owned of record by Constellation Venture, (n) 138,666 shares of Series A-6 Preferred Stock owned of record by Constellation Offshore, (o) 116,200 shares of Series A-6 Preferred Stock owned of record by BSC, (p) 6,507 shares of Series A-6 Preferred Stock owned of record by CVC, (q) 208,189 |
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(footnotes continued on next page) |
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(footnotes continued from previous page) |
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| shares of Series A-7 Preferred Stock owned of record by Constellation Venture, (r) 110,788 shares of Series A-7 Preferred Stock owned of record by Constellation Offshore, (s) 92,839 shares of Series A-7 Preferred Stock owned of record by BSC, and (t) 5,199 shares of Series A-7 Preferred Stock owned of record by CVC. Does not include any shares of Series A Preferred Stock that we may issue in lieu of cash dividends on the Series A Preferred Stock for any period after May 21, 2007. Accrual of dividends on the Series A Preferred Stock commenced May 21, 2006. |
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(9) | Represents (a) the maximum 7,012,880 shares of our common stock issuable upon conversion of all of the Series A Preferred Stock currently owned of record by the Constellation Group, as discussed in note (8) to this Beneficial Ownership Table, which shares are convertible within the 60 days following the date of the Beneficial Ownership Table, (b) 635,002 shares of our common stock issuable upon exercise of warrants held of record by Constellation Venture, which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table, (c) 337,918 shares of our common stock issuable upon exercise of warrants held of record by Constellation Offshore, which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table, (d) 283,171 shares of our common stock issuable upon exercise of warrants held of record by BSC, which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table, and (e) 15,858 shares of our common stock issuable upon exercise of warrants held of record by CVC, which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table. The numbers of shares of our common stock issuable upon conversion of the Series A Preferred Stock and exercise of the warrants which the Constellation Group owns of record are subject to anti-dilution adjustment. Does not include any shares of Series A Preferred Stock that we may issue in lieu of cash dividends on the Series A Preferred Stock for any period after May 21, 2007. Accrual of dividends on the Series A Preferred Stock commenced May 21, 2006. |
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(10) | The address for Mr. Rucker is c/o Pappas and Lenzo, 114 Union Wharf, Boston, MA 02109. |
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(11) | Included 5,200 shares of our common stock issuable upon exercise of options granted to Mr. Pavony, which are exercisable within the 60 days following the date of this Beneficial Ownership Table. |
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(12) | Includes 109,200 shares of our common stock issuable upon exercise of options granted to Mr. Rothman, which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table. Does not include 4,000 shares of our common stock issuable upon exercise of options, which shares are not exercisable within the 60 days following the date of this Beneficial Ownership table nor does it include 2,000 restricted share units which do not vest within the 60 days following the date of this Beneficial Ownership table, or 1,125 shares of our common stock held by Mr. Rothman’s spouse. |
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(13) | Includes 108,000 shares of our common stock issuable upon exercise of options granted to Mr. Wasserman, which are exercisable within the 60 days following the date of this Beneficial Ownership Table. |
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(14) | Includes 85,500 shares of our common stock issuable upon exercise of options granted to Mr. Lerner, which are exercisable within the 60 days following the date of this Beneficial Ownership Table. |
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(15) | Includes 85,500 shares of our common stock issuable upon exercise of options granted to Dr. Nashman, which are exercisable within the 60 days following the date of this Beneficial Ownership Table. |
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(16) | Represents 175,766 shares of our common stock issuable upon exercise of options granted to Mr. Stringer and 5,000 shares of our common stock issuable upon vesting of restricted stock units granted to Mr. Stringer, which are exercisable in the case of options or vest in the case of restricted stock units within 60 days following the date of this Beneficial Ownership Table. Does not include 193,434 shares of our common stock issuable upon exercise of options, which are not exercisable within the 60 days following the date of this Beneficial Ownership Table nor does it include 60,900 restricted stock units which do not vest within the 60 days following the date of the Beneficial Ownership table. |
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(footnotes continued on next page) |
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(footnotes continued from previous page) |
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(17) | Does not include 250,000 shares of our common stock issuable upon exercise of options granted to Mr. Braukman, which are not exercisable within 60 days following the date of the Beneficial Ownership Table nor does it include 35,000 units which do not vest with 60 days following the date of the Benefit Ownership Table. |
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(18) | Represents 65,375 shares of our common stock issuable upon exercise of options granted to Mr. Kohler, which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table. Does not include 21,625 shares of our common stock issuable upon exercise of options, which shares are not exercisable within the 60 days following the date of this Beneficial Ownership Table nor does it include the 1,500 restricted stock units which do not vest within the 60 days following the date of this Beneficial Ownership Table. |
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(19) | The address for Mr. Heitzmann is c/o Pequot Capital Management, Inc., 500 Nyala Farm Road, Westport, Connecticut 06880. |
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(20) | Does not include the shares of Series A Preferred Stock beneficially owned by Pequot Capital (see note (2) to this Beneficial Ownership Table), of which Mr. Heitzmann is a Senior Vice President. Mr. Heitzmann does not have voting power nor investment power with respect to the Series A Preferred Stock beneficially owned by Pequot Capital. |
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(21) | Does not include the shares of our common stock beneficially owned by Pequot Capital (see note (3) to this Beneficial Ownership Table), of which Mr. Heitzmann is a Senior Vice President. Mr. Heitzmann does not have voting power nor investment power with respect to our common stock beneficially owned by Pequot Capital. |
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(22) | The address for Mr. Wasserman is c/o Bear Stearns Asset Management Inc., 383 Madison Avenue, New York, New York 10179. |
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(23) | Does not include the shares of our Series A Preferred Stock beneficially owned by Constellation Venture, Constellation Offshore, BSC and CVC (see note (8) to this Beneficial Ownership Table). Mr. Wasserman is a Vice President of Constellation Ventures. Mr. Wasserman does not have voting power nor investment power with respect to the Series A Preferred Stock beneficially owned by Constellation Venture, Constellation Offshore, BSC or CVC. |
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(24) | Does not include the shares of our common stock beneficially owned by Constellation Venture, Constellation Offshore, BSC and CVC (see note (9) to this Beneficial Ownership Table). Mr. Wasserman is a Vice President of Constellation Ventures. Mr. Wasserman does not have voting power nor investment power with respect to the common stock beneficially owned by Constellation Venture, Constellation Offshore, BSC or CVC. |
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(25) | Includes those Series A Preferred Stock beneficially owned by our current executives officers and directors, as set forth in notes to this Beneficial Ownership Table. |
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(26) | Includes those common shares beneficially owned by our current executives officers and directors, as set forth in notes to this Beneficial Ownership Table. |
Restated Shareholders’ Agreement
On August 1, 2005 we entered into an Amended and Restated Shareholders’ Agreement (as amended, the “Restated Shareholders Agreement”) with Pequot, Constellation, Howard A. Pavony and Steven H. Rothman. The Restated Shareholders Agreement reflected certain amendments to the original Shareholders’ Agreement entered into by the parties on May 21, 2004, as a condition to the consummation of our sale to the Pequot Fund and Pequot Partners of our Series A-1 Preferred Stock.
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The Restated Shareholders Agreement provides that parties agree to vote, or cause to be voted, all securities of the Company owned by such party or over which such party has voting control so that the number of directors will consist of: (i) the Company’s CEO; (ii) two directors designated by Pequot Capital, or its assignee; (iii) one director designated by Constellation or its assignee; (iv) Mr. Rothman; (v) three “independent” directors, within the meaning of “independent” under the current rules of NASDAQ, selected by the Company’s nominating and corporate governance committee; and (vi) two additional independent directors to be selected by the CEO and reasonably acceptable to the Company’s nominating and corporate governance committee. Under certain circumstances where Pequot holds less than 25% of the securities Pequot purchased pursuant to the Purchase Agreement, the right to designate two directors in (ii) above will be reduced to one director and the above voting provisions will be adjusted in the manner described in the Restated Shareholders’ Agreement. On July 7, 2006, in connection with the termination of his employment with the Company, Mr. Rothman waived the obligation that Pequot and Constellation vote in favor of his appointment as a director and Mr. Rothman did not stand for reelection to the Board of Directors at the Company’s 2006 Annual Meeting of Shareholders.
The obligation of the parties under the Restated Shareholders’ Agreement will expire upon the earliest to occur of (i) the completion of any voluntary or involuntary liquidation or dissolution of the Company, (ii) the sale of all or substantially all of the Company’s assets or of a majority of the outstanding equity of the Company to any person that is not a party to the Restated Shareholders’ Agreement, or (iii) December 10, 2009. Messrs. Rothman and Pavony’s obligation to vote for (i) two directors designated by Pequot Capital, and (ii) one director designated by Constellation or its assignee, shall terminate if (a) Pequot or their assignees own less than 10% of the outstanding Series A Preferred Stock (or shares of our common stock issuable upon conversion thereof) issued to Pequot, (b) Constellation or its assignees own less than 10% of the Series A-3 Preferred Stock (or shares of our common stock issuable upon conversion thereof) issued to Constellation, or (c) any other shareholders that are introduced to the company by Pequot own less than 10% of the shares acquired by such shareholders from the company in a transaction not including a public offering or (ii) if Messrs. Pavony and Rothman individually own less than 10% of the number of shares of common stock owned by such person on December 10, 2004.
The Restated Shareholders Agreement also contains provisions (i) restricting the transfer of any securities by shareholders party to the Restated Shareholders Agreement in certain circumstances and (ii) granting the Investors certain rights of first refusal and tag-along rights with respect to any dispositions by Messrs. Pavony and Rothman of their shares of common stock.
Item 13.Certain Relationships and Related Party Transactions and Director Independence
During fiscal 2007 the Company paid approximately $123,000 in fees to Tectura Corporation (“Tectura”) for certain consulting services related to the implementation and management of the Company’s accounting systems. Funds controlled by Pequot Capital hold more than 10% of the equity securities of Tectura and Gerald A. Poch, Non-executive Chairman of the Board of the Company, is a director of Tectura.
During fiscal 2007 the Company paid approximately $970,000 in fees to Savvis, Inc. (“Savvis”) for certain technology and data center services. Members of the Constellation Group or funds affiliated with them held, during fiscal 2007, more than 10% of the preferred equity securities of Savvis and Clifford Friedman, who is a member of Constellation Ventures Management II, LLC and a senior managing director of Bear Stearns Asset Management Inc., was a director of Savvis.
We are a party to a lease agreement, dated December 31, 2004, for our facility located in Peabody, MA. We became a party to this lease as part of the December 2005 acquisition of Nexl. The landlord for this facility is C&S Realty Peabody Trust, a nominee trust controlled by Clifford Rucker and his affiliates. Mr. Rucker owns approximately 26% of our outstanding common stock and was formerly the president of our Northeast region. The lease covers approximately 38,000 square feet, has a monthly rent of approximately $35,000, terminates in December 2009, and is subject to our option to renew for an additional five year term.
Mr. Rucker also operates a lease financing company called Nexl Financial Services, Inc. (“Nexl Financial”). From time to time, Nexl Financial has provided lease financing to certain of our clients. During the year ended March 31, 2007 Nexl Financial provided equipment leasing to our clients on one occasion for equipment having a purchase price of approximately of $85,000.
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On August 1, 2005, we entered into a consulting agreement with Howard Pavony in connection with the termination of his employment with the Company. This agreement provides that Mr. Pavony will perform certain consulting services for us until May 21, 2007 in exchange for an annual consulting fee of $265,000, plus an automobile allowance and health benefits. Mr. Pavony beneficially owns approximately 6% of our outstanding common stock.
On July 7, 2006, we entered into a consulting agreement with Steven Rothman in connection with the termination of his employment with the Company. This agreement provides that Mr. Rothman will perform certain consulting services for us until March 31, 2008. We will pay Mr. Rothman an annual consulting fee of $265,000, plus health benefits through December 31, 2007. Thereafter, we will pay Mr. Rothman certain transaction fees in the event we complete an acquisition introduced to the Company by Mr. Rothman. Mr. Rothman beneficially owns approximately 7% of our outstanding common stock.
On April 26, 2007, in connection with the termination of his employment with the Company, we entered into a consulting agreement with Francis J. Alfano and Consultant. Mr. Alfano is the sole member of the Consultant. This agreement provides that Consultant will perform certain consulting services for us until June 30, 2009. For services rendered under the Alfano Consulting Service Agreement, the Company paid or will pay Consultant (i) a signing bonus of $58,333.33 on May 15, 2007 in accordance with the normal payroll practices of the Company and (ii) fees at the rate of $29,166.67 per month, payable in arrears in twice monthly payments with the initial payment on May 15, 2007 in accordance with the normal payroll practices of the Company, provided that a lump sum payment on March 31, 2008 shall be made which shall include fees from April 1, 2008 through March 31, 2009. At the time of this transaction Mr. Alfano was Chief Executive Officer and a Director of the Company. As a condition to entering into this Agreement, Mr. Alfano resigned from the Board of Directors.
Our independent directors committee, which consists only of directors who are neither members of the management nor associated with Pequot or Constellation (or other similar investors) considers, reviews and provides guidance and oversight regarding transactions or other situations in which other board members, who are either members of management or employees of Pequot or Constellation (or other similar investors), have interests that may be in addition to, or different from, the interests of the shareholders in general. Additionally, we have adopted a Code of Business Conduct and Ethics which mandates that directors, officers and employees of the Company must avoid any conflicts of interest between their personal interests and the Company’s interests. Other than as set forth above, our Board does not have a specific policy regarding review of transactions involving directors, management or other related parties. However, we discourage such transactions and have historically limited the approval of such transactions to specific and rare instances with the full disclosure to, and approval of, the disinterested members of our board.
Item 14.Principal Accountant Fees and Services
Principal Accounting Fees and Services
The following table sets forth the fees billed by our independent accountants for each of our last two fiscal years for the categories of services indicated.
