ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors of the Registrant
As of October 20, 2007, the directors and executive officers of the Company and
their ages are as follows:
Name Age Position
----- --- --------
Scott E. Foote 45 Chief Executive Officer and President
Peter C. Castle 38 Chief Financial Officer, Vice President-
Finance, Director, Treasurer and Secretary
Fassil Gabremariam (1)(2) 61 Member of the Board of Directors
Gerald Gagliardi (3) 59 Member of the Board of Directors
Michael R. Rocque (2)(3) 47 Member of the Board of Directors
(1) Member of the Audit Committee
(2) Member of Compensation Committee
(3) Member of the Corporate Governance Committee
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The following is a brief account of the business experience for at least the
past five years of our directors:
Scott Foote (45) has been our Chief Executive Officer since May 2007, President
since October 2006, Vice President since June 2003 and President of NetWolves
Network Services since the Company's acquisition in July 2002. Mr. Foote has
been a director of the Company since October 2006. Prior to NetWolves, Mr. Foote
held a number of positions at Norstan Network Services, Inc. (NNSI), including
Business Segment Director, Director of Operations, Director of Product
Development and National Account Manager. Prior to NNSI, Mr. Foote was the Chief
Operating Officer and Vice President of Membership Development for
Telecommunications Cooperative Network (TCN), where he managed the day to day
operations including sales, marketing, finance and information technology
Peter C. Castle (38) has been our Chief Financial Officer since 2001, Vice
President - Finance since January 2000, Controller from August 1998 until
December 1999 and Treasurer and Secretary since August 1999. In addition, Mr.
Castle was appointed a director of the Company in October 2006. From 1996
through July 1998 Mr. Castle was the Southeast Regional Finance Manager for
Magellan Health Service, Inc. a $1.6 billion managed behavioral care company
based in Georgia. Prior to that Mr. Castle was the Controller for Physician's
Care Network of NY, Inc.
Fassil Gabremariam (61) has been a director of the Company since January 2003
and is a member of the Audit and Compensation Committees. Prior to joining us,
Mr. Gabremariam served as Vice President of Finance with GTE Corporation for 25
years both in domestic and international assignments including manufacturing,
auditing, information and technology and telecommunication services. Mr.
Gabremariam is a highly respected member of the Tampa Bay community. In 1994 he
was appointed Commissioner of the Tampa Bay Port Authority and was re-appointed
in 1999 by Governor Jeb Bush where he served until 2001. He has served on
several prestigious boards including the Technology Board of Enterprise Florida,
the Merchants Association, the University Community Hospital and the United Way.
Mr. Gabremariam is also a member of the Board of Trustees of the University of
Tampa, the Council on Foreign Relations and the Society of International
Business Fellows. In October 2002, he was appointed by the Federal Reserve in
Washington D.C. to a three-year term as Board Member of the Jacksonville branch
of the Federal Reserve representing north central Florida.
Gerald A. Gagliardi (59), has been a director of the Company since April 2006
and is a member of our Compensation and Corporate Governance Committees. Mr.
Gagliardi was Senior Vice President, Worldwide Customer Services of NCR
Corporation from February 2001 until his retirement in March 2006. In this
capacity, he was responsible for worldwide customer services, a unit with
operations in 130 countries, employing over 13,000 permanent and part time
employees. Worldwide Customer Services generates over $2.0 billion in hardware
and software maintenance, outsourcing and professional services. From July 2000
until February 2001, Mr. Gagliardi served as a consultant for E.M. Warburg
Pincus & Co., LLC, evaluating investments and providing managerial assistance
within the Warburg Pincus portfolios. Mr. Gagliardi has had extensive experience
in the IT Industry, with 28 years of service at Unisys (Burroughs Corporation)
where he served as Executive Vice President and President of Global Customer
Service. He also served as CEO and President of Inacom Corporation. Mr.
Gagliardi has received various awards during his career, including the
Chairman's "Pinnacle of Excellence" award while at Unisys, which had been
awarded to only thirteen persons in that company's 100 year history.
