U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2001
Commission file number 000-24405
PALLET MANAGEMENT SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-2197020
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2855 University Drive, Suite 510
Coral Springs, Florida 33065
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Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (954) 340-1290
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Company is $1,836,927 based on the closing price
of $ 0.72 per share as of October 5, 2001.
As of October 5, 2001, there were 4,065,612 shares of the issuer's
Common Stock, $.01 par value, outstanding.
PART III
ITEM 11. EXECUTIVE COMPENSATION.
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The following table summarizes all compensation paid by the Company in
each of the last three fiscal years for the Company's executive officers
currently serving as such whose annual compensation exceeded $100,000.
Annual Compensation Long Term
Name and ----------------------------------------------------- Compensation
Principal Position Year Salary($)(1) Bonus($) Other($)(2) Options
---------------------------- ----- ------------------ -------- ------------ ------------
Zachary M. Richardson, 2001 170,878 0 83,200(3) 40,556
President 2000 161,114 0 59,900(4) 40,626
1999 119,000 0 13,200 79,890
John C. Lucy, III 2001 172,262 0 14,348(5) 40,556
Chief Executive Officer 2000 161,451 0 16,800(6) 40,626
1999 119,000 0 25,200 79,890
(1) Includes medical insurance reimbursements.
(2) Includes car allowances and other miscellaneous benefits.
(3) Includes $13,200 for car allowances. Also, Mr. Richardson sold his home
at the request of the Company and incurred expenses in connection with
this sale. In fiscal year 2001, the Company reimbursed Mr. Richardson
$70,000 for his out of pocket costs.
(4) Includes $13,200 for car allowances and $16,800 for reimbursement of
income taxes paid. Also, as noted in footnote 3 above, Mr. Richardson
sold his home at the request of the Company and incurred expenses in
connection with this sale. In fiscal year 2000, the Company reimbursed
Mr. Richardson for closing costs in connection with this sale, which
totaled $29,900.
(5) Includes $13,200 for car allowances and other miscellaneous benefits,
and $1,148 for payment of Mr. Lucy's Guardian Life policy.
(6) Includes $13,200 for car allowances and other miscellaneous benefits,
and $3,600 for reimbursement of closing costs incurred in connection
with the purchase of Mr. Lucy's home.
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The following table sets forth information concerning individual grants
of stock options made during the fiscal year ended June 30, 2001 to each of the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
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NUMBER OF SHARES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE OR BASE
NAME GRANTED(#) IN FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE
---- ------------------ -------------------- --------------- ---------------
Zachary M. Richardson 40,556 (1) 34% 2.25 7/24/10
John C. Lucy, III 40,556 (1) 34% 2.25 7/24/10
(1) Options to purchase 8,111 shares vest each year, beginning July 1, 2001
and continuing through July 1, 2005.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number Of Value Of
Securities Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options Options
On Value at FY-End (#) at FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ------- -------- ------------- -------------
Zachary M. Richardson 0 0 529,426/76,819 $0/$0
John C. Lucy, III 0 0 523,394/76,819 $0/$0
COMPENSATION OF DIRECTORS
Starting in fiscal year 2001, the Chairman of the Board is paid a
monthly retainer of $1,000 and all other directors are paid a monthly retainer
of $500. The directors are paid $1,000 per board meeting day and $500 per
teleconference meeting plus all related business expenses. All audit committee
members are paid $250 per quarter. All directors are granted 30,000 ten-year
options when they are appointed or elected to the board and may be granted
additional options for each additional year they are on the board at the then
market value. These options vest over two years at fifty percent per year and
when services are terminated, all unexercised options are forfeited. See also
"Stock Option Plans."
EMPLOYMENT AGREEMENTS
In November 1998, the Company entered into five-year employment
agreements (the "Employment Agreements") with Zachary M. Richardson and John C.
Lucy, III. Pursuant to the terms of these Employment Agreements, each executive
is entitled to receive (i) annual base compensation of $156,000, with increases
in future years by the percentage increase of the Consumer Price Index and (ii)
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a bonus up to 100% of base salary based on the increase in pretax earnings per
share over the prior year. For the year ending June 30, 2001, Mr. Lucy agreed to
waive the bonus with no other effect on the existing employment agreement, and
Mr. Richardson informed the Board of Directors in October 2001 that he would be
willing to forego the payment of a cash bonus for a greater equity incentive in
the form of the grant of additional stock options with no other effect on the
existing employment agreement. The Board agreed, and in this regard granted him
options to purchase 209,344 shares of the Company's common stock. The Employment
Agreements also provide for annual grants of common stock options commencing in
fiscal 2000 equal to 1% of the then outstanding number of common shares at an
exercise price of fair market value at date of grant, and the granting of
150,000 stock appreciation rights that vest only upon a "Change of Control" as
defined in the Employment Agreements.