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| | 2007 | | 2006 | |
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Audit fees(1) | | $ | 320,000 | | $ | 300,000 | |
Audit-related fees(2) | | | — | | | — | |
Tax fees(3) | | | — | | | — | |
All other fees(4) | | | 3,003 | | | 68,200 | |
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(1) | Consists of fees billed for the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. |
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(2) | Consists of assurance and related services that are reasonably related to the performance of the audit and reviews of our financial statements and are not included in “audit fees” in this table. The services provided by our accountants within this category consisted of advice relating to SEC matters and employee benefit matters. |
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(3) | Consists of professional services rendered by a company aligned with our principal accountant for tax compliance, tax advice and tax planning. |
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(4) | The services provided by our accountants within this category consisted of advice and other services relating to our transaction with the Pequot entities and other matters. |
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| Such fees have been pre-approved by our audit committee. |
Audit Committee Pre-Approval Policy
In addition to retaining Goldstein Golub Kessler LLP to audit our consolidated financial statements for the years ended March 31, 2007 and 2006, we retained Goldstein Golub Kessler to provide other auditing and advisory services to us in our 2007 and 2006 fiscal years. We understand the need for Goldstein Golub Kessler to maintain objectivity and independence in its audit of our financial statements. To minimize relationships that could appear to impair the objectivity of Goldstein Golub Kessler, our audit committee has restricted the non-audit services that Goldstein Golub Kessler and its aligned company may provide to us primarily to tax services and merger and acquisition due diligence and audit services, and has determined that we would obtain even these non-audit services from Goldstein Golub Kessler and/or its aligned company only when the services offered by Goldstein Golub Kessler and its aligned company are more effective or economical than services available from other service providers.
The audit committee also has adopted policies and procedures for pre-approving all non-audit work performed by Goldstein Golub Kessler and any other accounting firms we may retain. Specifically, the audit committee has pre-approved the use of Goldstein Golub Kessler and its aligned company for detailed, specific types of services within the following categories of non-audit services: merger and acquisition due diligence and audit services; tax services; internal control reviews; and reviews and procedures that we request Goldstein Golub Kessler to undertake to provide assurances of accuracy on matters not required by laws or regulations. In each case, the audit committee has also set a specific annual limit on the amount of such services which we would obtain from Goldstein Golub Kessler, and has required management to report the specific engagements to the committee on a quarterly basis and to obtain specific pre-approval from the audit committee for all engagements.
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PART IV
Item 15.Exhibits, Financial Statements Schedules.
(a) Exhibits
Set forth below is a list of the exhibits to this Annual Report on Form 10-K.
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Exhibit
Number | | Description |
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2.1 | — | Merger Agreement, dated August 16, 2005, among NEXL, Inc., a Massachusetts corporation, MTM Technologies (Massachusetts), LLC, a Delaware limited liability company, MTM Technologies, Inc., a New York corporation and the sole shareholder of Merger Subsidiary, and Clifford L. Rucker* |
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2.2 | — | Stock Purchase Agreement, dated January 27, 2005, by and among Info Systems, Inc., Mark Stellini, Emidio F. Stellini, Jr., Jay Foggy, Richard Roux, Jennifer McKenzie and MTM Technologies, Inc.* |
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2.3 | — | Asset Purchase Agreement, dated December 1, 2004, by and among Vector ESP, Inc., Vector ESP Management, Inc. and Vector Global Services, Inc. and MTM Technologies, Inc.* |
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2.4 | — | Asset Purchase Agreement, dated September 17, 2004 by and among Network Catalyst, Inc., William Corbin, Rocci J. Della Maggiore and MTM Technologies, Inc.* |
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3.1 | — | Restated Certificate of Incorporation, as amended |
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3.2 | — | Amended and Restated By-Laws* |
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4.1 | — | Purchase Agreement, dated May 24, 2007, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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4.2 | — | Purchase Agreement, dated March 29, 2007, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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4.3 | — | Amended and Restated Shareholders’ Agreement, dated August 1, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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4.4 | — | Amended and Restated Registration Rights Agreement, dated August 1, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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4.5 | — | Amendment No. 1 to the Amended and Restated Registration Rights Agreement, dated November 23, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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4.6 | — | Amendment No. 2 to the Amended and Restated Registration Rights Agreement, dated March 29, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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4.7 | — | Amendment No. 3 to the Amended and Restated Registration Rights Agreement, dated April 9, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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4.8 | — | Amendment No. 4 to the Amended and Restated Registration Rights Agreement, dated May 24, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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4.9 | — | Purchase Agreement, dated January 29, 2004, among Micros-to-Mainframes, Inc., Pequot Private Equity Fund III, L.P. and Pequot Offshore Private Equity Partners III, L.P.* |
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4.10 | — | Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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4.11 | — | Amendment No. 1 to the Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC, Partners II LLC* |
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4.12 | — | Amendment No. 2 to the Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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4.13 | — | Form of the Series A-7 Warrant Certificate* |
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4.14 | — | Form of the Series A-6 Warrant Certificate* |
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4.15 | — | Form of the Series A-5 Warrant Certificate* |
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4.16 | — | Form of the Series A-4 Warrant Certificate* |
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4.17 | — | Form of the Series A-3 Warrant Certificate* |
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4.18 | — | Warrant Certificate, evidencing 438,225 warrants registered in the name of Pequot Private Equity Fund III, LLP* |
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4.19 | — | Warrant Certificate, evidencing 61,775 warrants registered in the name of Pequot Offshore Private Equity Partners III, L.P.* |
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4.20 | — | Warrant Certificate, evidencing 350,580 warrants registered in the name of Pequot Private Equity Fund III, L.P.* |
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4.21 | — | Warrant Certificate, evidencing 49,420 warrants registered in the name of Pequot Offshore Private Equity Partners III, L.P.* |
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4.22 | — | Warrant Certificate issued to National Electrical Benefit Fund* |
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4.23 | — | Series A-5 Voting Agreement, dated November 23, 2005* |
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4.24 | — | Columbia Voting Agreement, dated November 4, 2005* |
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10.1 | — | Waiver Letter, dated February 14, 2007, between MTM Technologies, Inc. and the CIT Group/Business Credit, Inc.* |
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10.2 | — | Waiver Letter dated December 9, 2005, by Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC* |
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10.3 | — | Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, LLC Investment Management as Investment Manager and National Electrical Benefit Fund as Lender* |
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10.4 | — | Financing Agreement among the CIT Group/Business Credit, Inc., the Lenders that are parties thereto, MTM Technologies, Inc., and its subsidiaries that are parties thereto, dated as of June 8, 2005* |
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10.5 | — | Loan and Security Agreement among Textron Financial Corporation, MTM Technologies, Inc. MTM Technologies (California) Inc., MTM Technologies (Texas) Inc., MTM Technologies (US), Inc., and Info Systems, Inc., dated as of June 8, 2005* |
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10.6 | — | Micros-to-Mainframes, Inc. 2002 Long-Term Performance Plan* |
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10.7 | — | Micros-to-Mainframes, Inc. 2004 Equity Incentive Plan* |
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10.8 | — | Micros-to-Mainframes, Inc. 2000 Long-Term Performance Plan* |
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10.9 | — | Micros-to-Mainframes, Inc. 1998 Stock Option Plan* |
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10.10 | — | Micros-to-Mainframes, Inc. 1996 Stock Option Plan* |
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10.11 | — | Micros-to-Mainframes, Inc. 1993 Employee Stock Option Plan* |
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10.12 | — | MTM Technologies, Inc. Associates Stock Purchase Plan* |
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10.13 | — | Consulting Agreement, dated April 26, 2007, between MTM Technologies, Inc. and Francis J. Alfano and Tory Ventures LLC* |
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10.14 | — | Agreement and General Release, dated April 26, 2007, between MTM Technologies, Inc. and Francis J. Alfano* |
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10.15 | — | Letter Agreement, dated September 28, 2006 between MTM Technologies, Inc. and J.W. Braukman, III* |
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10.16 | — | Consulting Service Agreement, dated September 13, 2006 between MTM Technologies, Inc. and Michael El-Hillow* |
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10.17 | — | Employment Agreement, dated August 10, 2006 by and between MTM Technologies, Inc. and Steven Stringer* |
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10.18 | — | Consulting Agreement, dated July 7, 2006 between MTM Technologies, Inc. and Steven Rothman* |
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10.19 | — | Letter Agreement, dated July 7, 2006 between MTM Technologies, Inc. and Steven Rothman* |
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10.20 | — | Employment Agreement, dated June 28, 2006, between MTM Technologies, Inc. and Francis J. Alfano* |
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10.21 | — | Severance Letter, dated December 12, 2005, between MTM Technologies, Inc. and Michael El-Hillow* |
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10.22 | — | Waiver and Amendment Letter, dated June 21, 2007, between MTM Technologies, Inc. and the CIT Group/Business Credit, Inc.* |
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10.23 | — | Waiver and Amendment Letter, dated June 21, 2007, between MTM Technologies, Inc. and the Textron Financial Corporation.* |
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10.24 | — | Lease Agreement, dated August 15, 2005, between 1200 High Ridge Company, LLC and MTM Technologies, Inc. * |
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10.25 | — | Form of Employee Stock Option Agreement* |
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10.26 | — | Form of Employee Restricted Stock Unit Agreement* |
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10.27 | — | Form of Executive Stock Option Agreement* |
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10.28 | — | Form of Executive Restricted Stock Unit Agreement* |
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14.1 | — | Code of Ethics* |
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21.1 | — | Subsidiaries of MTM Technologies, Inc. |
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23.1 | — | Consent from Goldstein Golub Kessler LLP |
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31.1 | — | Certification pursuant to Exchange Act Rule 13a-14(a) of Steven Stringer |
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31.2 | — | Certification pursuant to Exchange Act Rule 13a-14(a) of J.W. Braukman III |
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32.1 | — | Certification pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of Steven Stringer |
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32.2 | — | Certification pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of J.W. Braukman III |
* Incorporated by Reference. See Exhibit Index.
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Financial Statements and Schedules
We have provided in Item 8 to this Annual Report on Form 10-K a complete list of the financial statements being filed with this Form 10-K. There are no financial statement schedules applicable to this Form 10-K.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
MTM TECHNOLOGIES, INC.