Michael R. Rocque (47), has been a director since April 2006 and is a member of
our Compensation and Corporate Governance Committees. Mr. Rocque has been the
President of Leading Strategies, Inc. since July 2000, a company which he
founded. Leading Strategies, Inc. is a firm focused on providing interim
executive management to diverse business organizations for the effective
management of rapid growth, crisis situations and dynamic change. Since its
inception, Leading Strategies has been involved in several successful
engagements including deployment to Iraq as part of a consortium of
infrastructure development partners working for the U.S. Government to organize
and execute the installation of medical equipment into 150 primary healthcare
clinics across Iraq. Leading Strategies, Inc. is also currently engaged with
Adirondack Technology Partners for the purpose of commercializing university
derived and incubating technology through the formation of new companies to
create employment and improve economic development in New York State. For
approximately 20 years prior thereto until his retirement in 2000, Mr. Rocque
distinguished himself as an officer in the U.S. Army. Mr. Rocque served in the
Delta Force, the highest priority combat unit in the U.S. Army, for in excess of
15 years and prior thereto served in the Green Berets. From September 1997 to
July 1999, as a Lieutenant Colonel, he was commander of a special operations
squadron in Delta Force, responsible for training, equipping, deploying and
leading the squadron anywhere in the world immediately upon notification from
the President of the United States and the Secretary of Defense. From July 1999
until his retirement in August 2000, he was Chief, Readiness Evaluation Program
for the Commanding General of the U.S. Army Special Forces Command. His overall
responsibility was to direct, devise and coordinate a comprehensive evaluation
program for the five active duty Special Forces Groups in the U.S. Army.
Committees of the Board of Directors
Audit Committee and Audit Committee Financial Expert
The Board has a standing Audit Committee. The Board has affirmatively determined
that each director who serves on the Audit Committee is independent, as the term
is defined by applicable Securities and Exchange Commission ("SEC") rules. The
Audit Committee currently consists of Fassil Gabremariam. Mr. Gabremariam has
substantial experience in assessing the performance of companies, gained as a
member of the Company's Board of Directors and Audit Committee as well as by
serving in various capacities in other companies or governmental agencies. As a
result, Mr. Gabremariam has an understanding of financial statements, however,
he has not kept current on all aspects of generally accepted accounting
principles. Accordingly, the Board of directors does not consider him to be a
financial expert as that term is defined in applicable regulations.
Nevertheless, the board of directors believes that he competently performs the
functions required of him as a member of the audit committee and, given his
background, it would not be in the best interest of the Company to replace him
with another person to qualify a member of the Audit Committee as a financial
expert. The Company is seeking to add at least one additional member to this
committee with financial expertise.
The Audit Committee regularly meets with our independent registered public
accounting firm outside the presence of management.
Compensation Committee
Our Compensation Committee annually establishes, subject to the approval of the
Board of Directors and any applicable employment agreements, the salaries, which
will be paid to our executive officers during the coming year, and administers
our stock-based benefit plans. The Compensation Committee currently consists of
Fassil Gabremariam and Michael Rocque. Each member of the Compensation Committee
is a director who is not employed by us or any of our affiliates, and is an
independent director under applicable SEC rules.
Corporate Governance Committee
The Board of Directors has established a Corporate Governance Committee, which
is currently comprised of Fassil Gabremariam and Gerald Gagliardi. The Corporate
Governance Committee monitors developments in corporate governance principles
and other corporate governance matters and makes recommendations to the Board of
Directors regarding the adoption of additional corporate governance principles.
Compliance with Section 16(a) of The Securities Exchange Act of 1934 -
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and persons who beneficially own more than 10% of our common
stock (collectively, "Reporting Persons") to file initial reports of ownership
and reports of changes in ownership of our common stock with the Securities and
Exchange Commission. Reporting Persons are required by SEC regulations to
furnish us with copies of all Section 16(a) reports they file. To our knowledge,
based solely on our review of the copies of such reports received or written
representations from certain Reporting Persons that no other reports were
required, we believe that during fiscal 2007, all Reporting Persons timely
complied with all applicable filing requirements.
