FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2001
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ______
Commission File Number 0-18684
COMMAND SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-1626307
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Lexington Park, Lagrangeville, New York 12540
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (845) 454-3703
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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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K |_|
As of June 15, 2001, the aggregate market value of the voting stock held by non-affiliates of the registrant (3,786,954), based on the last sales price of $0.73 on that date, was approximately $2,764,476.
As of June 15, 2001, the registrant had issued and outstanding 6,287,343 shares of common stock.
Command Security Corporation
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended March 31, 2001
TABLE OF CONTENTS
PART I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for the Registrant's Common Stock and Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
7A.Quantitative and Qualitative Disclosures about Market Risk
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures.
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
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PART I
ITEM 1. BUSINESS
Command Security Corporation ("Company") is a corporation formed under the laws of the State of New York on May 9, 1980. It principally provides uniformed security services from its eighteen operating offices in New York, Massachusetts, New Jersey, Illinois, California, Pennsylvania, Connecticut, Florida and Georgia to commercial, financial, industrial, aviation and governmental clients in the United States, Canada and the UK.
The Company provides its security services to a wide range of industries which the Company has categorized into three groups - guard services, aviation services and support services. The latter includes any revenue from administrative service agreements, back office support to police departments and an investigations division based in the New York region.
The guard service division includes governmental and quasi-governmental clients such as cities and statewide institutions and industrial and commercial clients such as retail chains and health care institutions. Guard services represented approximately 57% (or $40.3 million) of the Company's revenue for the fiscal year ended March 2001. Security services include providing uniformed guards for access control, theft prevention, surveillance, vehicular and foot patrol and crowd control. In 1998, the Company began developing and implementing a national network of independent security guard companies to service clients with ATM sites throughout the United States. The Company offers these services in 47 states, Canada and the UK through approximately 200 affiliates. This network enables the Company to provide a statewide coverage to current and potential clients.
Approximately 43% (or $30.9 million of the Company's revenue for the fiscal year ended March 2001) was generated from the aviation services division. This division provides uniformed guard services to airport and airport related clients including boarding security and baggage handling services in accordance with Air Transportation Association and Federal Aviation Administration standards.
The support services division accounted for 1% (or $0.4 million) of the 2001 revenues and encompasses back office support to police departments, an investigations division based in the New York region and administrative service clients. The latter are where the Company provides a computerized scheduling and information system and programs, as well as accounts receivable financing and insurance resources. Accounts receivable financing is secured by the administrative service company's clients accounts receivable, customer lists, contracts, all other assets and the personal guarantee of the owner(s) of the administrative service company. Neither the sales revenue generated by the administrative service client nor the associated expenses are accounted for within the Company's operations. Financed receivables are included in the Company's accounts receivable figures.
The Company employs approximately 80 employees indirectly attributable to guard and aviation services including supervisors and dispatchers, another approximately 100 administrative employees, including the executive staff, and approximately 2,920 hourly guards. As of March 31, 2001, the Company did not have any administrative service agreements whereby it was the employer of record for Internal Revenue Service reporting purposes.
Management believes there is heightened attention to security matters due to the ongoing threat of criminal and terrorist activities. As a result of such attention, management further believes that the urban commercial centers served by the Company, including New York, Los Angeles, Miami and Chicago, provide an opportunity for increased market participation and growth.
Operations
As a licensed watchguard and patrol agency, the Company's guard services division furnishes guards to its security service customers to protect people or property and to prevent the theft of property. In this regard, the Company principally conducts business by providing guards and other personnel who are, depending on the particular requirements of the customer, uniformed or plain-clothed, armed or unarmed, and who patrol in marked radio cars or stand duty on the premises at stationary posts such as fire stations, reception areas or video monitors. The Company's guards maintain contact with headquarters or supervisors via car radio or hand-held radios. In addition to the more traditional tasks associated with access control and theft prevention, guards respond to emergency situations and report to appropriate authorities for fires, natural disasters, work accidents and medical crises. The Company also provides private investigation services.
The Company provides guard services to many of its industrial and commercial customers on a 24-hour basis, 365 days per year. For these customers, guards are on hand to provide plant security, access control, personnel security checks and traffic and parking control and to protect against fire, theft, sabotage and safety hazards. The remaining customers include retail establishments, hospitals, governmental units and promoters of special events. The services provided to these customers may require armed as well as unarmed guards. The Company also provides specialized vehicle patrol and inspection services and personal protection services to key executives and high profile personalities from time to time.