We have audited the accompanying consolidated balance sheets of MTM Technologies, Inc. and Subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2007. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 financial position of MTM Technologies, Inc. and Subsidiaries as of March 31, 2007 and 2006 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2007 in conformity with United States generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective April 1, 2006, the Company changed its method of accounting for share-based payments to adopt Statement of Financial Accounting Standards No. 123(R),Share-Based Payments.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
June 27, 2007
F-1
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| | | | | | | |
| | March 31, | |
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| | 2007 | | 2006 | |
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ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash | | $ | 4,439 | | $ | 18,154 | |
Accounts receivable-trade, net of allowance of $1,552 and $977, respectively | | | 46,543 | | | 48,930 | |
Inventories | | | 2,210 | | | 3,762 | |
Prepaid expenses and other current assets | | | 5,389 | | | 4,740 | |
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|
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|
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Total current assets | | | 58,581 | | | 75,586 | |
Property and equipment, net | | | 16,005 | | | 15,942 | |
Goodwill | | | 69,987 | | | 67,134 | |
Identified intangible assets, net of amortization | | | 3,809 | | | 6,574 | |
Other assets | | | 1,079 | | | 1,017 | |
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|
| |
|
| |
Total assets | | $ | 149,461 | | $ | 166,253 | |
| |
|
| |
|
| |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
Current liabilities: | | | | | | | |
Secured revolving credit facilities | | $ | 10,692 | | $ | 14,916 | |
Inventory financing agreements | | | 11,358 | | | 5,641 | |
Current portion of promissory note | | | — | | | 667 | |
Accounts payable | | | 30,737 | | | 28,131 | |
Accrued expenses | | | 11,207 | | | 9,596 | |
Deferred revenue | | | 6,477 | | | 5,370 | |
Current portion of capital lease obligations | | | 548 | | | 561 | |
| |
|
| |
|
| |
Total current liabilities | | | 71,019 | | | 64,882 | |
| |
|
| |
|
| |
Secured promissory note | | | 23,507 | | | 22,947 | |
Non-current portion of capital lease obligations | | | 425 | | | 1,011 | |
Other long-term liabilities | | | 5,191 | | | 695 | |
| |
|
| |
|
| |
Total liabilities | | | 100,142 | | | 89,535 | |
| |
|
| |
|
| |
| | | | | | | |
Shareholders’ equity: | | | | | | | |
Series A preferred stock, $.001 par value; 33,500,000 and 31,000,000 shares authorized; issued and outstanding 22,645,766 and 20,024,832 shares at March 31, 2007 and March 31, 2006, respectively | | | 54,307 | | | 49,883 | |
Common stock, $.001 par value; 80,000,000 shares authorized; issued and outstanding 11,920,919 and 11,490,537 shares, respectively | | | 12 | | | 12 | |
Additional paid-in capital | | | 54,315 | | | 54,121 | |
Accumulated deficit | | | (59,315 | ) | | (27,298 | ) |
| |
|
| |
|
| |
Total shareholders’ equity | | | 49,319 | | | 76,718 | |
| |
|
| |
|
| |
Total liabilities and shareholders’ equity | | $ | 149,461 | | $ | 166,253 | |
| |
|
| |
|
| |
See Notes to Consolidated Financial Statements
F-2
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | | | | | | | | | |
| | Year Ended March 31, | |
| |
| |
| | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
| | | |
Net revenues: | | | | | | | | | | |
Products | | $ | 206,917 | | $ | 175,851 | | $ | 73,161 | |
Services | | | 68,061 | | | 60,868 | | | 28,033 | |
| |
|
| |
|
| |
|
| |
Total net revenues | | | 274,978 | | | 236,719 | | | 101,194 | |
| |
|
| |
|
| |
|
| |
Costs and expenses: | | | | | | | | | | |
Cost of products sold | | | 176,284 | | | 150,783 | | | 64,246 | |
Cost of services provided | | | 43,507 | | | 36,580 | | | 18,160 | |
Selling, general and administrative expenses | | | 75,167 | | | 52,164 | | | 22,708 | |
Restructuring | | | 6,056 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Total costs and expenses | | | 301,014 | | | 239,527 | | | 105,114 | |
| |
|
| |
|
| |
|
| |
Loss from operations | | | (26,036 | ) | | (2,808 | ) | | (3,920 | ) |
| |
|
| |
|
| |
|
| |
Other income(expense): | | | | | | | | | | |
Interest expense, net of interest income | | | (5,108 | ) | | (5,425 | ) | | (4,686 | ) |
Other expenses | | | (446 | ) | | — | | | — | |
| |
|
| |
|
| |
|
| |
Loss before income tax provision | | | (31,590 | ) | | (8,233 | ) | | (8,606 | ) |
| | �� | | | | | | | | |
Provision for income taxes | | | 427 | | | 241 | | | 13 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net loss | | $ | (32,017 | ) | $ | (8,474 | ) | $ | (8,619 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Preferred stock dividend | | | (3,168 | ) | | — | | | — | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net loss available to common shareholders | | $ | (35,185 | ) | $ | (8,474 | ) | $ | (8,619 | ) |
| |
|
| |
|
| |
|
| |
Net loss per common share: | | | | | | | | | | |
Basic and Diluted | | $ | (3.00 | ) | $ | (0.99 | ) | $ | (1.51 | ) |
| |
|
| |
|
| |
|
| |
Weighted average number of common shares outstanding: | | | | | | | | | | |
Basic and Diluted | | | 11,741 | | | 8,542 | | | 5,714 | |
| |
|
| |
|
| |
|
| |
See Notes to Consolidated Financial Statements
F-3
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Additional
Paid-in
Capital | | Accumulated
Deficit | | | |
| |
| |
| | | | | |
| | Number of
Shares | | Amount | | Number of
Shares | | Amount | | | | Total | |
| |
| |
| |
| |
| |
| |
| |
| |
Balance at March 31, 2004 | | | | | | | | | 4,723 | | $ | 5 | | $ | 15,364 | | $ | (10,205 | ) | $ | 5,164 | |
Issuance of preferred stock | | | 9,102 | | $ | 16,997 | | | | | | | | | 6,776 | | | | | | 23,773 | |
Issuance of common stock to employees pursuant to exercise of options | | | | | | | | | 59 | | | — | | | 87 | | | | | | 87 | |
Issuance of common stock in connection with acquisitions | | | | | | | | | 2,567 | | | 3 | | | 7,115 | | | | | | 7,118 | |
Stock-based compensation | | | | | | | | | | | | | | | 10 | | | | | | 10 | |
Issuance of common stock for consulting services | | | | | | | | | 27 | | | — | | | 45 | | | | | | 45 | |
Net loss | | | | | | | | | | | | | | | | | | (8,619 | ) | | (8,619 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at March 31, 2005 | | | 9,102 | | | 16,997 | | | 7,376 | | | 8 | | | 29,397 | | | (18,824 | ) | | 27,578 | |
Issuance of preferred stock | | | 5,847 | | | 16,387 | | | | | | | | | 2,182 | | | | | | 18,569 | |
Series A notes converted to preferred stock | | | 5,076 | | | 16,499 | | | | | | | | | | | | | | | 16,499 | |
Warrant and future rights liability converted to equity | | | | | | | | | | | | | | | 5,043 | | | | | | 5,043 | |
Warrants issued with secured promissory note | | | | | | | | | | | | | | | 2,240 | | | | | | 2,240 | |
Issuance of common stock to employees pursuant to exercise of options | | | | | | | | | 121 | | | — | | | 183 | | | | | | 183 | |
Issuance of common stock in connection with acquisitions | | | | | | | | | 3,958 | | | 4 | | | 14,843 | | | | | | 14,847 | |
Stock-based compensation | | | | | | | | | | | | | | | 139 | | | | | | 139 | |
Issuance of common stock to Board | | | | | | | | | 36 | | | — | | | 94 | | | | | | 94 | |
Net loss | | | | | | | | | | | | | | | | | | (8,474 | ) | | (8,474 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at March 31, 2006 | | | 20,025 | | | 49,883 | | | 11,491 | | | 12 | | | 54,121 | | | (27,298 | ) | | 76,718 | |
Issuance of preferred stock | | | 2,020 | | | 2,610 | | | | | | | | | 390 | | | | | | 3,000 | |
Dividends on Series A preferred stock | | | 601 | | | 1,814 | | | | | | | | | (3,168 | ) | | | | | (1,354 | ) |
Repurchase of common stock | | | | | | | | | (145 | ) | | — | | | (362 | ) | | | | | (362 | ) |
Issuance of common stock to employees pursuant to employee stock purchase plan | | | | | | | | | 67 | | | — | | | 162 | | | | | | 162 | |
Issuance of common stock to employees pursuant to exercise of options | | | | | | | | | 295 | | | — | | | 387 | | | | | | 387 | |
Issuance of common stock in connection with acquisition | | | | | | | | | 62 | | | — | | | 232 | | | | | | 232 | |
Issuance of common stock for promissory note payment | | | | | | | | | 106 | | | | | | 335 | | | | | | 335 | |
Stock-based compensation | | | | | | | | | | | | | | | 2,218 | | | | | | 2,218 | |
Issuance of common stock to Board | | | | | | | | | 45 | | | — | | | | | | | | | — | |
Net loss | | | | | | | | | | | | | | | | | | (32,017 | ) | | (32,017 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at March 31, 2007 | | | 22,646 | | $ | 54,307 | | | 11,921 | | $ | 12 | | $ | 54,315 | | $ | (59,315 | ) | $ | 49,319 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
See Notes to Consolidated Financial Statements
F-4
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | |
| | Year Ended March 31, | |
| |
| |
| | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
OPERATING ACTIVITIES: | | | | | | | | | | |
Net loss | | $ | (32,017 | ) | $ | (8,474 | ) | $ | (8,619 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | |
Provision for uncollectible accounts | | | 828 | | | (222 | ) | | — | |
Depreciation | | | 6,596 | | | 3,573 | | | 1,731 | |
Amortization of intangibles | | | 2,765 | | | 2,474 | | | 827 | |
Amortization of debt discount | | | 560 | | | 3,102 | | | 3,882 | |
Non-cash interest on secured subordinated promissory note | | | 2,120 | | | 263 | | | — | |
Amortization of debt issuance costs | | | 534 | | | — | | | — | |
Stock-based compensation | | | 2,218 | | | 233 | | | 11 | |
Non-cash restructuring costs | | | 450 | | | — | | | — | |
Gain on fair value of warrants | | | — | | | (1,292 | ) | | (462 | ) |
Changes in operating assets and liabilities net of effects of acquisitions: | | | | | | | | | | |
(Increase)decrease in assets: | | | | | | | | | | |
Accounts receivable | | | 1,557 | | | (3,283 | ) | | 923 | |
Inventories | | | 1,252 | | | (1,238 | ) | | (431 | ) |
Prepaid expenses and other current assets | | | (1,197 | ) | | (551 | ) | | (1,038 | ) |
Other assets | | | (55 | ) | | (630 | ) | | 498 | |
Increase(decrease) in liabilities: | | | | | | | | | | |
Accounts payable and accrued expenses | | | 3,084 | | | 293 | | | (8,316 | ) |
Deferred revenue | | | 1,005 | | | (445 | ) | | (1,422 | ) |
| |
|
| |
|
| |
|
| |
Net cash used in operating activities | | | (10,300 | ) | | (6,197 | ) | | (12,416 | ) |
| |
|
| |
|
| |
|
| |
INVESTING ACTIVITIES: | | | | | | | | | | |
Acquisition of businesses, net of cash acquired of $35 | | | (520 | ) | | (14,044 | ) | | (27,857 | ) |
Additions to property and equipment | | | (6,644 | ) | | (9,636 | ) | | (1,624 | ) |
Adjustment to purchase price related to acquisition of businesses | | | — | | | (2,942 | ) | | — | |
Decrease(Increase) in restricted cash | | | — | | | 1,000 | | | (1,000 | ) |
| |
|
| |
|
| |
|
| |
Net cash used in investing activities | | | (7,164 | ) | | (25,622 | ) | | (30,481 | ) |
| |
|
| |
|
| |
|
| |
FINANCING ACTIVITIES: | | | | | | | | | | |
(Repayment) borrowing on secured revolving credit facility | | | (4,223 | ) | | 540 | | | 7,695 | |
Borrowing (repayment) on inventory financing | | | 5,717 | | | 2,712 | | | (526 | ) |
Proceeds from issuance of preferred stock, net | | | 3,000 | | | 18,569 | | | 23,818 | |
Proceeds from issuance of secured promissory note | | | — | | | 24,319 | | | — | |
Proceeds from issuance of subordinated promissory notes | | | — | | | — | | | 16,000 | |
Repurchase of common stock | | | (362 | ) | | — | | | — | |
Common stock issued from stock options exercised | | | 387 | | | 183 | | | 87 | |
Common stock issued under employee stock purchase plan | | | 162 | | | — | | | — | |
Principal payments on capital lease obligations | | | (599 | ) | | (318 | ) | | (87 | ) |
Principal payments on promissory note | | | (333 | ) | | (42 | ) | | (450 | ) |
| |
|
| |
|
| |
|
| |
Net cash provided by financing activities | | | 3,749 | | | 45,963 | | | 46,537 | |
| |
|
| |
|
| |
|
| |
Net (decrease) increase in cash | | | (13,715 | ) | | 14,144 | | | 3,640 | |
Cash at beginning of period | | | 18,154 | | | 4,010 | | | 370 | |
| |
|
| |
|
| |
|
| |
Cash at end of period | | $ | 4,439 | | $ | 18,154 | | $ | 4,010 | |
| |
|
| |
|
| |
|
| |
Supplemental disclosures of cash flow information: | | | | | | | | | | |
Cash paid during the year for: | | | | | | | | | | |
Interest | | $ | 2,358 | | $ | 1,443 | | $ | 568 | |
Income taxes | | $ | 288 | | $ | 18 | | $ | — | |
Supplemental disclosure of non-cash financing activities: | | | | | | | | | | |
Exchange of convertible subordinated promissory notes for Series A Preferred Stock | | $ | — | | $ | 16,499 | | $ | — | |
Series A Preferred Stock dividend accrued | | $ | 1,354 | | $ | — | | $ | — | |
Reclassification of warrant and future rights liability to additional paid-in capital | | $ | — | | $ | 5,043 | | $ | — | |
Equipment acquired by capital lease | | $ | — | | $ | 1,440 | | $ | — | |
Supplemental disclosure of non-cash investing activities: | | | | | | | | | | |
Adjustment to purchase price of subsidiary consisting of common stock | | $ | — | | $ | 4,107 | | $ | — | |
Common stock issued for promissory note payment | | $ | 335 | | $ | — | | $ | — | |
Common stock issued in acquisition | | $ | 232 | | $ | 10,740 | | $ | 7,118 | |
Non-cash adjustments to goodwill | | $ | 2,333 | | $ | 15,958 | | $ | 2,166 | |
Additional liability incurred to settle contingent consideration relative to acquisitions | | $ | 1,385 | | $ | — | | $ | — | |
See Notes to Consolidated Financial Statements
F-5
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Nature of Operations
The accompanying consolidated financial statements include the accounts of MTM Technologies, Inc. and its wholly owned subsidiaries, MTM Technologies (US), Inc., Info Systems, Inc. and MTM Technologies (Massachusetts) LLC, collectively referred to as (the “Company”). All significant intercompany accounts and transactions have been eliminated.
The Company is a leading national provider of sophisticated information technology solutions services including information technology networking, communications, software applications and data center services, including secure access, voice over internet protocol, storage, security and messaging solutions. The Company serves as a single source provider of advanced technology solutions to support its clients’ mission-critical business processes. The Company’s clients consist of divisions of Global 2000 corporations, middle market corporations (generally those with $50 million to $1 billion in revenues), municipal, state and federal government agencies, and educational institutions. The Company serves clients in most major metropolitan markets in the United States.
The Company purchases software, computers and related products directly from suppliers as either an authorized dealer or a value-added reseller. The Company has entered into authorization agreements with major suppliers, which can be terminated by the suppliers, with or without cause, upon short notice, or immediately upon the occurrence of certain events. The sales of products from the Company’s three largest suppliers accounted for 26%, 14% and 11% of all product sales for the year ended March 31, 2007. The sales of products from the Company’s two largest suppliers accounted for 16% and 15% of all product sales for the year ended March 31, 2006. The sales of products from the Company’s four largest suppliers accounted for 27%, 14%, 13% and 12% of all product sales for the year ended March 31, 2005. The Company believes that it has excellent relationships with its major suppliers; however, there can be no assurance that the aforementioned agreements will be renewed. If these agreements are not renewed, the Company may have difficulty in obtaining inventory at an amount to allow for profitable resale at a competitive market price.
Liquidity
The Company sustained net losses during the years ended March 31, 2007, 2006, and 2005 and had a net working capital deficit of $12.4 million for the year ended March 31, 2007. Net of the Company’s secured credit facilities, working capital was $9.6 million. The Company has made a concerted effort in the current fiscal year to improve its working capital position. These have included issuing additional shares of preferred stock, a $6.0 million restructuring, other cost control initiatives, and the discontinuation of certain sales of low margin products. The Company anticipates that its available cash including the proceeds received from the issuance of preferred stock in the first quarter of fiscal 2008 together with its credit facilities, will provide the Company with the capital necessary to meet its obligations as they come due in the foreseeable future.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Financial Statement Reclassification
Certain prior year’s balances have been reclassified to conform to the March 31, 2007 presentation.
F-6
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company estimates the allowance for doubtful accounts based on historical experience, customer credit risk and application of the specific identification method. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible.
Information relating to the allowance for doubtful accounts is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | Beginning of
Year | | Additions (a) | | Deductions (b) | | End of Year | |
| |
| |
| |
| |
| |
| | | | | | | | | |
Year ended March 31, | | | | | | | | | | | | | | | | | | | | | |
2005 | | | $ | 233 | | | | $ | 615 | | | | $ | 107 | | | | $ | 741 | | |
2006 | | | | 741 | | | | | 788 | | | | | 552 | | | | | 977 | | |
2007 | | | $ | 977 | | | | $ | 828 | | | | $ | 253 | | | | $ | 1,552 | | |
| |
|
(a) | Includes bad debt provisions and allowance assumed through acquisitions. |
| |
(b) | Includes write-offs for uncollectible accounts receivables and net changes to allowance estimates. |
Inventories
Inventories, comprised principally of computer hardware and software, are stated at the lower of cost or market using the first-in, first-out method.