Corporate Governance - Code of Ethics
We have adopted a Corporate Code of Business Ethics (the "Code") that applies to
all employees, including our principal executive officer, principal financial
officer, and directors of the Company. The Code is broad in scope and is
intended to foster honest and ethical conduct, including accurate financial
reporting, compliance with laws and the like. If any substantive amendments are
made to the Code or if there is any grant of waiver, including any implicit
waiver, from a provision of the Code to our Chief Executive Officer or Chief
Financial Officer, we will disclose the nature of such amendment or waiver in a
report on Form 8-K.
ITEM 10. EXECUTIVE COMPENSATION
Executive Officers of the Registrant
The following table sets forth the annual and long-term compensation of our
Chief Executive Officer and each of our most highly compensated officers other
than the Chief Executive Officer who were serving as executive officers at the
end of the last completed fiscal year, and certain former executive officers as
required under SEC rules (collectively, the "Named Executive Officers") for
services rendered for the fiscal years ended June 30, 2007 and 2006.
Summary Compensation Table
-------------------------- ----- ------------- ----------- ----------- ------------ ------------- ------------- ---------- ---------
Nonqualified
Non-Equity Deferred
Name and Principal Incentive Compensation All Other
Position Stock Option Plan Earnings Compensation Total
Year Salary ($) Bonus ($) Awards ($) Awards ($) Compensation ($) ($) (1) ($)
(5) ($)
-------------------------- ----- ------------- ----------- ----------- ------------ ------------- ------------- ------------ -------
Scott Foote (6) 2007 $175,000 -- -- $39,000 -- -- $10,923 $252,923
Chief Executive Officer, 2006 $150,000 $28,000 -- -- -- -- -- $178,000
and President
-------------------------- ----- ------------- ----------- ----------- ------------ ------------- ------------- ----------- --------
Peter C. Castle (2) 2007 $175,000 -- -- $52,000 -- -- $13,287 $240,287
Chief Financial 2006 $175,000 -- -- -- -- -- -- $175,000
Officer, Vice President
Finance, Treasurer and
Secretary
-------------------------- ----- ------------- ----------- ----------- ------------ ------------- ------------- ---------- ---------
Ryan Kelly 2007 $185,000 $ 3,571 -- $19,500 -- -- $4,600 $212,671
Vice President 2006 $150,000 $58,805 -- -- -- -- -- $208,805
-------------------------- ----- ------------- ----------- ----------- ------------ ------------- ------------- ---------- ---------
Walter M. Groteke (3) 2007 $128,540 -- -- -- -- -- $13,122 $141,663
Former CEO 2006 $298,331 $298,331
-------------------------- ----- ------------- ----------- ----------- ------------ ------------- ------------- ---------- ---------
Walter R. Groteke 2007 $105,469 -- -- -- -- -- $10,893 $116,362
(4) 2006 $175,000 -- -- -- -- -- -- --
Former Senior Vice
President
-------------------------- ----- ------------- ----------- ----------- ------------ ------------- ------------- ---------- ---------
(1) Represents premiums paid on medical, dental, life and disability group
benefit plans and auto allowance.
(2) This amount includes $26,250 payable under his employment agreement,
which has been indefinitely deferred. As part of the plan to reduce
certain expenses of the Company the Chief Financial Officer
voluntarily accepted a pay reduction of 50% of his current pay. This
amount is net of an existing 15% deferment and commenced February 1,
2007. This reduction was reinstated to its original amount by the
consent of the Company's Board of Directors as of June 30, 2007.
Actual wages paid during fiscal year 2006 was $129,427.12
(3) On December 4, 2006, the Company accepted the resignation of Walter M.
Groteke as Chairman, Chief Executive Officer and a director of the
Company, effective immediately.
(4) Effective April 1 2007, Walter R. Groteke resigned as an officer,
director and employee of the Company.
(5) Option awards are valued at the fair market value times the number of
shares which represent the fair market value of the underlying common
stock at the time of the respective grants.
(6) Mr. Foote was appointed CEO in May 2007.
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Outstanding Equity Awards at Last Fiscal Year End
The following table provides information regarding outstanding options, unvested
stock and equity incentive plan awards for our named executive officers during
the fiscal year ended June 30, 2007.