The Company's aviation services division provides a variety of uniformed services for domestic and international air carriers including pre-board passenger screeners, checkpoint security supervisors, wheelchair escorts, skycaps, baggage handlers and uniformed guards for cargo security areas.
Under the law of negligence, the Company can be liable for acts or omissions of its agents or employees performed or occurring in the course of their employment. The nature of some of the services provided by the Company (e.g. crowd control and armed guard services) potentially exposes it to risks of liability for employee conduct. The Company currently maintains general liability insurance in the amount of $1.0 million per occurrence and umbrella liability insurance in the amount of $50 million per occurrence and $50 million in the aggregate, which it believes is suitable and at a level customary for the industry for a business of its size.
To ensure that adequate protection requirements have been established prior to commencing service to a customer, the Company evaluates the customer's site and prepares a recommendation for any needed changes to existing security programs or services. Surveys typically include an examination and evaluation of perimeter controls, lighting, personnel and vehicle identification and control, visitor controls, electronic alarm reporting systems, safety and emergency procedures, key controls and security force manning levels. While surveys and recommendations are prepared by the Company, the security plan and coverage requirements are determined by the customer. Operational procedures and individual post orders are reviewed and/or rewritten by the Company to meet the requirements of the security plan and coverage determined by the customer.
In order to provide a high level of service without incurring large overhead expenses, the Company establishes offices close to its customers and delegates responsibility and decision making to its local managers. The Company emphasizes the role of its managers by assigning to each one responsibility for service and encourages them to get involved with the sales effort alongside the sales personnel. The Company believes that in most situations the combination of both service responsibility and a significant involvement in sales in a single individual results in better supervision and quality control and greater responsiveness to customer concerns.
The Company generally renders its security guard services pursuant to a standard form security services agreement which specifies the personnel and/or equipment to be provided by the Company at designated locations and the rates therefor, which typically are hourly rates per person. Rates vary depending on base, overtime and holiday time worked, and the term of engagement. The Company assumes responsibility for a variety of functions including scheduling each customer site, paying all guards and providing uniforms, equipment, instruction, supervision, fringe benefits, bonding and workers' compensation insurance. These security services agreements also provide customers with flexibility by permitting reduction or expansion of the guard force on relatively short notice. The Company is responsible for preventing the interruption of security services as a consequence of illness, vacations or resignations. In most cases the customer also agrees not to hire any security personnel used by the Company for at least one year after the termination of the engagement. Each security services agreement may be terminated by the customer, typically with no prior notice or short notice (usually 30 days). In addition, the Company may terminate an agreement immediately upon default by the customer in payment of monies due thereunder or if there is filed by or against the customer a bankruptcy petition or if any other act of bankruptcy occurs.
The Company has its own proprietary computerized scheduling and information system. The scheduling of guards, while time-consuming, is a most important function of any guard company. Management believes the system substantially reduces the time a manager must spend on scheduling daily guard hours and allows the Company to fulfill customer needs by automatically selecting those guards that fit the customer's requirements.
Employee Recruitment and Training
The Company believes that the quality of its guards is essential to its ability to offer effective and reliable service, and it believes diligence in their selection and training produces the level of performance required to maintain customer satisfaction and internal growth.
The Company's policy requires that all selected applicants for Company guard positions undergo a detailed pre-employment interview and a background investigation covering such areas as employment, education, military service, medical history and, subject to applicable state laws, criminal record. In certain cases the Company employs psychological testing and, where permitted, uses pre-employment polygraph examinations. Personnel are selected based upon physical fitness, maturity, experience, personality, stability and reliability. Medical examinations and substance abuse testing may also be performed. Prerequisites for all Company guards include a good command of the English language and the ability to communicate well and write a comprehensive and complete report. Preference is given to applicants with previous experience, either as a military or a civilian security-police officer.
The Company trains accepted applicants in three phases:
Pre-assignment; On-the-job; and Refresher. The Company's training programs
utilize current curricula and audio-visual materials. Pre-assignment training
explains the duties and powers of a security guard, report preparation,
emergency procedures, general orders, regulations, grounds for discharge,
uniforms, personal appearance and basic post responsibilities. On-the-job
assignment training covers specific duties as required by the post and job
orders. Ongoing refresher training is given on a periodic basis as determined
by the local area supervisor and manager.