Fair Value of Financial Instruments
The estimated fair value of amounts reported in the consolidated financial statements has been determined by using available market information and appropriate valuation methodologies. All current assets are carried at their cost and current liabilities are recorded at their contract amount, which approximates fair value because of their short term nature. The carrying value of short-term financing arrangements and long-term debt obligations approximates fair value because interest rates over the relative term of these instruments approximate current market interest rates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash 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 did not have any customer at March 31, 2007 or 2006 which accounted for more than 10% of its total accounts receivable. At March 31, 2007 the combined top two customer balances accounted for approximately 12% of the Company’s total accounts receivable. Credit is extended to customers based on an evaluation of their financial condition in an effort to reduce the risk of loss. Collateral is generally not required.
Property and Equipment
Property and equipment, which includes assets under capital leases, are stated at cost and are depreciated using the straight-line method over estimated useful lives, generally ranging from three to seven years. Leasehold improvements are amortized over the shorter of the lease term or economic life of the related improvement. Expenditures which extend the useful lives of the existing assets are capitalized. The cost of maintenance and repairs are charged to operations as incurred.
F-7
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company incurred approximately $6.6 million, $3.6 million and $1.7 million of depreciation and amortization expense for the years ended March 31, 2007, 2006 and 2005, respectively.
The following is a summary of property and equipment held by the Company at:
| | | | | | | |
| | March 31, | |
| |
| |
(in thousands) | | 2007 | | 2006 | |
| |
| |
| |
| | | | | | | |
Furniture, fixtures and office equipment | | $ | 15,832 | | $ | 14,069 | |
Software and software development costs | | | 16,366 | | | 12,425 | |
Capitalized lease equipment | | | 1,650 | | | 2,036 | |
Leasehold Improvements | | | 2,410 | | | 1,921 | |
Vehicles | | | 790 | | | 247 | |
| |
|
| |
|
| |
| | | 37,048 | | | 30,698 | |
Less: accumulated depreciation and amortization | | | 21,043 | | | 14,756 | |
| |
|
| |
|
| |
Property and equipment, net | | $ | 16,005 | | $ | 15,942 | |
| |
|
| |
|
| |
Software Development Costs
The cost of software developed for internal use incurred during the preliminary project stage is expensed as incurred. Direct costs incurred during the application development stage are capitalized. Costs incurred during the post implementation/operation stage are expensed as incurred. Capitalized software development costs are amortized on a straight-line basis over their estimated useful lives, generally three years.
Goodwill
Goodwill is tested for impairment on an annual basis and more frequently if facts and circumstances indicate goodwill carrying values exceed estimated fair values. Because the Company has fully integrated it’s acquisitions, it has determined that it has only one reporting unit for purposes of testing for goodwill impairment. Based on the impairment tests performed, there was no impairment of goodwill in fiscal 2007, 2006 and 2005.
The change in goodwill during the year ended March 31, 2006 and 2007, respectively was as follows (in thousands):
| | | | |
Balance at March 31, 2005 | | | 34,190 | |
Purchase of Nexl | | | 24,759 | |
Earn out payments: | | | | |
Network Catalyst | | | 1,197 | |
Vector | | | 3,608 | |
Infosys | | | 1,692 | |
Other | | | 1,688 | |
| |
|
| |
Balance at March 31, 2006 | | | 67,134 | |
| |
|
| |
Purchase of Axcent | | | 1,270 | |
Earnout payment for Nexl | | | 1,385 | |
Other | | | 198 | |
| |
|
| |
Balance at March 31, 2007 | | | 69,987 | |
| |
|
| |
F-8
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Intangible Assets
Definite-lived intangibles, which mainly consist of client relationships, are amortized over their estimated useful lives, three to five years.
Intangible assets consist of the following at:
| | | | | | | |
| | March 31, | |
| |
| |
(in thousands) | | 2007 | | 2006 | |
| |
| |
| |
| | | | | |
Client relationships | | $ | 8,915 | | $ | 8,915 | |
Know-how | | | 710 | | | 710 | |
Non-compete agreements | | | 250 | | | 250 | |
| |
|
| |
|
| |
| | | 9,875 | | | 9,875 | |
Less: accumulated amortization | | | 6,066 | | | 3,301 | |
| |
|
| |
|
| |
Identified Intangible assets, net | | $ | 3,809 | | $ | 6,574 | |
| |
|
| |
|
| |
Amortization expense amounted to approximately $2.8 million, $2.5 million, and $0.8 million for the years ended March 31, 2007, 2006 and 2005, respectively. Estimated amortization expense for each of the next five years is as follows (in thousands):
| | | | |
Year ending March 31, | | | | |
| | | | |
2008 | | $ | 2,026 | |
2009 | | | 939 | |
2010 | | | 506 | |
2011 | | | 338 | |
2012 | | | — | |
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered to be impaired when its carrying amount exceeds the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition. Long-lived assets include property and equipment. The amount of impairment loss, if any, is charged by the Company to current operations. For each of the three fiscal years ended March 31, 2007, 2006 and 2005, no such impairment existed.
Revenue Recognition
The Company recognizes revenue from the sales of hardware when the rights and risks of ownership have passed to the client, upon shipment or receipt by the client, depending on the terms of the sales contract with the client. Revenue from the sales of software not requiring significant modification or customization is recognized upon delivery or installation. Revenue from services is recognized upon performance and acceptance after consideration of all of the terms and conditions of the client contract. Service contracts generally do not extend over one year, and are recognized when persuasive evidence of an arrangement exists, the sales price is fixed and determinable, and collection of the resulting receivables is reasonably assured. Revenue is recognized as services are performed or over the contracted period, as specified in the agreement. For arrangements with multiple deliverables, delivered items are accounted for separately, provided that the delivered item has value to the client on a stand-alone basis and there is objective and reliable evidence of the fair value of the undelivered items. Revenue billed on retainer is recognized as services are performed and amounts not recognized are recorded as deferred revenue.
The Company periodically receives discretionary cost reimbursements from suppliers. These reimbursements are accounted for as reductions to the cost of sales products.
Shipping and handling costs are included in the cost of sales.
F-9
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accounting for Stock-Based Compensation
The Company maintains several stock equity incentive plans under which incentive stock options, non-qualified stock options, and restricted stock units (“RSUs”) may be granted to employees (including officers), consultants, independent contractors, and non-employee directors. The Company also has an Associate Stock Purchase Plan (“ASPP”).
Prior to April 1, 2006, the Company accounted for stock-based compensation under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations (“APB Opinion No. 25”). APB Opinion No. 25 required the use of the intrinsic value method, which measured compensation cost as the excess, if any, of the quoted market price of the stock at the measurement date over the amount an employee must pay to acquire the stock. As the stock options granted under these plans typically had an exercise price equal to the market value of the underlying common stock on the date of grant, no compensation cost related to stock options was reflected in the Company’s results of operations. As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), stock-based compensation was included as a pro forma disclosure in the notes to the consolidated financial statements.
The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”) effective April 1, 2006 (the “adoption date”) using the modified prospective transition method. Under this transition method, stock-based compensation cost recognized in the Company’s statement of operations includes: (a) the estimated expense for stock options and RSUs granted prior to, but not fully vested as of the adoption date, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123 and (b) the estimated expense for stock options and RSUs granted subsequent to the adoption date, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). The estimated fair value of the Company’s stock-based awards, less expected forfeitures, is amortized on a straight-line basis over the awards’ requisite service period, typically the vesting period. In determining whether an award is expected to vest, we generally use an estimated forfeiture rate based on historical forfeiture rates. The estimated forfeiture rate is updated for actual forfeitures quarterly. Under the modified prospective transition method, results for prior periods are not restated. No stock-based compensation expense was recognized in the consolidated financial statements related to the ASPP, since the related purchase discounts did not exceed the amount allowed under SFAS No. 123(R) for non-compensatory treatment.
Total stock-based compensation expense recognized in the consolidated statement of operations for fiscal 2007 was $2.2 million. Included in this amount were expenses related to RSUs of approximately $0.3 million, which would have been included in the Company’s results of operations under the provisions of APB Opinion No. 25. The expense related to RSUs is therefore excluded from the impact of the adoption of SFAS No. 123(R). As a result of adopting SFAS No. 123(R), the Company’s loss before income taxes for the year ended March 31, 2007 was increased by $1.9 million. No income tax benefit has been recognized in the consolidated statement of operations related to stock-based compensation expense, due to the Company fully reserving against the related deferred tax assets. The implementation of SFAS No. 123(R) reduced basic and diluted earnings per share by $0.16 for the year ended March 31, 2007. The implementation of SFAS No. 123(R) did not have a significant impact on cash flows from operations during the year ended March 31, 2007.
The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option pricing model (“Black-Scholes”) based upon certain assumptions. Black-Scholes was developed for use in estimating the fair value of publicly traded options which have no vesting restrictions and are fully transferable. In addition, Black-Scholes requires the input of highly subjective assumptions including the expected stock price volatility. In management’s opinion, the Company’s employee stock options have characteristics significantly different from those of publicly traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.
F-10
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
For SFAS No. 123(R) purposes, the fair value of each stock option grant was estimated on the date of grant using Black-Scholes with the following weighted-average assumptions:
| | | | |
| | Year Ended | |
| |
| |
| | March 31,
2007 | |
| |
| |
Expected term | | 5 years | | |
Expected stock price volatility | | 76.1 | % | |
Risk-free interest rate | | 4.8 | % | |
Expected dividend yield | | 0 | % | |
Weighted-average grant-date fair value of options granted | | $1.57 | | |
The expected term is based on historical exercise patterns and post-vesting termination behavior, the risk-free interest rate is based on United States Treasury instruments and volatility is calculated based on historical volatility. We do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. Accordingly, our expected dividend yield is zero.
The modified prospective transition method of SFAS No. 123(R) requires the presentation of pro forma information for periods presented prior to the adoption of SFAS No. 123(R) regarding net loss and loss per share as if the Company had accounted for its stock plans under the fair value method. Had compensation expense for the Company’s stock plans been determined consistent with the fair value-based method prescribed by the original provisions of SFAS No. 123, as amended by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure”, the Company’s net loss and loss per common share would have been the pro forma amounts indicated below:
| | | | | | | |
| | Year Ended March 31, | |
| |
| |
(in thousands, except per share data) | | 2006 | | 2005 | |
| |
| |
| |
| | | | | | | |
Net loss – as reported | | $ | (8,474 | ) | $ | (8,619 | ) |
Deduct: Total stock-based compensation cost using the fair value method for all awards | | | (2,944 | ) | | (1,564 | ) |
| |
|
| |
|
| |
Net loss – pro forma | | $ | (11,418 | ) | $ | (10,183 | ) |
| |
|
| |
|
| |
| | | | | | | |
Basic and diluted net loss per common share – as reported | | $ | (0.99 | ) | $ | (1.51 | ) |
| |
|
| |
|
| |
Basic and diluted net loss per common share – pro forma | | $ | (1.34 | ) | $ | (1.78 | ) |
| |
|
| |
|
| |
For pro forma purposes, the fair value of stock awards was estimated at the date of grant using Black-Scholes with the following weighted-average assumptions for stock options:
| | | | | | | |
| | Year Ended March 31, | |
| |
| |
| | 2006 | | 2005 | |
| |
| |
| |
Expected term | | 10 years | | | 10 years | | |
Expected stock price volatility | | 86.6 | % | | 94.4 | % | |
Risk-free interest rate | | 4.5 | % | | 4.4 | % | |
Expected dividend yield | | 0 | % | | 0 | % | |
Weighted-average grant-date fair value of options granted | | $3.58 | | | $2.71 | | |
Per Share Data
Basic net loss per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted-average number of common shares plus dilutive potential common shares outstanding during the period. Dilutive securities, which are convertible into 24.1 million, 26.9 million and 23 million common shares as of March 31, 2007, 2006 and 2005, respectively, have not been included in the weighted-average shares used for the calculation of earnings per share for the years then ended since the effect of such securities would be anti-dilutive.
F-11
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Income Taxes
Deferred income taxes are provided, using the asset and liability method, for temporary differences between financial and tax reporting purposes which arise principally from the deduction related to the allowances for doubtful accounts, certain capitalized software costs, the basis of inventory and differences arising from book versus tax depreciation methods.
Recently Issued Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company does not expect FIN 48 will have a material effect on our consolidated financial condition or results of operations.
In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands fair value measurement disclosures. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating whether adoption of SFAS No. 157 will have an impact on our financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 addresses the diversity in practice in quantifying financial statement misstatements and establishes an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the Company’s financial statements and the related disclosures. SAB 108 is effective for fiscal years ending after November 15, 2006. The application of SAB 108 did not have any impact on the Company’s consolidated balance sheets, statements of operations, or statements of equity for fiscal 2007.
In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”(“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. We do not believe the adoption of this standard will have a material impact on the Company’s consolidated financial statements. This standard will become effective for us in the first quarter of fiscal 2008.
F-12
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 2. Restructuring and Other Charges
In fiscal 2007, the Company implemented a cost reduction plan (the “Restructuring Plan”) designed to improve operating income through reductions of selling, general and administrative expenses (“S,G&A”) and enhancements in gross margin. The Restructuring Plan was approved by senior management and included significant headcount reductions associated with the final stages of integrating the acquired companies, facility consolidations, as well as other cost reductions. As part of the Restructuring Plan, the Company also restructured and consolidated other job functions within all regions. This plan resulted in restructuring charges for the year ended March 31, 2007 totaling $6.0 million; $3.1 million primarily related to a reduction in force of senior and middle management, another $1.4 million related to employee terminations, a charge of $0.8 million related to the closure and underutilization of certain facilities and the remaining $0.7 million was for the write-off of other non-cash items.