--------------- ------------------------------------------------------------ -------------------------------------------------------
Option Awards Stock Awards
----------------- ------------- ------------- --------------- --------- ------------ ------------ ---------- ----------- -----------
Name Number of Number of Equity Option Option Number of Market Equity Equity
Securities Securities Incentive Plan Exercise Expiration Shares or Value of Incentive Incentive
Underlying Underlying Awards: Number Price Date Units of Shares or Plan Plan
Unexercised Unexercised of Underlying Stock That Units of Awards: Awards:
Options - Options - Unexercised Have Not Stock Number of Market or
Exercisable Unexercisable Unearned Vested That Have Unearned Payout
Options Not Vested Shares, Value of
Units or Unearned
Other Shares,
Rights Units or
That Have Other
Not Vested Rights
That Have
Not Vested
---------------- ------------- ------------- -------------- -------- ------------ ------------ --------- ---------- -----------
300,000 -- -- $0.16 12/12/2011 -- -- --
Scott Foote 100,000 -- -- $1.00 12/19/2007 -- -- -- --
---------------- ------------- ------------- -------------- -------- ------------ ------------ --------- ---------- -----------
Peter C. Castle 400,000 -- -- $0.16 12/12/11 -- -- -- --
65,000 -- -- $12.00 12/21/09 -- -- -- --
40,000 -- -- $5.00 01/06/09 -- -- -- --
250,000 -- -- $1.20 03/24/08 -- -- -- --
---------------- ------------- ------------- -------------- -------- ------------ ------------ --------- ---------- -----------
Ryan Kelly 141,096 108,904 -- $0.16 12/12/2011 -- -- -- --
100,000 -- -- $1.00 12/19/2007 -- -- -- --
---------------- ------------- ------------- -------------- -------- ------------ ------------ --------- ---------- -----------
Walter M. -- -- -- --
Groteke, Jr. 200,000 -- -- $1.63 06/16/08 -- -- -- --
---------------- ------------- ------------- -------------- -------- ------------ ------------ --------- ---------- -----------
Walter R. -- -- -- --
Groteke, Sr. 200,000 -- -- $1.63 01/06/09 -- -- -- --
---------------- ------------- ------------- -------------- -------- ------------ ------------ --------- ---------- -----------
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Equity Compensation Plan Information
We maintain various stock plans under which options vest and shares are awarded
at the discretion of our board of directors or its compensation committee. The
purchase price of the shares under the plans and the shares subject to each
option granted is not less than the fair market value on the date of grant. The
term of each option is generally five to ten years and is determined at the time
of grant by our board of directors or its compensation committee. The
participants in these plans are officers, directors and employees of the company
and its subsidiaries or affiliates. The following is as of June 30, 2007, our
last fiscal year end.
------------------------------ ----------------------------- ----------------------------- -----------------------------
Plan category
Number of
Securities to be
issued upon
exercise of outstanding options, warrants and rights Weighted- average exercise
price of outstanding options, warrants and rights Number of securities
remaining available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
------------------------------- ----------------------------- ----------------------------- -----------------------------
(a) (b) (c)
------------------------------ ----------------------------- ----------------------------- -----------------------------
Plan category Number of Weighted- Number of securities
Securities to be average exercise remaining available for
issued upon price of future issuance under
exercise of outstanding outstanding equity compensation
options, warrants options, warrants plans (excluding
and rights and rights securities reflected in
column (a))
------------------------------ ----------------------------- ----------------------------- -----------------------------
Equity
compensation 9,932,500 .46 3,047,800
plans approved
by security
holders
------------------------------ ----------------------------- ----------------------------- -----------------------------
Equity
compensation
plans not
approved by
security holders
------------------------------ ----------------------------- ----------------------------- -----------------------------
Total 9,932,500 .46 3,047,800
------------------------------ ----------------------------- ----------------------------- -----------------------------
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Employment agreements
The Company has an employment agreement with one member of its executive
management team. The employment agreement provides for certain payments
following death or disability, for certain fringe benefits such as
reimbursement for reasonable expenses and participation in medical plans,
and for accelerated payments in the event of change of control of the
Company. The specific terms are as follows:
o The agreement with the Chief Financial Officer is for a term of
three years, subject to two additional one-year extensions, at an
annual salary of $150,000. On July 1, 2004, a new agreement was
entered into for a term of five years, terminating on July 1,
2009 and subject to additional one-year extensions, at an annual
salary of $175,000. As part of the plan to reduce certain
expenses of the Company the Chief Financial Officer voluntarily
accepted a pay reduction of 50% of his current pay. This amount
is net of an existing 15% deferment and commenced February 1,
2007. This reduction was reinstated to its original amount by the
Company's Board of Directors as of June 30, 2007.