Command treats all employees and applicants for employment without unlawful discrimination as to race, creed, color, national origin, sex, age, disability, marital status or sexual orientation in all employment-related decisions.
Significant Customers
No individual client accounted for more than 10% of the Company's gross revenue in 2001, although in 2000, British Air accounted for $6,027,000 or 10% of the Company's gross. During fiscal 1999 there was no individual client accounting for 10% or more of revenue.
Competition
Competition in the security service business is intense. It is based primarily on price and the quality of service provided, the scope of services performed, name recognition and the extent and quality of security guard supervision, recruiting and training. As the Company has expanded its operations it has had to compete more frequently against larger national companies, such as Pinkerton's, Burns International Security Services, Wells Fargo Guard Services (all now owned by Securitas) and The Wackenhut Corporation, which generally have substantially greater financial resources, personnel and facilities than the Company. These competitors also offer a range of security and investigative services which are at least as extensive as, and directly competitive with, those offered by the Company. In addition, the Company competes with numerous regional and local organizations which offer substantially all of the services provided by the Company. Although management believes that, especially with respect to certain of its markets, the Company enjoys a favorable competitive position because of its emphasis on customer service, supervision and training and is able to compete on the basis of the quality of its service, personal relationships with customers and reputation, there can be no assurance that it will be able to maintain its competitive position in the industry.
Government Regulation
The Company is subject to city, county and state firearm and occupational licensing laws that apply to security guards and private investigators. In addition, many states have laws requiring training and registration of security guards, regulating the use of badges and uniforms, prescribing the use of identification cards or badges, and imposing minimum bond, surety or insurance standards. The Company may be subjected to penalties or fines as the result of licensing irregularities or the misconduct of one of its guards or investigators from time to time in the ordinary course of its business. Management believes the Company is in material compliance with all applicable laws and regulations.
The Federal Aviation Administration has recently proposed a rule requiring certification of screening companies including the Company's Aviation Safeguard Division. The proposed rule has two objectives: procedures for certification of screening companies used by airlines and airport authorities as well as other requirements to enhance airport screening such as training and testing requirements. Implementing these changes will increase the Company's expenditures and require a higher technical staffing level. The Company is expected to pass these costs to the air carriers through pricing amendments.
Employees
The Company employs approximately 80 employees indirectly attributable to guard services including supervisors and dispatchers, another approximately 100 administrative employees including the executive staff, and approximately 2,920 hourly guards. As of March 31, 2001, the Company did not have any administrative service agreements whereby it was the employer of record for Internal Revenue Service reporting purposes.
The Company's business is labor intensive and, as a result, is affected by the availability of qualified personnel and the cost of labor. Although the security guard industry is characterized by high turnover, the Company believes its experience compares favorably with that of the industry. The Company has not experienced any material difficulty in employing suitable numbers of qualified security guards, although, when labor has been in short supply, it has been required to pay higher wages and incur overtime charges.
Approximately 57% of the Company's employees hired for guard service customers do not belong to a labor union. The Company's New York City employees, and its employees at Los Angeles International Airport, who together represent approximately 43% of the Company's employees for guard service customers, work under collective bargaining agreements with the following unions: Allied International Union; and Special & Superior Officers Benevolent Association. Most of the Company's New York City and Chicago competitors also are unionized. The Company has experienced no work stoppages attributable to labor disputes. The Company believes that its relations with its employees are satisfactory. Guards and other personnel supplied by the Company to its customers are employees of the Company, even though they may be stationed regularly at the customer's premises.
Service Marks
The Company believes itself to be the owner of the service marks "Command Security Corporation", "CSC" and "CSC Plus" design for security guard, detective, private investigation services and security consulting services. On February 22, 1994, the service mark assignment was recorded with the U.S. Patent and Trademark Office, Registration No. 1,823,346. The Prior registration number was No. 1,662,089.
The Company also believes itself to be the owner of the trademark "Smartwheel" for the computer program for use in dispatching and tracking small vehicles such as carts and wheelchairs at transportation terminals. The trademark was acquired as part of United Security Group, Inc. acquisition. On May 23, 1995 the trademark was registered with the U.S. Patent and Trademark Office, Registration No. 1894956. In addition, the Company believes itself to be the owner of the service marks "STAIRS" and "Smart Guard." The respective registration dates and numbers are September 15, 1992; No. 1,715,363 and December 19, 1992; No. 1,742,892.