The payment activities and adjustments in fiscal 2007 and the remaining liability at March 31, 2007 related to the Restructuring Plan are summarized in the table below.
| | | | | | | | | | | | | | | | |
(in thousands) | | Outstanding
Liability at
March 31,
2006 | | Costs Incurred | | Amounts Paid | | Non-cash
Adjustments | | Remaining
Liability at
March 31,
2007 | |
| |
|
|
|
|
|
|
|
|
| |
Employee termination benefits | | | — | | $ | 4,468 | | $ | (2,573 | ) | $ | — | | $ | 1,895 | |
Facility costs | | | — | | | 839 | | | (225 | ) | | — | | | 614 | |
Other costs | | | — | | | 749 | | | — | | | (450 | ) | | 299 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total | | | — | | $ | 6,056 | | $ | (2,798 | ) | $ | (450 | ) | $ | 2,808 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
For the year ended March 31, 2007 the Company has paid out $2.8 million in cash related to the restructuring and anticipates that the remaining employee termination benefits will be paid by March 31, 2008 and payment of the facility costs will continue until June, 2011.
Additionally, results for the year ended March 31, 2007 include $2.0 million of non-recurring charges. During the third quarter the Company recognized $0.6 million in integration costs for plan implementation and personnel redundancy costs. This amount is included in S,G&A. The balance of $1.4 million of other one-time charges incurred in the second quarter consisted of $0.5 million of charges recorded in cost of products sold for a write-off of obsolete inventory obtained as part of prior business acquisitions and $0.9 million of charges to S,G&A.
Note 3. Credit Facilities
Since June 2005, the Company has a secured revolving credit facility (the “CIT Facility”) with CIT Group/Business Credit Inc. (“CIT”) and an Amended and Restated Loan and Security Agreement (the “New Textron Facility”) with Textron Financial Corporation (“Textron”), which provide a combined availability of $40 million.
The CIT Facility is a three year revolving credit facility for up to $25 million, subject to a borrowing base consisting of eligible accounts receivable, eligible in-transit inventory (up to $0.5 million) and eligible finished goods inventory (up to $0.5 million). The amounts available to the Company from CIT are also reduced by amounts borrowed under the New Textron Facility. Effective in the second quarter of fiscal 2007, CIT effectively reduced the amount the Company can borrow under the CIT Facility by increasing the required availability reserve to $3 million. The CIT Facility required, among other things, that the Company maintain certain financial covenants including that the Company maintain Consolidated Liquidity of not less than $3 million measured on a weekly basis, Consolidated Senior Leverage of not greater than 4.00 to 1.00 for the trailing four quarters and that the Company maintain a Consolidated Fixed Charge Coverage Ratio of not less than 1.00 to 1.00 for the trailing four quarters. It also restricts the Company’s ability to incur certain additional indebtedness, and contains various customary provisions, including affirmative and negative covenants, representations and warranties and events of default. Amounts borrowed under the CIT Facility bear interest at either the prime rate or at LIBOR plus 3%, in each case at the Company’s option.
F-13
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The New Textron Facility allows the Company to finance inventory purchases up to $15 million from approved vendors on a 45-day interest-free basis in most cases. Interest accrues after expiration of the applicable interest free period at the rate equal to a specified prime rate plus 4%. The financial and other covenants in the New Textron Facility are substantially the same as those in the CIT Facility. The facilities include a first priority secured interest in all of our assets.
As of March 31, 2007, the Company was not in compliance with all covenants prescribed under the CIT Facility and the New Textron Facility; however, the Company received waiver letters from both CIT and Textron.
Available funds under both the CIT Facility and the New Textron Facility amounted to $7.3 million at March 31, 2007.
Note 4. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
| | | | | | | | |
| | | March 31, | |
| | |
| |
| | | 2007 | | 2006 | |
| | |
| |
| |
|
| Accrued restructuring | | $ | 2,515 | | $ | — | |
| Acquisition related costs | | | 2,944 | | | 2,732 | |
| Compensation related costs | | | 2,217 | | | 2,925 | |
| Accrued sales tax | | | 1,027 | | | 1,433 | |
| Accrued other | | | 2,504 | | | 2,506 | |
| | |
|
| |
|
| |
| | | $ | 11,207 | | $ | 9,596 | |
| | |
|
| |
|
| |
Note 5. Long-Term Debt
Secured Promissory Note
On November 23, 2005 the Company entered into a secured credit agreement (the “Columbia Facility”) with Columbia Partners, L.L.C. Investment Management, as Investment Manager, (“Columbia Partners”) and National Electric Benefit Fund, as Lender (the “Lender”), whereby the Company issued and sold to the Lender a promissory note in the principal amount of $25 million (the “Note”) and the Company issued and sold to the Lender a warrant entitling the Lender to purchase 700,000 shares of the Company’s Common Stock at an exercise price of $4.06 per share (the “Lender Warrant”).
The Note is a four year $25 million secured subordinated term loan with the Note coming due at the earlier of maturity or the occurrence of certain fund raisings or other liquidity events. The amount outstanding on the Note bears interest equal to 4.52 %, of which 2% per annum is payable quarterly in cash and all remaining interest will accrue and only become due at maturity. Upon maturity or upon the occurrence of certain liquidity events, the Company will pay a payment premium in respect of the Note equal to an amount which, when combined with previous payments made, will yield an internal rate of return to the Lender of 11%. As of March 31, 2007, $3.5 million in interest has been accrued on the Note, of which $0.6 million has been paid in cash, $0.1 million is accrued and payable within the next quarter, and $2.8 million is accrued and is payable at maturity. The Note is secured by a subordinated lien on the assets of the Company. In connection with the issuance of the Note and the related Lender Warrant, the Company allocated and charged $2.2 million to debt discount, which will be amortized over the life of the Note to interest expense, and assigned and credited to additional paid in capital $2.2 million for the fair value of the Lender Warrant. The Company is permitted to settle the warrants with unregistered shares. The value attributed to the Lender Warrant was determined by independent valuation utilizing the Black-Scholes model.
The Columbia Facility required, among other things, that the Company maintain certain financial covenants including that the Company maintain Consolidated Senior Leverage of not greater than 4.40 to 1.00 as of the end of March 31, 2007, and for the trailing four quarters and consecutive four quarters ending thereafter and that the Company maintain a Consolidated Fixed Charge Coverage Ratio of not less than .90 to 1.00 for the trailing four quarters ended March 31, 2007 and consecutive four quarters ending thereafter. It also restricts the Company’s ability to incur certain additional indebtedness, and contains various customary provisions, including affirmative and negative covenants, representations and warranties and events of default. The Company received a waiver letter in November 2006 from Columbia Partners, which included a waiver of the Consolidated Senior Leverage Ratio and the Consolidated Fixed Charge Coverage Ratio through and including the period ended March 31, 2008.
F-14
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Capital Leases
The Company maintains capital leases for computer equipment and vehicles, with effective interest rates ranging from 6.3% to 8.7%. The majority of the leases expire by May 2009.
The components of debt are as follows (in thousands):
| | | | | | | | |
| | | March 31, | |
| | |
| |
| | | 2007 | | 2006 | |
| | |
| |
| |
| | | | | | |
| Secured promissory note | | $ | 23,507 | | $ | 22,947 | |
| Promissory note | | | — | | | 667 | |
| Capital lease obligations | | | 973 | | | 1,572 | |
| | |
|
| |
|
| |
| Total | | $ | 24,480 | | $ | 25,186 | |
| | |
|
| |
|
| |
| | | | | | | | |
The Company’s future debt maturities at March 31, 2007 are summarized below (in thousands):
| | | | | | | | |
| Year ended | | | | | | | |
|
| | | | | | | |
| | | | | | | | |
| 2008 | | | | | $ | 548 | |
| 2009 | | | | | | 306 | |
| 2010 | | | | | | 23,626 | |
| 2011 | | | | | | — | |
| 2012 | | | | | | — | |
| | | | | |
|
| |
| Total minimum debt payments | | | | | $ | 24,480 | |
| Less current maturities | | | | | | (548 | ) |
| | | | | |
|
| |
| Total long-term debt | | | | | $ | 23,932 | |
| | | | | |
|
| |
Note 6. Stock and Benefit Plans
Stock Option Plans
We have adopted the following stock plans:
| |
• | a 1993 Employee Stock Option Plan, which provides for the grant of options to purchase an aggregate of 250,000 shares of our common stock, of which, as of March 31, 2007, 26,666 shares have been issued upon exercise of options and 120,000 shares are subject to outstanding options; |
| |
• | a 1996 Stock Option Plan, which provides for the grant of options to purchase an aggregate of 350,000 shares of our common stock, of which, as of March 31, 2007, 77,600 shares have been issued upon exercise of options and 24,000 shares are subject to outstanding options; |
| |
• | a 1998 Stock Option Plan, which provides for the grant of options to purchase an aggregate of 250,000 shares of our common stock, of which, as of March 31, 2007, 6,000 shares have been issued upon exercise of options and 86,900 shares are subject to outstanding options; |
| |
• | a 2000 Long-Term Performance Plan, which provides for the award of an aggregate of 350,000 shares of our common stock, of which, as of March 31, 2007, 89,800 shares have been issued upon the exercise of options and 230,000 shares are subject to outstanding awards; |
| |
• | a 2002 Long-Term Performance Plan, which provides for the award of an aggregate of 250,000 shares of our common stock, of which, as of March 31, 2007, 15,000 shares have been issued upon the exercise of options and 60,000 shares are subject to outstanding awards; and |
| |
• | a 2004 Equity Incentive Plan (the “2004 Plan”), which provides for the award of an aggregate of 4,350,000 shares of our common stock, of which, as of March 31, 2007, 300,450 shares have been issued upon the exercise of options and vested RSUs and 3,037,753 shares are subject to outstanding awards. |
F-15
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The 1993 Stock Option Plan and the 1996 Stock Option Plan have expired. Accordingly, we can no longer grant new options under such plans. The Company has chosen, with the approval of the Board of Directors, not to grant future options from the 1998, 2000 and 2002 Plans. Under the terms of the 2004 Plan, options to purchase common stock generally are granted at not less than fair market value, become exercisable as established by the Board of Directors (generally ratably over four years) and generally expire ten years from the date of grant. At March 31, 2007, we had outstanding options and RSUs to purchase approximately 3.6 million shares of common stock and approximately 586,000 shares of common stock are available for future awards. On June 6, 2007, the Compensation Committee of the Board of Directors approved an increase in the number of shares available for issuance under the 2004 Plan from 4,000,000 to 4,350,000 shares.
A summary of stock option activity under these plans as of March 31, 2007, 2006 and 2005, and changes during the years then ended, is presented below:
| | | | | | | | | | | | | |
(in thousands, except exercise price) | | Number of Shares | | Weighted-Average Exercise Price | | (In the money options)
Aggregate
Intrinsic
Value | | Weighted-
Average
Remaining
Contractual Term | |
|
|
|
|
|
|
|
|
| |
Outstanding at March 31, 2004 | | | 983 | | $ | 2.19 | | $ | 83 | | | 4.6 years | |
Granted | | | 2,144 | | | 2.90 | | | | | | | |
Canceled/Expired | | | (116 | ) | | 3.22 | | | | | | | |
Exercised | | | (59 | ) | | 1.48 | | | | | | | |
| |
|
| | | | | | | | | | |
Outstanding at March 31, 2005 | | | 2,952 | | $ | 2.93 | | $ | 4,964 | | | 8.0 years | |
Granted | | | 974 | | | 4.13 | | | | | | | |
Canceled/Expired | | | (336 | ) | | 4.18 | | | | | | | |
Exercised | | | (121 | ) | | 1.84 | | | | | | | |
| |
|
| | | | | | | | | | |
Outstanding at March 31, 2006 | | | 3,469 | | $ | 3.21 | | $ | 3,186 | | | 7.9 years | |
Granted | | | 705 | | | 2.62 | | | | | | | |
Canceled/Expired | | | (841 | ) | | 3.93 | | | | | | | |
Exercised | | | (187 | ) | | 2.07 | | | | | | | |
| |
|
| | | | | | | | | | |
Outstanding at March 31, 2007 | | | 3,146 | | $ | 2.95 | | $ | 11 | | | 6.8 years | |
| |
|
| | | | |
|
| |
|
| |
Exercisable at March 31, 2007 | | | 1,957 | | $ | 2.80 | | $ | 11 | | | 5.7 years | |
| |
|
| | | | |
|
| |
|
| |
Expected to vest after March 31, 2007 | | | 944 | | $ | 3.04 | | $ | — | | | 8.7 years | |
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| | | | |
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The aggregate intrinsic value in the table above is before applicable income taxes and represents the amount optionees would have received if all in the money options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price.
The total intrinsic value of options exercised during the year ended March 31, 2007 was approximately $78,600. The unrecognized stock-based compensation expense associated under the fair value method for shares expected to vest (unvested shares net of expected forfeitures) as of March 31, 2007 was approximately $2.6 million and is expected to be recognized over a weighted average period of 2.8 years. Approximately 0.2 million shares outstanding as of March 31, 2007 are not expected to vest.