Director's Compensation
During fiscal 2007, directors who are not our employees received an annual
fee of $50,000 payable in cash or our stock and a fee of $1,500 for each
board of directors or committee meeting attended in person or $750 of
attended telephonically. During the fiscal year ended June 30, 2007, there
were:
o six meetings of the Board of Directors
o three meetings of the Audit Committee
o one meeting of the Compensation Committee
Our audit committee is involved in discussions with management and our
independent public accountants with respect to financial reporting and our
internal accounting controls. The committee recommends to the board the
appointment of our independent public accountants. The independent auditors
periodically meet alone with the committee and always have unrestricted
access to the committee. Our compensation committee awards stock options to
officers and employees and recommends executive compensation. See
"Compensation Committee Report on Executive Compensation". Each director
attended or participated in at least 75% of the meetings of the board of
directors and the committees on which he served.
The following table provides the compensation earned by our non-employee
directors for the year ended June 30, 2007:
-----------------------------------------------------------------------------------------------------------------------------------
Director Compensation
-------------------- ---------- ------------- ------------- ------------------- -------------------- ------------------- -----------
Fees Nonqualified
Earned Non-equity Deferred
or Paid Stock Awards Option Incentive Plan Compensation All Other
in Cash ($) Awards Compensation Earnings Compensation Total
Name ($) ($) ($) ($) ($) ($)
-------------------- ---------- ------------- ------------- ------------------- -------------------- ------------------- -----------
Fassil
Gabremariam $11,000 -- 26,000 -- -- -- $37,000
-------------------- ---------- ------------- ------------- ------------------- -------------------- ------------------- -----------
Gerald Gagliardi $ 6,000 -- 26,000 -- -- -- $32,000
-------------------- ---------- ------------- ------------- ------------------- -------------------- ------------------- -----------
Myron Levy $ 6,000 -- 26,000 -- -- -- $32,000
-------------------- ---------- ------------- ------------- ------------------- -------------------- ------------------- -----------
Michael Rocque $ 4,500 -- 39,000 -- -- -- $43,500
-------------------- ---------- ------------- ------------- ------------------- -------------------- ------------------- -----------
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Marcum & Kliegman LLP are our independent registered public accounting firm and
performed the audits of our consolidated financial statements for fiscal years
ended June 30, 2007 and June 30, 2006.
Audit Fees
Audit Fees includes fees for professional services provided in connection with
the audits of our financial statements, consents, and audit services provided in
connection with other statutory or regulatory filings. All such services were
pre-approved by the Audit Committee
For fiscal 2007 and 2006, Marcum & Kliegman LLP's audit fees were approximately
$239,477 and $145,000, respectively.
Audit Related Fees
Marcum & Kliegman LLP did not render any audit related services in fiscal 2007
and 2006.
All Other Fees
Marcum & Kliegman LLP did not render any other services during fiscal 2007 and
2006.
Tax Fees
Marcum & Kliegman LLP did not render any tax services in fiscal 2007 and 2006.
The Audit Committee has sole authority to appoint, determine funding for, retain
and oversee our independent auditors and to pre-approve all audit services and
permissible non-audit services. The Audit Committee has delegated to the
chairman of the Audit Committee the authority to pre-approve audit-related and
non-audit services not prohibited by law to be performed by our independent
registered public accounting firm and associated fees, provided that he reports
any pre-approval of audit-related or non-audit related services and fees to the
full Audit Committee at its next regular meeting.
Marcum & Kliegman LLP did not render any services related to financial
information systems design and implementation during fiscal year 2007 and 2006.