During the term of the Employment Agreements, should there be a Change
of Control of the Company as that term is defined therein, the Company, at its
sole option, may terminate the Employment Agreements upon 30 days prior written
notice and thereafter will be obligated to pay the executives the balance of the
compensation payable under the Employment Agreements, had they not been
terminated prior to their expiration, together with an additional sum equal to
299% of Executives' annual base compensation. The Employment Agreements also
contain non-competition and confidentiality provisions.
STOCK OPTION PLANS
Pallet Management has adopted two combined stock option and
appreciation rights plans (the "Plans") to attract and to induce officers,
directors and key employees of the Company to remain with the Company. The Plans
provide for options which qualify as incentive stock options under Section
422(a) of the Internal Revenue Code of 1986, as amended (the "Code"), as well as
nonstatutory options. No more than fifteen percent (15%) of the Common Stock
outstanding will be reserved for issuance upon exercise of options to be granted
from time-to-time. The 1997 Omnibus Stock Option Plan (the "1997 Plan") was
approved in August, 1997. Pallet Management's 1998 Omnibus Stock Option Plan
(the "1998 Plan") became effective on September 1, 1998. An aggregate of 250,000
shares is reserved for issuance under the 1997 Plan and 1,000,000 shares are
reserved for issuance under the 1998 Plan.
As of September 21, 2001, an aggregate of 6,394 options were
outstanding under the 1997 Plan with an exercise price of $2.00, and an
aggregate of 519,669 options were outstanding under the 1998 Plan with exercise
prices ranging from $2.25 to $5.25. These options generally vest over a
five-year period and expire ten years from date of grant. From 1997 through
2001, the Company granted Messrs. Lucy, III and Richardson options to acquire an
aggregate of 600,215 and 606,247 shares, respectively. See Item 12, "Security
Ownership of Certain Beneficial Owners and Management."
The Plans provide for a combined stock option and appreciation rights
plan. The Plans provide for options which will qualify as incentive stock
options under Section 422(a) of the Internal Revenue Code of 1986, as amended,
as well as for options which do not so qualify. Incentive Awards may be granted
under the Plans in the form of Options, Stock Appreciation Rights, Restricted
Stock, and Performance Awards.
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No more than 50,000 common shares may be allocated to Incentive Awards
and no more than 300,000 common shares may be allocated to Non-Incentive Awards
granted to any one employee during a single calendar year.
All present and future employees of the Company or of any parent or
subsidiary of the Company ("Employee") and any person retained to provide
services to the Company (other than as an Employee, a member of the Board of
Directors or a member of the board of directors of any subsidiary or parent of
the Company), and who is selected by the committee, is eligible to receive
Incentive Awards under the Plan.
All present and future Non-Employee Directors are eligible to receive
Non-Statutory Options under the Plan. Non-Employee Directors shall not be
entitled to receive any other form of Incentive Award under the Plan.
The exercise price of shares of Company Stock covered by an Incentive
Stock Option cannot be less than 100% of the fair market value of such shares on
the date of grant; provided that if an Incentive Stock Option is granted to an
Employee who, at the time of the grant, is a 10% Shareholder, then the exercise
price of the shares covered by the Incentive Stock Option will not less than
110% of the fair market value of such shares on the date of grant. The exercise
price of Nonstatutory Stock Options will not be less than 85% of fair market
value of such shares on the date of grant.
Whenever the Board of Directors of the Company (the "Board") deems it
appropriate, Stock Appreciation Rights may be granted in connection with all or
any part of an Option, either concurrently with the grant of the Option or, if
the Option is a Nonstatutory Stock Option, by an amendment to the Option at any
time thereafter during the term of the Option. Stock Appreciation Rights may be
exercised in whole or in part at such times and under such conditions as may be
specified by the Committee in the participant's stock option agreement.
The Board may terminate or amend the Plans in such respects as it shall
deem advisable. The Board may unilaterally amend the Plans and Incentive Awards
as it deems appropriate to ensure compliance with Rule 16b-3 and to cause
Incentive Awards to meet the requirements of the Code, including Code section
422, and regulations thereunder.