F-16
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Additional information regarding options outstanding as of March 31, 2007 is as follows:
| | | | | | | | | | | | | | | | |
| | OPTIONS OUTSTANDING | | OPTIONS EXERCISABLE | |
| |
| |
| |
Range of Exercise Prices | | Shares | | Weighted
Average
Remaining
Contractual
Life (Years) | | Weighted
Average
Exercise
Price | | Shares | | Weighted
Average
Exercise
Price | |
|
|
|
|
|
|
|
|
|
|
| |
$0.73-$1.45 | | | 329,500 | | | 3.64 | | $ | 1.28 | | | 302,000 | | $ | 1.27 | |
$1.45-$2.18 | | | 761,499 | | | 6.54 | | $ | 2.10 | | | 597,749 | | $ | 2.14 | |
$2.18-$2.90 | | | 703,400 | | | 6.48 | | $ | 2.52 | | | 346,815 | | $ | 2.64 | |
$2.90-$3.63 | | | 525,750 | | | 8.26 | | $ | 3.30 | | | 328,750 | | $ | 3.40 | |
$3.63-$4.35 | | | 389,719 | | | 7.99 | | $ | 4.04 | | | 158,742 | | $ | 4.04 | |
$4.35-$5.08 | | | 160,000 | | | 8.35 | | $ | 4.65 | | | 60,000 | | $ | 4.68 | |
$5.08-$5.80 | | | 275,885 | | | 6.10 | | $ | 5.22 | | | 163,067 | | $ | 5.22 | |
| |
|
| | | | | | | |
|
| | | | |
| | | 3,145,753 | | | 6.74 | | $ | 2.95 | | | 1,957,123 | | $ | 2.80 | |
| |
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| |
The 2004 Plan allows for the issuance of RSUs which typically vest over four years. A summary of the status of RSUs nonvested shares as of March 31, 2007 and changes during the year then ended is presented below:
| | | | | | | |
(in thousands, except fair value price) | | Number of Shares | | Weighted-Average Grant-Date Fair Value | |
| |
|
|
| |
Nonvested at April 1, 2006 | | | | 420 | | | $ | 2.48 | |
Granted | | | | 286 | | | | 1.81 | |
Vested | | | | (111 | ) | | | 2.71 | |
Forfeited | | | | (190 | ) | | | 2.44 | |
| | |
|
| | | | | |
Nonvested at March 31, 2007 | | | | 405 | | | $ | 1.96 | |
| | |
|
| | | | | |
As of March 31, 2007 there was $0.5 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2004 Plan for RSUs. That cost is expected to be recognized over a weighted-average period of 2.2 years. The total fair value of shares vested during the year ended March 31, 2007 was $0.3 million.
Employee Stock Purchase Plan
Effective April 15, 2005, the Company adopted the MTM Technologies, Inc. Associate Stock Purchase Plan .. The ASPP allows eligible employees to contribute up to 15% of their base earnings to a maximum annual contribution of $25,000 toward the semi-annual purchase of the Company’s common stock. The employee’s purchase price is 95% of the fair market value of the stock on the last business day of the offering period. Employees may purchase shares up to a maximum of 3,500 shares per offering period. The total numbers of shares issuable under the ASPP is 1.0 million. There were approximately 67,000 shares issued under the ASPP during the fiscal year ended March 31, 2007 at an average price of $2.59. There were no stock purchases made under the ASPP in fiscal 2006. Of the 636 associates eligible to participate, approximately 36 were participants in the ASPP as of March 31, 2007.
F-17
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Employee Savings Plan
MTM maintains a voluntary defined contribution savings plan (the “MTM 401(k) Plan”) covering eligible employees as defined in the plan documents. Participating employees may elect to defer and contribute a portion of their compensation to the plan up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. Beginning April 1, 2006, MTM adopted a discretionary match contribution of 25% for the first 6% of each employee’s eligible contribution, senior management was excluded from receiving this match. The Company contributed $419,000, $311,000 and $26,000 to the plans for the years ended March 31, 2007, 2006 and 2005, respectively.
As a result of its acquisitions, the Company had three employee savings plans which qualify under Section 401-K of the Internal Revenue Code with essentially the same terms on eligibility and deferral amounts. The acquired 401k plans were merged during fiscal 2007 into the MTM 401(k) Plan.
Note 7. Shareholders’ Equity
Preferred Stock
As of March 31, 2007, the Company had authorized 40 million shares of preferred stock, 33.5 million of which are designated Series A Preferred Stock, par value $.001 per share and 6.5 million of which are “blank check” preferred stock, par value $.001 per share. As of March 31, 2007, there were approximately 22.6 million shares of Series A Preferred Stock issued.
As of March 31, 2006, the Company had authorized 40 million shares of preferred stock, 31 million of which were designated Series A Preferred Stock, par value $.001 per share and 9 million of which were “blank check” preferred stock, par value $.001 per share. As of March 31, 2006, there were approximately 20 million shares of Series A Preferred Stock issued.
Series A Preferred Stock and Notes
“Pequot Fund” refers to Pequot Private Equity Fund III, L.P., “Pequot Partners” refers to Pequot Offshore Private Equity Partners III, L.P., and collectively with Pequot Fund, “Pequot,” “Constellation Venture” refers to Constellation Venture Capital II, L.P., “Constellation Offshore” refers to Constellation Venture Capital Offshore II, L.P., “BSC” refers to the BSC Employee Fund VI, L.P., “CVC” refers to the CVC II Partners, LLC, and collectively with Constellation Venture, Constellation Offshore and BSC, “Constellation,” and together with Pequot, (the “Investors.”)
On January 29, 2004, the Company entered into a purchase agreement (the “Pequot Agreement”) to sell to Pequot an aggregate of up to $25.0 million of Series A Convertible Preferred Stock, together with warrants to purchase additional shares of common stock and on December 7, 2004, the Company entered into an additional purchase agreement (the “Pequot/Constellation Purchase Agreement”) with the Investors to sell to the Investors up to an additional $40.0 million of Series A Convertible Preferred Stock, together with warrants to purchase additional shares of common stock.
During the year ended March 31, 2005, the Investors received $41.0 million of Series A Convertible Preferred Stock and associated common stock warrants. During the year ended March 31, 2006, the Investors purchased an additional $19.0 million of Series A Convertible Preferred Stock, and associated common stock warrants. The Company allocated and recorded $16.4 million to Series A Preferred Stock and assigned and credited to additional paid in capital $2.6 million for the fair value of the warrants. The value attributed to the warrants was determined by independent valuation utilizing Black-Scholes.
On March 29, 2007, the Company sold to the Investors 2,020,202 shares of Series A-6 Convertible Preferred Stock and Series A-6 Warrants to purchase 610,000 shares of the Company’s common stock for an aggregate purchase price of $3.0 million This transaction resulted in an adjustment to the Series A conversion price of each of the Series A-1 to Series A-5 Preferred Stock. The Company allocated and recorded $2.6 million to Series A Preferred Stock and assigned and credited to additional paid in capital $0.4 million for the fair value of the warrants. The value attributed to the warrants was determined by independent valuation utilizing Black-Scholes.
F-18
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table sets forth the Series A Preferred Stock and associated warrants issued to the Investors under the Pequot Agreement and the Pequot/Constellation Purchase Agreement, including in-kind dividends paid.
| | | | | | | | | |
| | No. of Shares
(in thousands) | | Conversion Price | |
| |
| |
| |
| | | | | | | | | |
Series A-1 Convertible Preferred Stock | | | | 3,353 | | | | $ 2.15 | |
Series A-2 Convertible Preferred Stock | | | | 2,060 | | | | $ 2.75 | |
Series A-3 Convertible Preferred Stock | | | | 3,962 | | | | $ 3.25 | |
Series A-4 Convertible Preferred Stock | | | | 8,081 | | | | $ 3.25 | |
Series A-5 Convertible Preferred Stock | | | | 3,170 | | | | $ 3.25 | |
Series A-6 Convertible Preferred Stock | | | | 2,020 | | | | $ 1.49 | |
| | | |
| | | | | |
| | | | 22,646 | | | | | |
| | | | | | | | | |
| | No. of Warrants
(in thousands) | | Exercise Price | |
| |
| |
| |
| | | | | | | | | |
Series A-1 Common Stock Warrants | | | | 500 | | | | $ 2.46 | |
Series A-2 Common Stock Warrants | | | | 400 | | | | $ 3.44 | |
Series A-3, A-4 and A-5 Common Stock Warrants | | | | 2,758 | | | | $ 4.06 | |
Series A-6 Common Stock Warrants | | | | 610 | | | | $ 1.63 | |
| | | |
| | | | | |
| | | | 4,268 | | | | | |
The funds raised from the sales of Series A Convertible Preferred Stock were used to fund the cash portion of the purchase price for the Company’s various acquisitions as follows:
| | |
| • | DataVox Technologies, Inc.—July 2004, |
| | |
| • | Network Catalyst, Inc.—September 2004, |
| | |
| • | Vector ESP, Inc./Vector ESP Management, Inc.—December 2004, |
| | |
| • | Info Systems, Inc.—March 2005, |
| | |
| • | Nexl, Inc.—December 2005 |
Under the terms of the Pequot/Constellation Purchase Agreement, until shareholder approval was received for the transaction, the Investors had the right to acquire Series A-4 Convertible Secured Subordinated Promissory Notes (“Series A-4 Notes”) in lieu of Series A-4 Convertible Preferred Stock and Series A-5 Convertible Secured Subordinated Promissory Notes (“Series A-5 Notes”) in lieu of Series A-5 Convertible Preferred Stock. As a result, the initial $16.0 million invested under the Pequot/Constellation Purchase Agreement was in the form of Series A-4 Notes, together with warrants to purchase common stock. On June 23, 2005 the shareholders approved the transaction and the outstanding Series A-4 Notes converted into shares of Series A-4 Preferred Stock.
The Company originally assigned a value of $6.8 million to the beneficial conversion feature of the Series A-4 Notes and the common stock warrants issued in connection therewith (the “Series A-4 Warrants”), and the Investors’ option to acquire additional Series A-4 Notes and Series A-4 Warrants and to acquire Series A-5 Notes based on the relative fair values using Black-Scholes at the date of issuance and recorded this value as a discount to the Series A-4 Notes when issued. This discount was accreted to interest expense over the term of the applicable Series A-4 Notes. During the years ended March 31, 2006 and 2005 the discount accreted to interest expense amounted to approximately $2.9 and $3.9 million, respectively.
In accordance with Emerging Issues Task Force Issue 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company’s Own Stock,” the Company had initially accounted for the fair value of the Series A-4 Warrants issued in December 2004 and March 2005 and the Investors option to acquire additional Series A-4 Notes and Series A-4 Warrants and to acquire Series A-5 Notes as a liability since the Company was required to file a Registration Statement with the Securities and Exchange Commission for the resale by the Investors of the underlying common stock and to use reasonable best efforts to have such Registration Statement become effective or, in certain circumstances, pay cash liquidated damages. Such process was completed
F-19
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
in December 2005 and the Company has reclassified the remaining amount of the fair value to shareholders’ equity. The fair value was calculated utilizing Black-Scholes.
Prior to the reclassification, there was a change in the market value of the Company’s common stock, and therefore, the Company recorded a decrease in the carrying value of the liability for the year ended March 31, 2006 of $1.3 million which is included as a reduction in S,G&A.
Beginning May 21, 2006, the Series A Preferred Stock began to accrue dividends, payable semi-annually in arrears, in an amount equal to 6% of the applicable Series A purchase price. As of March 31, 2007, the Company has accrued $3.2 million in preferred dividends which was charged to equity. Until May 21, 2008 dividends may at the option of the Company, be paid in cash or shares of the applicable Series A Preferred Stock valued at the applicable Series A purchase price. The Series A purchase prices range from $1.49 to $3.25. During the third quarter of fiscal 2007 the Company paid $1.8 million in preferred dividends for the period May 21, 2006 to November 20, 2006 in the form of 600,732 shares of Series A Preferred Stock. Dividends are accrued as other long-term liabilities since the current intention of the Company is to pay dividends in the form of equity.
In the event of any liquidation of the Company the holders of the Series A Preferred Stock shall be entitled to be paid in preference to any distribution to holders of common stock, in an amount per share equal to the sum of the applicable Series A Purchased Shares Purchase Price plus any accrued but unpaid dividends on the Series A Preferred Stock.
Note 8. Income Taxes
The asset and 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 (benefit from) income taxes consisted of the following (in thousands):
| | | | | | | | | | |
| | Year Ended March 31, | |
| |
| |
| | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
Federal: | | | | | | | | | | |
Current | | $ | — | | $ | — | | $ | — | |
Deferred | | | — | | | — | | | — | |
| |
|
| |
|
| |
|
| |
| | | — | | | — | | | — | |
State: | | | | | | | | | | |
Current | | | 427 | | | 241 | | | 13 | |
Deferred | | | — | | | — | | | — | |
| |
|
| |
|
| |
|
| |
Provision for income taxes | | $ | 427 | | $ | 241 | | $ | 13 | |
| |
|
| |
|
| |
|
| |
The reconciliations of income tax provision (benefit) computed at the federal statutory tax rates to actual income tax provision (benefit) are as follows (in thousands):
| | | | | | | | | | |
| |
| |
| | Year Ended March 31, | |
| |
| |
| | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
Tax benefit at federal statutory rates applied to pretax earnings | | $ | (10,900 | ) | $ | (2,799 | ) | $ | (2,926 | ) |
State income taxes, net of federal benefit | | | 427 | | | 241 | | | (391 | ) |
Changes in valuation allowance | | | 10,445 | | | 2,539 | | | 3,075 | |
Other permanent items | | | 190 | | | 260 | | | 255 | |
Adjustments to prior provisions | | | 265 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
Provision for income taxes | | $ | 427 | | $ | 241 | | $ | 13 | |
| |
|
| |
|
| |
|
| |
F-20
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The tax effects of temporary differences that give rise to the net short-term deferred income tax asset are presented below (in thousands):
| | | | | | | |
| | March 31, | |
| |
| |
| | 2007 | | 2006 | |
| |
| |
| |
| | | | | | | |
Reserve for bad debts | | $ | 556 | | $ | 303 | |
Inventory | | | (21 | ) | | 240 | |
Accrued compensation | | | (30 | ) | | 366 | |
| |
|
| |
|
| |
| | | 505 | | | 909 | |
Valuation allowance | | | (505 | ) | | (909 | ) |
| |
|
| |
|
| |
Total short-term deferred income tax asset | | $ | — | | $ | — | |
| |
|
| |
|
| |
| | | | | | | |
The tax effects of temporary differences that give rise to the net long-term deferred income tax asset (liability) are presented below (in thousands):
| | | | | | | |
| | March 31, | |
| |
| |
| | 2007 | | 2006 | |
| |
| |
| |
| | | | | | | |
Property and Equipment, net | | $ | (2,773 | ) | $ | (1,151 | ) |
Goodwill | | | (1,627 | ) | | (871 | ) |
Other | | | 48 | | | 43 | |
Net operating loss | | | 22,405 | | | 9,134 | |
Research and development credit | | | 190 | | | 190 | |
| |
|
| |
|
| |
| | | 18,243 | | | 7,345 | |
Valuation allowance | | | (18,243 | ) | | (7,345 | ) |
| |
|
| |
|
| |
Net long-term deferred income tax asset | | $ | 0 | | $ | 0 | |
| |
|
| |
|
| |
At March 31, 2007, the Company has net operating loss carry forwards of approximately $57 million to offset taxable income through the year 2027. Realization of the benefit of the carry forward losses depends on earning sufficient taxable income before expiration of loss carry forwards. The utilization of the net operating loss carry forwards may also be limited as a result of ownership changes. At March 31, 2007 and 2006, the Company has established a valuation allowance that offsets the deferred tax assets.