ITEM 2. PROPERTIES
As of March 31, 2001, the Company owned and used in connection with its business approximately 75 vehicles.
As of March 31, 2001, the Company did not own any real property. It occupies executive offices at Route 55, Lexington Park, Lagrangeville, New York, of approximately 6,600 square feet with a base annual rental of $105,600 under a five-year lease expiring September 30, 2003. The Company also occupies the following offices:
Location When Square Base Annual
Opened Footage Rent
Los Angeles International Airport
380 World Way, Box N-28
Los Angeles, CA 8/15/96 647 $17,236
5801 E. Slauson Avenue G-160
Los Angeles, CA 11/9/94 1,689 $22,295
7841 Balboa Ave.
San Diego, CA 2/8/00 395 $6,000
8939 S Sepulveda Blvd., Suite 201
Los Angeles, CA 3/1/00 1,422 $22,188
1470, Barnum Avenue, Suite 304
Bridgeport, CT 11/1/00 1,500 $17,520
55, Airport Road, Suite 203
Hartford, CT 7/1/00 2,640 $31,060
2777 Summer Street, Suite 302
Stamford, CT 3/13/95 915 $21,960
8181 North West 36th St., Unit 21A
Miami, FL 6/1/98 300 $12,461
800 Virginia Avenue, Suite 53
Ft. Pierce, FL 8/1/97 400 $8,181
1040 Bay View Drive, Suite 526
Ft. Lauderdale, FL 7/1/00 400 $6,996
Miami Int'l. Airport, Concourse A,
2nd level
Miami, FL 7/1/99 189 $9,554
954 South Main Street, Suite 120
Conyers, GA 5/1/98 900 $9,375
10 West 35th Street, Suite 11F3-4
Chicago, IL 3/1/99 1,059 $18,681
21 Cummings Park, Suite 224
Woburn, MA 3/15/99 198 $3,941
The Poughkeepsie Plaza Mall
Poughkeepsie, NY 9/1/83 920 $12,000
331 Park Avenue South, 10th Floor
New York, NY 11/1/91 3,400 $60,300
331 Park Avenue South, 11th Floor
New York, NY 2/1/93 3,400 $60,300
300 Hamilton Avenue, Suite 300
White Plains, NY 8/15/96 1,538 $28,453
505 Main Street, Suite 2
Williamsville, NY 5/1/93 680 $5,700
JFK International Airport
175-01 Rockaway Boulevard, Jamaica, NY 4/1/97 1,700 $69,600
1237 Central Avenue, Suite 201
Albany, NY 10/19/93 400 $4,800
2144 Doubleday Avenue
Ballston Spa, NY 4/1/93 800 $12,840
52 Oswego Road
Baldwinsville, NY 6/1/98 120 $1,500
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Location When Square Base Annual
Opened Footage Rent
3366 Parke Avenue, Office 210
Wantagh, NY 3/1/00 1,000 $12,420
55 Park Avenue, Apartment 1NW
New York, NY 5/1/98 300 $7,200
2222 Morris Avenue
Union, NJ 2/1/98 2,250 $23,100
3 Werner Way, Office 324
Lebanon, NJ 3/12/01 97 $14,040
1349 W. Cheltenham Avenue, Unit 203
Melrose Park, PA 2/1/01 600 $7,800
124 Chestnut Street, Suite 5
Philadelphia, PA 11/25/96 500 $8,460
613 West Hartford Street, 2nd Floor
Milford, PA 6/1/00 1,200 $14,400
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The Company believes its properties are adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
The nature of the Company's business subjects it to claims or litigation alleging that it is liable for damages as a result of the conduct of its employees or others. Except for such litigation incidental to its business, other claims or actions that are not material and the lawsuits described below, there are no pending legal proceedings to which the Company is a party or to which any of its property is subject.
In November 2000, the Company settled a major litigation issue characterized as a stockholder derivative action. On or about December 4, 1997, an outside shareholder and four of the Company's directors (Sands, P. Kikis, Saunders, and T. Kikis) commenced an action in the Supreme Court of the State of New York, County of New York (Index No. 606166/97) against the other four directors (Vassell, Robinett, Nekos and Miller), the Company's outside corporate and securities counsel and the Company itself. The claims against the Company's outside corporate and securities counsel were dismissed and the balance of the suit has been settled by the parties pursuant to a stipulation and agreement filed with the Court and approved by the Judge. This settlement involved the purchase of shares by Reliance Security Group plc, from plaintiff directors and affiliates and the resignation from the Board of Directors of the Company of those directors.