ACCELERATED OPTIONS
In August 1997, the Company jointly granted 1,000,000 options to
Messrs. Richardson and Lucy to re-allocate to other members of the Company's
management. Messrs. Richardson and Lucy immediately re-allocated approximately
one-third of these options to other members of the Company's management. If an
employee terminated employment with the company, for any reason or no reason,
the options allocated to them would immediately revert back to Messrs.
Richardson and Lucy. The options provided that vesting would accelerate if the
Company achieved specified income before taxes, depreciation, amortization and
certain other charges at different measurement dates, which milestones were
determined based on management's internal projections through fiscal 1999. All
three milestones were met and the options vested according to the accelerated
schedule. The options expire in August 2002. See Item 12, "Security Ownership of
Certain Beneficial Owners and Management."
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The following table summarizes the terms of these vested but
unexercised options:
NAME EXERCISE PRICE VESTED EXPIRATION DATE
---- -------------- ------ ---------------
Zachary M. Richardson $1.50 172,412 August 20, 2002
$1.75 128,613
$2.25 135,400
John C. Lucy, III $1.50 172,412 August 20, 2002
$1.75 128,613
$2.25 135,400
Other Employees $1.50 55,175 August 20, 2002
$1.75 42,775
$2.25 29,200
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1,000,000
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
The Company created its Compensation Committee during fiscal 2001.
Philip D. Feltman, as Chairman, and Robert L. Steiler served on during fiscal
2001, and currently comprise, the Board's Compensation Committee. Mr. Steiler is
also the sole owner of a company that provides consulting services to the
Company for compensation. See "Item 13, Certain Relationships and Related
Transactions." Mr. Steiler abstains from voting on issues concerning such
compensation.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General Compensation Policy. The three principal components of the
Compensation Committee's executive compensation are salary, bonus and stock
options. The components are designed to facilitate fulfillment of the
compensation objectives of the Compensation Committee, which objectives include
(i) attracting and retaining competent management, (ii) recognizing individual
initiative and achievement, (iii) rewarding management for short and long term
accomplishments and (iv) aligning management compensation with the achievement
of the Company's goals and performance.
The Compensation Committee endorses the position that equity ownership
by management is beneficial in aligning management's and shareholders' interest
in the enhancement of shareholder value. Base salaries for new management
employees are determined initially by evaluating the responsibilities of the
position held and the experience of the individual, and by reference to the
competitive marketplace for managerial talent, including a comparison of base
salaries for comparable position at similar companies of comparable sales and
capitalization. Annual salary adjustments are determined by evaluating (i) the
performance of and responsibilities assumed by the executive, (ii) the
competitive marketplace and (iii) the performance of the Company. The
Compensation Committee does not utilize any specific formula to determine
compensation based on Company performance.
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The Compensation Committee periodically reviews the Company's existing
management compensation programs on an ongoing basis, including (i) meetings
with the President to consider and set mutually agreeable performance standards
and goals for members of senior management and/or the Company, as appropriate or
as otherwise required pursuant to any such officer's employment agreement and
(ii) modifications to such compensation programs as appropriate, to ensure
alignment with the philosophy and established standards and goals of the
Compensation Committee.
Compensation of President and Chief Executive Officer. The Company has
entered into employment agreements with both Mr. Zachary M. Richardson, its
President, and Mr. John C. Lucy, III, its Chief Executive Officer. Each of their
employment agreements provide for bonuses of up to 100% of base salary based on
the increase in pretax earnings per share over the prior year. See "Employment
Agreements." Aside from Company performance, other factors which influence the
compensation paid to Messrs. Richardson and Lucy include executive
responsibilities and performance, and compensation levels at comparable
companies.
Philip D. Feltman, Chairman
Robert L. Steiler
PERFORMANCE GRAPH
COMPARE CUMULATIVE TOTAL RETURN
AMONG PALLET MANAGEMENT SYSTEMS, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
1996 1997 1998 1999 2000 2001
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Pallet Management Systems, Inc. 100.00 70.00 430.00 210.00 125.00 52.00
SIC Code Index 100.00 144.49 151.84 114.39 85.48 40.48
NASDAQ Market Index 100.00 120.46 159.68 223.77 336.71 186.46
Assumes $100 invested on July 1, 1996
Assumes Dividend Reinvested
Fiscal Year Ending June 30, 2001
[GRAPHIC OMITTED]
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to the
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
PALLET MANAGEMENT SYSTEMS, INC.
Date: April 10, 2002 By: /s/ Marc S. Steinberg
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Marc S. Steinberg, Vice President
and Chief Financial Officer
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