Note 9. Commitments and Contingencies
Lease Commitments
The Company leases 29 locations for its administrative and operational functions under operating leases expiring at various dates through 2016. Certain leases are subject to escalation based on the Company’s share of increases in operating expenses for the locations. In addition, the Company leases equipment, software and vehicles used in operations under both operating and capital leases.
Future annual minimum lease payments including estimated escalation amounts under non-cancelable operating and capital leases as of March 31, 2007 are as follows (in thousands):
| | | | | | | | | | |
| | Total | | Operating | | Capital | |
| |
| |
| |
| |
| | | | | | | | | | |
Year Ending March 31, | | | | | | | | | | |
2008 | | $ | 3,860 | | $ | 3,312 | | | 548 | |
2009 | | | 3,569 | | | 3,263 | | | 306 | |
2010 | | | 3,061 | | | 2,942 | | | 119 | |
2011 | | | 2,191 | | | 2,191 | | | — | |
2012 | | | 1,205 | | | 1,205 | | | — | |
Thereafter | | | 3,434 | | | 3,434 | | | — | |
| |
|
| |
|
| |
|
| |
| | $ | 17,320 | | $ | 16,347 | | $ | 973 | |
| |
|
| |
|
| |
|
| |
F-21
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Rental expense for operating leases including amounts from non-cancelable leases approximated $2.9 million, $2.6 million, and $1.1 million for the years ended March 31, 2007, 2006 and 2005, respectively.
Employment Agreements
The Company has entered into an employment agreement, which requires the following payments (in thousands):
| | | | |
Year ending March 31, | | | | |
2008 | | $ | 335 | |
2009 | | | 335 | |
2010 | | | 251 | |
| |
|
| |
| | $ | 921 | |
| |
|
| |
In addition, certain other agreements provide for bonus compensation based on certain performance goals.
Litigation
The Company is involved in various claims and legal actions arising in the ordinary course of business. Management is of the opinion that the ultimate outcome of these matters would not have a material adverse impact on the financial position of the Company or the results of its operations.
Note 10. Acquisitions
On April 20, 2006, the Company purchased the operating assets of Axcent Solutions, Inc. (“Axcent”), a provider of access, infrastructure and availability solutions based in the southern California area. The aggregate purchase price for Axcent was approximately $0.7 million, consisting of $0.5 million in cash and 62,500 shares of stock (at $3.71 per share or $0.2 million). The purchase price was allocated to assets acquired of $0.4 million and liabilities assumed of $0.3 million based on estimated fair values on the transaction date, resulting in net assets acquired of $0.1 million. Goodwill related to the purchase was recorded at approximately $1.3 million, including expected costs related to employee severance and facility consolidations of $0.6 million and transactions costs of $0.1 million.
On December 1, 2005, the Company acquired all of the outstanding stock of Nexl, Inc. (“Nexl”). Nexl provided complete infrastructure computing in the areas of enterprise computing and storage, networking and security and managed services. Nexl’s practice and service areas included enterprise storage, network infrastructure, security, IP telephony, and managed services. The results of operations are included in the Company’s financial results beginning December 1, 2005. The aggregate purchase price for the Nexl acquisition was $24.0 million consisting of $13.3 million in cash and 2,999,998 shares (at $3.58 per share or $10.7 million) of MTM stock, plus transaction costs of approximately $1.0 million. Following the preliminary allocation of purchase price to the assets and liabilities acquired, goodwill related to the purchase was recorded at approximately $25 million, including expected costs related to employee severance, facilities consolidation and asset valuations.
Included in the year ended March 31, 2007 is an adjustment to goodwill of $1.6 million. The Nexl purchase agreement provided for a potential additional purchase price payment (“the Earnout”) of up to $1.0 million in cash and 250,000 shares of common stock if certain EBITDA targets for the twelve months ended December 31, 2006 were achieved. During the third quarter of fiscal 2007 the Company recognized the full Earnout consisting of $1.0 million payable in cash and 250,000 shares of MTM stock valued at $1.54 per share or $385,000, both of which were included in goodwill and in accrued expenses at the end of the period. In the fourth quarter the Company and the shareholders of Nexl agreed to adjust the form of the cash payment of the Earnout to reflect $1.0 million payable in shares of MTM common stock with a FMV determined using the 10 day trailing closing price of the common stock immediately preceding signing of a definite agreement. The agreement was signed on May 24, 2007 and the $1.0 million in shares of MTM common stock was valued at $0.95 per share for a total of 1,052,632 shares. On May 31, 2007 the Company issued 1,276,579 shares of common stock in satisfaction of the Earnout. The Company is withholding the issuance of certain of the shares to be issued pursuant to its right under the Nexl Merger Agreement. The remaining adjustment to goodwill is related to a $0.2 million decrease in the net realizable value recorded in the second quarter of assets acquired.
The final fair value assessment of the Nexl acquisition resulted in the recording of $26.5 million of goodwill and $2.6 million of amortizable intangible assets related to customer relationships and non-compete agreements.
F-22
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In March 2005, the Company acquired all of the stock of Info Systems, Inc. (“Info Systems”). Info Systems conducted an information technology business and certain management and consulting businesses consisting of providing connectivity (network infrastructure), server architecture (applications, directory and computing infrastructure), convergence (legacy and Voice Over Internet Protocol (“VOIP”)), security (assessment, policy design)) and storage (SAN, data migration) solutions, as well as telecommunications and structured cabling services, outsourced information technology, staff augmentation and remote network monitoring, management and support services through its Network Operations Center. The initial purchase price of $11.1 million consisted of $8.3 million in cash, an aggregate of 868,150 shares (at $3.25 per share or $2.8 million total) of the Company’s common stock, plus transaction costs of $0.4 million. In the fourth quarter of fiscal 2006 the Company paid $0.3 million in cash and issued 124,109 shares of MTM common stock valued at $1.4 million related to the achievement of certain financial targets attributable to the acquired business. In fiscal 2006 the Company adjusted goodwill by $1.7 million related to this earnout. The final fair value assessment of the Info Systems acquisition resulted in the recording of $10.5 million of goodwill and $1.4 million of amortizable intangible assets related to customer relationships.
In December 2004, the Company acquired the assets and business operations of Vector ESP, Inc. and Vector ESP Management, Inc. (collectively, “Vector”). Vector provided advanced technology solutions in application delivery and deployment, network infrastructure, messaging and collaboration, remote office connectivity and workforce mobility products and services. The initial purchase price of $19.8 million was paid in the form of cash in the amount of $16.8 million, promissory notes in the amount of $0.7 million, and 433,840 shares (at $5.22 per share or $2.3 million total) of the Company’s common stock, plus transaction costs of $0.7 million. In January 2006 the Company issued 731,587 shares of MTM common stock to the Vector Shareholders upon the achievement of certain financial targets attributable to the acquired business. Related to these earnout achievements, the Company adjusted goodwill in fiscal 2006 by $3.6 million. The final fair value assessment of the Vector acquisition resulted in the recording of $20.6 million of goodwill and $3.9 million of amortizable intangible assets related to customer relationships and know how.
In September 2004, the Company acquired the assets and business operations of Network Catalyst Inc. (“Network Catalyst”). Network Catalyst provided advanced technology solutions in the VOIP, infrastructure and security fields to clients located throughout the Southern California region. The initial purchase price of $4.8 million consisted of a cash payment of $4.0 million, 500,000 shares (at $1.60 per share, or $0.8 million total) of the Company’s common stock, plus transaction costs of $0.3 million. In July 2005 the Company paid an additional $1.0 million in cash and 67,416 shares of MTM common stock upon the achievement of certain financial targets attributable to the acquired business. In fiscal 2006 an adjustment to goodwill of $1.2 million was made related to this earnout. The final fair value assessment of the Network Catalyst acquisition resulted in the recording of $6.2 million of goodwill and $1.8 million of amortizable intangible assets related to customer relationships.
Unaudited Pro Forma Summary
The following unaudited pro forma consolidated amounts give effect to the Company’s Nexl, Info Systems, Vector and Network Catalyst acquisitions as if they had occurred on April 1, 2004. The pro forma results of operations have been prepared for comparative purposes only and are not necessarily indicative of the operating results that would have been achieved had the acquisitions been consummated as of the above date, nor are they necessarily indicative of future operating results.
| | | | | | | |
| | For the Year Ended
March 31, | |
| |
| |
(In thousands,except per share data) | | 2006 | | 2005 | |
| |
| |
| |
| | | | | | | |
Net revenues: | | | | | | | |
Products | | $ | 218,004 | | $ | 200,256 | |
Services | | | 71,356 | | | 74,960 | |
| |
|
| |
|
| |
Total net revenues | | | 289,360 | | | 275,216 | |
| |
|
| |
|
| |
Net loss | | $ | (4,305 | ) | $ | (11,415 | ) |
| |
|
| |
|
| |
Net loss per common share (basic and diluted) | | $ | (0.38 | ) | $ | (1.01 | ) |
| |
|
| |
|
| |
F-23
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 11. Segment Information
The Company currently operates only within the United States. Substantially, all of the Company’s revenue generating operations have similar economic characteristics, including the nature of the products and services sold; the type and class of clients for products and services; the methods used to deliver products and services and regulatory environments.
Note 12. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the fiscal years ended March 31, 2007 and 2006.
| | | | | | | | | | | | | |
| | June 30,
2006 | | September 30,
2006 | | December 31,
2006 | | March 31,
2007 | |
| |
| |
| |
| |
| |
| | (In thousands, except per share data) | |
Fiscal 2007 | | | | | | | | | | | | | |
Net revenues | | $ | 75,231 | | $ | 67,724 | | $ | 69,755 | | $ | 62,268 | |
Cost of products sold | | | 49,330 | | | 43,519 | | | 44,068 | | | 39,367 | |
Cost of services provided | | | 10,796 | | | 10,893 | | | 10,966 | | | 10,852 | |
Net loss available to common shareholders | | | (6,795 | ) | | (11,578 | ) | | (5,469 | ) | | (11,343 | ) |
Net loss per common share (basic and diluted): | | $ | (0.59 | ) | $ | (0.99 | ) | $ | (0.46 | ) | $ | (0.95 | ) |
| | | | | | | | | | | | | |
| | June 30,
2005 | | September 30,
2005 | | December 31,
2005 | | March 31,
2006 | |
| |
| |
| |
| |
| |
Fiscal 2006 | | | | | | | | | | | | | |
Net revenues | | $ | 49,560 | | $ | 47,039 | | $ | 69,002 | | $ | 71,118 | |
Cost of products sold | | | 30,006 | | | 27,371 | | | 47,043 | | | 46,363 | |
Cost of services provided | | | 8,692 | | | 8,734 | | | 8,730 | | | 10,424 | |
Net loss | | | (5,065 | ) | | (833 | ) | | (520 | ) | | (2,056 | ) |
Net loss per common share (basic and diluted): | | $ | (0.68 | ) | $ | (0.11 | ) | $ | (0.06 | ) | $ | (0.19 | ) |
Note 13. Subsequent Events
On April 9, 2007, the Company sold to Pequot 517,526 shares of Series A-6 Preferred Stock and Series A-6 Warrants to purchase 155,258 shares of the Company’s common stock for an aggregate purchase price of $768,526. This transaction resulted in a further adjustment to the Series A conversion price of each of the Series of Series A Preferred Stock. The Company allocated and recorded during the first quarter of fiscal 2008 $0.7 million to Series A Preferred Stock and assigned and credited to additional paid in capital $0.1 million for the fair value of the warrants. The value attributed to the Series A-6 warrants was determined by using Black-Scholes.
On May 24, 2007, the Company issued and sold to Pequot 3,753,127 shares of Series A-7 Preferred Stock and Series A-7 Warrants to purchase up to 1,125,939 shares of the Company’s common stock for an aggregate purchase price of $4.5 million. At the same time the Company also granted an option to Constellation to purchase up to 417,015 shares of Series A-7 Preferred Stock and and Series A-7 Warrants to purchase up to 125,105 shares of the Company’s common stock On May 30th, Constellation exercised its rights under the foregoing options and the Company issued and sold,to Constellation 417,015 shares of Series A-7 Preferred Stock and 125,105 Series A-7 Warrants for an aggregate purchase price of $0.5 million. This transaction resulted in a further adjustment to the Series A conversion price of each of the Series of Series A Preferred Stock. The Company is in the process of obtaining a valuation with regard to the Series A-7 warrants.