The Company's Certificate of Incorporation and the Business Corporation Law of New York provide for indemnification of officers and directors with respect to damages and legal fees incurred in connection with lawsuits against them arising by reason of serving the Company. Due to the fact that certain members of the board have chosen to participate as plaintiffs in this lawsuit, the Company's insurance carrier has disclaimed coverage with respect to the defense and indemnity of Command based on an exclusion from coverage.
In May, 1996, a complaint was filed in Queens County Civil Court by three former employees alleging emotional distress, anguish, mental distress and injury to their professional reputation due to retaliatory discharge and related matters. Plaintiffs each seek $2 million for compensatory damages and $2 million in punitive damages in addition to payment of overtime wages of $25,000. The Company's customer, also a defendant and a former employer, has engaged counsel representing all defendants. On November 27, 1998, the Kings County Supreme Court ruled on a motion dismissing three counts concerning contractual allegations but allowed the remaining nine counts to proceed to findings and this case continues in litigation. At this time the Company is unable to estimate the possible loss, if any, that may be incurred as a result of this action. The ultimate outcome may or may not have a material impact on the Company's financial position or results of operations.
The nature of the Company's business as a supplier of personnel services lends itself to employment related claims on a regular basis. The Company has been named in several employment related claims, including claims of sexual harassment by current and former employees, some of which are currently under investigation by Federal and State agencies, including the New York State Division of Human Rights. At this time the Company is unable to determine the impact on the financial position and results of operations that these claims may have should the investigation conclude that they are valid.
In August, 1997, a complaint was filed in Los Angeles County Superior Court by six former employees alleging discrimination, wrongful termination, breach of employment contract and intentional infliction of emotional distress. The complaint alleges that plaintiffs have suffered damages in excess of $1 million. After filing the complaint, the plaintiffs, through counsel, agreed to submit the dispute to binding arbitration and a request for dismissal, without prejudice, was filed with the Court. To date, the plaintiffs have failed to proceed with the binding arbitration and the company is of the opinion that the action is terminated.
In August of 1998, the Company was informed that the US Department of Transportation, the Federal Aviation Authority and the United States Attorneys' Office for the Southern District of Florida were conducting a criminal investigation of certain activities at the Miami office of its Aviation Safeguards Division. The investigation concerned the official certifications of employee background investigations made by the Company's Aviation Safeguards division through its branch manager. Aviation Safeguards of Florida, Inc., the Company subsidiary involved, did not contest the charges and in March 2000 it agreed to pay a fine and restitution and to submit to supervision by the District Court for two years. All payments are completed at this time and the subsidiary has cooperated fully with the Court's supervision.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on March 16, 2001. Three of the Company's Directors were elected to two-year terms at the Annual Meeting of Shareholders. The following sets forth the number of votes cast for or withheld from each of the three directors.
Name For Against Withheld Geoffrey Haslehurst 3,388,370 2,650 74,076 Kenneth Allison 3,387,220 3,800 74,076 Graeme Halder 3,378,170 12,650 74,076 |
The following Directors continued in their term of office until the Company's next Annual Meeting of Shareholders: Gregory Miller, Peter J Nekos and William C. Vassell
The only other item of business of the Company's Annual Meeting of Shareholders was to ratify the selection of D'Arcangelo & Co., LLP to serve as the Company's auditors for the fiscal year ending March 31, 2001. The proposal was passed by the following vote: For - 3,422,190, Against - 22,350, Abstain - 20,056.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Due to the fact that the Company's stock had been trading below $1.00 since approximately May of 2000, the Company received notification from NASDAQ that its stock would be delisted effective October 25, 2000. The Company's stock is now quoted in the OTC Bulletin Board Service, under the symbol "CMMD." The Company intends to continue to comply with all capital reporting requirements of the Securities and Exchange Commission.
The following table sets forth, for the calendar periods indicated, the high and low sales price for the Common Stock as reported by the NASDAQ Stock Market, Inc. and the OTC Bulletin Board Service for each full quarterly period within the two most recent fiscal years.