F-24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| MTM TECHNOLOGIES, INC. |
Dated: June 29, 2007 | By: | /S/ STEVEN STRINGER |
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| | Steven Stringer |
| | President and Chief Operating Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
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/S/ GERALD A. POCH | | Chairman of the Board of Directors | | June 29, 2007 |
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Gerald A. Poch | | | | |
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/S/ STEVEN STRINGER | | President and Chief Operating Officer | | June 29, 2007 |
| | (Principal Executive Officer) | | |
Steven Stringer | | | | |
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/S/ J.W. BRAUKMAN III | | Senior Vice President and Chief Financial Officer | | June 29, 2007 |
| | (Principal Financial and Accounting Officer) | | |
J.W. Braukman III | | | | |
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/S/ RICHARD R. HEITZMANN | | Director | | June 29, 2007 |
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Richard R. Heitzmann | | | | |
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/S/ WILLIAM LERNER | | Director | | June 29, 2007 |
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William Lerner | | | | |
| | | | |
| | Director | | June , 2007 |
| | | | |
Alvin E. Nashman | | | | |
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/S/ ARNOLD J. WASSERMAN | | Director | | June 29, 2007 |
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Arnold J. Wasserman | | | | |
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/S/ THOMAS WASSERMAN | | Director | | June 29, 2007 |
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Thomas Wasserman | | | | |
MTM TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
Fiscal Year Ended March 31, 2007
EXHIBIT INDEX
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Exhibit
Number | | Description |
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2.1 | — | Merger Agreement, dated August 16, 2005, among NEXL, Inc., a Massachusetts corporation, MTM Technologies (Massachusetts), LLC, a Delaware limited liability company, MTM Technologies, Inc., a New York corporation and the sole shareholder of Merger Subsidiary, and Clifford L. Rucker [Incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K (Date of Report: August 15, 2005), filed with the Securities and Exchange Commission on August 19, 2005.] |
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2.2 | | Stock Purchase Agreement, dated January 27, 2005, by and among Info Systems, Inc., Mark Stellini, Emidio F. Stellini, Jr., Jay Foggy, Richard Roux, Jennifer McKenzie and MTM Technologies, Inc. [Incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K (Date of Report: January 26, 2005) filed with the Securities and Exchange Commission on February 1, 2005.] |
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2.3 | | Asset Purchase Agreement, dated December 1, 2004, by and among Vector ESP, Inc., Vector ESP Management, Inc. and Vector Global Services, Inc. and MTM Technologies, Inc. [Incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K (Date of Report: December 7, 2004), filed with the Securities and Exchange Commission on December 13, 2004.] |
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2.4 | — | Asset Purchase Agreement, dated September 17, 2004 by and among Network Catalyst, Inc., William Corbin, Rocci J. Della Maggiore and MTM Technologies, Inc. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: September 16, 2004), filed with the Securities and Exchange Commission on September 22, 2004.] |
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3.1 | — | Restated Certificate of Incorporation, as amended |
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3.2 | — | Amended and Restated By-Laws. [Incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K (Date of Report: August 5, 2004), filed with the Securities and Exchange Commission on August 13, 2004.] |
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4.1 | | Purchase Agreement, dated May 24, 2007, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, (Date of Report: May 24, 2007), filed with the Securities and Exchange Commission on May 31, 2007.] |
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4.2 | | Purchase Agreement, dated March 29, 2007, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, (Date of Report: March 29, 2007), filed with the Securities and Exchange Commission on April 2, 2007.] |
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4.3 | | Amended and Restated Shareholders’ Agreement, dated August 1, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity |
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| | Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC.[Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, (Date of Report: August 1, 2005), filed with the Securities and Exchange Commission on August 4, 2005.] |
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4.4 | | Amended and Restated Registration Rights Agreement, dated August 1, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC. [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K, (Date of Report: August 1, 2005), filed with the Securities and Exchange Commission on August 4, 2005.] |
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4.5 | | Amendment No. 1 to the Amended and Restated Registration Rights Agreement, dated November 23, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC. [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K, (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
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4.6 | | Amendment No. 2 to the Amended and Restated Registration Rights Agreement, dated March 29, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC. [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K, (Date of Report: March 29, 2007), filed with the Securities and Exchange Commission on April 2, 2007.] |
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4.7 | | Amendment No. 3 to the Amended and Restated Registration Rights Agreement, dated April 9, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, (Date of Report: April 9, 2007), filed with the Securities and Exchange Commission on April 13, 2007.] |
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4.8 | | Amendment No. 4 to the Amended and Restated Registration Rights Agreement, dated May 24, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC. [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K, (Date of Report: May 24, 2007), filed with the Securities and Exchange Commission on May 31, 2005.] |
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4.9 | — | Purchase Agreement, dated January 29, 2004, among Micros-to-Mainframes, Inc., Pequot Private Equity Fund III, L.P. and Pequot Offshore Private Equity Partners III, L.P. [Incorporated by reference to Appendix A to the proxy statement contained as part of the registrant’s definitive Schedule 14A, filed with the Securities and Exchange Commission on April 15, 2004.] |
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4.10 | — | Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, (Date of Report: December 7, 2004), filed with the Securities and Exchange Commission on December 13, 2004.] |
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4.11 | — | Amendment No. 1 to the Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC. [Incorporated by reference to Exhibit 4.3 to the registrant’s Quarterly Report on Form 8-K, (Date of Report: December 31, 2005), filed with the Securities and Exchange Commission on February 14, 2006.] |
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4.12 | — | Amendment No. 2 to the Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
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4.13 | — | Form of the Series A-7 Warrant Certificate [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: May 24, 2007), filed with the Securities and Exchange Commission on May 31, 2007.] |
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4.14 | — | Form of the Series A-6 Warrant Certificate [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: March 29, 2007), filed with the Securities and Exchange Commission on April 2, 2007.] |
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4.15 | — | Form of the Series A-5 Warrant Certificate [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
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4.16 | — | Form of the Series A-4 Warrant Certificate [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K (Date of Report: December 7, 2004), filed with the Securities and Exchange Commission on December 13, 2004.] |
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4.17 | — | Form of the Series A-3 Warrant Certificate [Incorporated by reference to Exhibit 10.7 of the registrant’s Current Report on Form 8-K (Date of Report: December 7, 2004), filed with the Securities and Exchange Commission on December 13, 2004.] |
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4.18 | — | Warrant Certificate, evidencing 438,225 warrants registered in the name of Pequot Private Equity Fund III, LLP. [Incorporated by reference to exhibit 10.6 to the registrant’s Current Report on Form 8-K (Date of Report: May 21, 2004), filed with the SEC on June 7, 2004.] |
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4.19 | — | Warrant Certificate, evidencing 61,775 warrants registered in the name of Pequot Offshore Private Equity Partners III, L.P. [Incorporated by reference to exhibit 10.6 to the registrant’s Current Report on Form 8-K (Date of Report: May 21, 2004), filed with the SEC on June 7, 2004.] |
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4.20 | — | Warrant Certificate, evidencing 350,580 warrants registered in the name of Pequot Private Equity Fund III, L.P. [Incorporated by reference to exhibit 4.5 to the registrant’s Registration Statement on Form S-3 (Commission File No. 333-117549) filed with the SEC on December 5, 2004.] |
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4.21 | | Warrant Certificate, evidencing 49,420 warrants registered in the name of Pequot Offshore Private Equity Partners III, L.P. [Incorporated by reference to exhibit 4.5 to the registrant’s Registration Statement on Form S-3 (Commission File No. 333-117549) filed with the SEC on October 5, 2004.] |
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4.22 | — | Warrant Certificate issued to National Electrical Benefit Fund. [Incorporated by reference to Exhibit 10.5 to the registrants Current Report on Form 8-K (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
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4.23 | — | Series A-5 Voting Agreement, dated November 23, 2005 [Incorporated by reference to Exhibit 99.2 to the registrant’s Current Report on Form 8-K (Date of Report: November 22, 2005), filed with the Securities |
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| | and Exchange Commission on November 29, 2005.] |
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4.24 | — | Columbia Voting Agreement, dated November 4, 2005 [Incorporated by reference to Exhibit 99.1 to the registrant’s Current Report on Form 8-K (Date of Report: November 4, 2005), filed with the Securities and Exchange Commission on November 4, 2005.] |
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10.1 | — | Waiver Letter, dated February 14, 2007, between MTM Technologies, Inc. and the CIT Group/Business Credit, Inc. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: February 14, 2007), filed with the Securities and Exchange Commission on February 15, 2007.] |
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10.2 | — | Waiver Letter dated December 9, 2005, by Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 99.7 to the registrant’s Registration Statement on Form S-3, filed with the Securities and Exchange Commission on December 28, 2005.] |
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10.3 | — | Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, LLC Investment Management as Investment Manager and National Electrical Benefit Fund as Lender [Incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
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10.4 | — | Financing Agreement among the CIT Group/Business Credit, Inc., the Lenders that are parties thereto, MTM Technologies, Inc., and its subsidiaries that are parties thereto, dated as of June 8, 2005 [Incorporated by reference to exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: June 8, 2005), filed with the Securities and Exchange Commission on June 14, 2005.] |
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10.5 | — | Loan and Security Agreement among Textron Financial Corporation, MTM Technologies, Inc. MTM Technologies (California) Inc., MTM Technologies (Texas) Inc., MTM Technologies (US), Inc., and Info Systems, Inc., dated as of June 8, 2005 [Incorporated by reference to exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: June 8, 2005), filed with the Securities and Exchange Commission on June 14, 2005.] |
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10.6 | — | Micros-to-Mainframes, Inc. 2002 Long-Term Performance Plan. [Incorporated by reference to Exhibit 10.2 to the registrant’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on March 4, 2005.] |
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10.7 | — | Micros-to-Mainframes, Inc. 2004 Equity Incentive Plan. [Incorporated by reference to Appendix L to the proxy statement contained as part of the Company’s definitive Schedule 14A, filed with the Securities and Exchange Commission on April 15, 2004.] |
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10.8 | — | Micros-to-Mainframes, Inc. 2000 Long-Term Performance Plan. [Incorporated by reference to exhibit 99.B1 to the Company’s definitive Schedule 14A, filed with the Securities and Exchange Commission on September 25, 2000.] |
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10.9 | — | Micros-to-Mainframes, Inc. 1998 Stock Option Plan. [Incorporated by reference to exhibit 4.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, filed with the Securities and Exchange Commission on November 2, 1998.] |
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10.10 | — | Micros-to-Mainframes, Inc. 1996 Stock Option Plan. [Incorporated by reference to exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, filed with the Securities and Exchange Commission on November 2, 1998.] |
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10.11 | — | Micros-to-Mainframes, Inc. 1993 Employee Stock Option Plan. [Incorporated by reference to exhibit 10.2 to Amendment Number 2 to the registrant’s Registration Statement on Form S-2, filed with the Securities and Exchange Commission on July 14, 1993.] |
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10.12 | — | MTM Technologies, Inc. Associates Stock Purchase Plan [Incorporated by reference to exhibit 10.1 to the registrant’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July 1, 2005.] |
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10.13 | — | Consulting Agreement, dated April 26, 2007, between MTM Technologies, Inc. and Francis J. Alfano and Tory Ventures LLC [Incorporated by reference to exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: April 26, 2007), filed with the Securities and Exchange Commission on May 1, 2007.] |
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10.14 | — | Agreement and General Release, dated April 26, 2007, between MTM Technologies, Inc. and Francis J. Alfano [Incorporated by reference to exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: April 26, 2007), filed with the Securities and Exchange Commission on May 1, 2007.] |
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10.15 | — | Letter Agreement, dated September 28, 2006 between MTM Technologies, Inc. and J.W. Braukman, III [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: September 28, 2006), filed with the Securities and Exchange Commission on October 3, 2006.] |
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10.16 | — | Consulting Service Agreement, dated September 13, 2006 between MTM Technologies, Inc. and Michael El-Hillow [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: September 13, 2006), filed with the Securities and Exchange Commission on September 19, 2006.] |
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10.17 | — | Employment Agreement, dated August 10, 2006 by and between MTM Technologies, Inc. and Steven Stringer. [Incorporated by reference to exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: August 10, 2006), filed with the Securities and Exchange Commission on August 14, 2006.] |
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10.18 | — | Consulting Agreement, dated July 7, 2006 between MTM Technologies, Inc. and Steven Rothman [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: July 7, 2006), filed with the Securities and Exchange Commission on July 11, 2006.] |
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10.19 | — | Letter Agreement, dated July 7, 2006 between MTM Technologies, Inc. and Steven Rothman [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: July 7, 2006), filed with the Securities and Exchange Commission on July 11, 2006.] |
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10.20 | — | Employment Agreement, dated June 28, 2006, between MTM Technologies, Inc. and Francis J. Alfano [Incorporated by reference to exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: June 28, 2006), filed with the Securities and Exchange Commission on July 5, 2006.] |
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10.21 | — | Severance Letter, dated December 12, 2005, between MTM Technologies, Inc. and Michael El-Hillow [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: December 12, 2005), filed with the Securities and Exchange Commission on December 15, 2005.] |
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10.22 | — | Waiver and Amendment Letter, dated June 21, 2007, between MTM Technologies, Inc. and the CIT Group/Business Credit, Inc. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: June 21, 2007), filed with the Securities and Exchange Commission on June 27, 2007.] |
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10.23 | — | Waiver and Amendment Letter, dated June 21, 2007, between MTM Technologies, Inc. and the Textron Financial Corporation. [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: June 21, 2007), filed with the Securities and Exchange Commission on June 27, 2007.] |
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10.24 | — | Lease Agreement, dated August 15, 2005, between 1200 High Ridge Company, LLC and MTM Technologies, Inc. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: August 15, 2005), filed with the Securities and Exchange Commission on August 19, 2005.] |
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10.25 | — | Form of Employee Stock Option Agreement [Incorporated by reference to exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2004, filed with the Securities and |
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| | Exchange Commission on November 15, 2004.] |
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10.26 | — | Form of Employee Restricted Stock Unit Agreement. [Incorporated by reference to Exhibit 10.19 to the registrant's Annual Report on Form 10-K/A (Date of Report: March 31, 2006), filed with the Securities and Exchange Commission on September 12, 2006.] |
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10.27 | — | Form of Executive Stock Option Agreement. [Incorporated by reference to Exhibit 10.20 to the registrant's Annual Report on Form 10-K/A (Date of Report: March 31, 2006), filed with the Securities and Exchange Commission on September 12, 2006.] |
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10.28 | — | Form of Executive Restricted Stock Unit Agreement. [Incorporated by reference to Exhibit 10.21 to the registrant's Annual Report on Form 10-K/A (Date of Report: March 31, 2006), filed with the Securities and Exchange Commission on September 12, 2006.] |
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14.1 | — | Code of ethics. [Incorporated by reference to Exhibit 14.1 to the registrant’s Annual Report on Form 10-K for the year ended March 31, 2004, filed with the Securities and Exchange Commission on June 29, 2004.] |
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21.1 | — | Subsidiaries of MTM Technologies, Inc. |
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23.1 | — | Consent from Goldstein Golub Kessler LLP. |
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31.1 | — | Certification pursuant to Exchange Act Rule 13a-14(a) of Steven Stringer. |
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31.2 | — | Certification pursuant to Exchange Act Rule 13a-14(a) of J.W. Braukman III. |
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32.1 | — | Certification pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of Steven Stringer. |
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32.2 | — | Certification pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of J.W. Braukman III. |
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