Period (1) Last Sales Price
High Low
2000
First Quarter 1.437 0.937
Second Quarter 1.093 0.687
Third Quarter 1.125 0.625
Fourth Quarter 1.375 0.718
2001
First Quarter 1.000 0.625
Second Quarter 0.815 0.563
Third Quarter 0.844 0.500
Fourth Quarter 0.906 0.625
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(1) Reflects fiscal years ended March 31 of the year indicated.
The above quotations do not include retail mark-ups, markdowns or commissions and represent prices between dealers and not necessarily actual transactions. The past performance of the Company's securities is not necessarily indicative of future performance.
As of June 15, 2001 there were approximately 170 holders of record of the Company's common stock. Management believes there are approximately 1,000 beneficial holders of the Company's common stock.
The last sales price of the Company's common stock on June 15, 2001, was $0.73.
The Company has never paid cash dividends on its common stock. Payment of dividends on common stock, if any, will be within the discretion of the Company's Board of Directors and will depend, among other factors, on approval of its principle lender, earnings, capital requirements and the operating and financial condition of the Company. At present, the Company's anticipated capital requirements are such that it intends to follow a policy of retaining earnings, if any, in order to finance, in part, the development of its business.
COMMAND SECURITY CORPORATION
ITEM 6. SELECTED FINANCIAL DATA
The financial data included in this table have been derived from the financial statements as of and for the years ended March 31, 2001, 2000, 1999, 1998, and 1997, which have been audited by independent certified public accountants. The information should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and with the financial statements and related notes included in the Report.
Statement of Operations
Years ended March 31
In $ Thousands 2001 2000 1999 1998 1997
Revenue 71,320 59,246 57,642 51,797 49,237
Gross Profit 11,531 10,003 9,716 7,340 8,444
Administrative service revenue 274 554 913 1,451 1,471
Operating Profit / (Loss) 328 315 877 (2,915) 1,268
Net Income / (Loss) (439) (310) (15) (4,013) 450
Income /(Loss) per common share (.08) (.07) (.02) (.62) .05
Weighted average number of common shares
shares outstanding 6,287,343 6,535,581 6,658,143 6,689,352 6,955,548
All of the above statistics are in $ thousand except for Income / (Loss) per
common share and weighted average number of common shares outstanding which
are expressed in $ and number respectively.
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Balance Sheet Data as of March 31
In $ Thousands 2001 2000 1999 1998 1997
Working Capital / (deficiency) 1,874 750 200 (1,123) 1,413
Total Assets 17,991 15,348 16,188 17,697 23,189
Short-term debt <F1> 8,489 7,717 7,558 7,994 8,818
Long-term debt <F2> 1,801 588 472 531 1,284
Redeemable convertible preferred stock 0 0 0 0 1,744
Stockholders' equity 1,712 2,191 3,119 3,134 5,731
<F1> The Company's short-term debt includes the current maturities of
long-term debt, obligations under capital leases and short term
borrowings. See Notes 6, 7 and 14 of "Notes to the Financial
Statements".
<F2> The Company's long-term debt includes the long-term portion of
obligations under capital leases.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
For the three years ended March 31, 2001
Management's discussion and Analysis should be read in conjunction with the Financial Statements and related notes.
In this discussion, the words"Company", "we", "our" and "us" refer to Command Security Corporation.
OVERVIEW
Command Security Corporation is a provider of uniformed security services from its eighteen operating offices throughout the United States. Historically, we have grown by acquisition but the current focus is to build our branch network by organic growth. This is to be achieved through a team of business development managers who have been recruited and trained to sell premium quality services at strong margins. We are currently able to provide national coverage through our network of subcontractors that we use to service our national ATM and retail customers.
RESULTS OF OPERATIONS
Earnings
2001 was a difficult year for us, due to the continuing uncertainty over the stockholder derivative suit that distracted us from the task of managing and developing the ongoing business. Although the suit was successfully settled in November 2000 leaving the new management team to develop the business as it wishes, the nature and length of the dispute had an adverse impact on both the actual results and our ability to improve trends within the business.
Our results for 2000 were also affected by the one-time charge on the Tower Air bad debt which meant we suffered a loss of $309,710 compared to a loss for 1999 of $15,399.
Revenue
Revenue for 2001 grew by $12,074,513 to $71,320,440. The major components of this increase were $8,227,000 from additional accounts within the commercial aviation industry, $971,000 increase in revenue from the servicing of ATM sites through our network of independent contractors and $3,086,000 from additional guard service contracts. The latter was a combination of new business and rate reviews on current customers offset by terminated accounts whilst the increase in aviation revenue was due to additional new contracts at existing airports and growth on other contracts.
Revenue for 2000 increased to $59,245,927, a rise of $1,603,886 compared to $57,642,041 in 1999. The increase was primarily due to additional accounts within the airline industry ($4,830,000), additional revenue from the servicing of new ATM sites ($764,000) and non-recurring revenue from the liquidation of a long haul trucking concern (approximately $790,000). These increases were offset by $5,033,000 of contract cancellations and terminations net of new starts from general commercial accounts especially in New York City, Long Island and California.
Gross Profit
Gross profit increased by $1,528,244 in 2001 from $10,002,866 to $11,531,110 which was 16.2% of revenue compared to 16.9% in 2000. Gross profit increased by approximately $2,039,000 as a result of the revenue growth mentioned above. However, this increase was offset by an increase in the cost of sales of $510,372. This rise was primarily due to higher payroll costs ($793,983 - mainly in the aviation division following the loss of the high margin Tower Air contract), increased vehicle expenses ($153,479) and higher sub-contractor costs ($366,426). These rises were offset by a reduced insurance expense ($271,991 - the benefit of an improved experience on historical losses both on worker's compensation and general liability), a $310,000 accrual on a disputed administrative service client in 2000 which did not recur in 2001 and uniform charges ($139,964).
The gross profit in the previous year was up by $286,448 from $9,716,418 to $10,002,866. The increase in gross profit was a result of the $1,603,886 rise in revenue with the conversion of revenue remaining at 16.9% for both years. The gross profit increase of $286,448 was due to a combination of the revenue growth mentioned above which had a $433,748 impact offset by a cost of sales increase of $147,300. The latter was mainly due to the $310,000 accrual mentioned above, an increase in uniform expenses ($161,600) and car depreciation and expense increases ($148,000) due to an increase in the number of vehicles servicing customers and inflationary fuel rises. In addition, there was a rise in worker's compensation estimated losses incurred at client premises of $67,000. All these factors were offset by a $546,500 decrease in labor costs due to termination of lower margin accounts and new and temporary business at improved margins, a $125,000 reduction in general liability self-insurance reserves provision, $62,600 decrease in union benefit costs due to recognition withdrawal by a service union and a $25,600 decrease in payroll related taxes due to favorable unemployment insurance rates and increased use of subcontractors.
One area of relative uncertainty within the gross margin calculation is insurance which is largely dependent upon the result of past actions. We insure against general liability claims and lawsuits through a general liability insurance policy with a third-party insurance carrier. The policy has a limit of $1,000,000 per occurrence while the Company retains the risk for the first $25,000 for each occurrence ($50,000 prior to October 1, 2000) and an additional limit of $10,000,000 in the aggregate. We have an excess general liability insurance policy covering up to $50,000,000 in the aggregate ($30,000,000 prior to October 1, 1999). The general liability insurance reserve is based upon existing claims, actuarial computations and the timing of reported claims which are all factored to estimate losses incurred but not yet reported to the Company.
We also have a worker's compensation insurance policy where the premium is based on incurred losses as determined at the end of coverage plus the basic insurance amounts. The worker's compensation basic premium is determined by the insurance carrier and includes its overhead costs and insurance premium. For the 2000 and 1999 years, the charge for estimated losses was based upon industry standard payouts. In 2001, however, we have used our own historical payout profile for which we now have an adequate history. The impact on the charge in the 2001 year was not significantly different than previous years as a result of this change.
Administrative Service Revenue
The Company provides payroll and billing services and accounts receivable financing through contracts with administrative service clients for a percentage of the revenue or gross profit generated from their business. The Company owns the accounts receivable and, depending on the individual contract, may be the employer of record of the guards who provide the services to the customers of the administrative service client. Whenever contracted as the employer of record, the legal liability for tax withholdings including FICA and unemployment insurance taxes is borne by the Company. Additionally, the Company is responsible for worker's compensation and general liability claims for damages that result from the employees' conduct and/or negligence. The administrative service client manages its internal operations including sales and marketing of its guard contracts. The caption "Administrative Service Revenue" represents the income earned on the Administrative Service Agreements as well as income earned on back-office support to police departments for off-duty police services.
Administrative Service revenue decreased by $279,919 to $274,277 for 2001, compared to $554,196 the previous year. The decrease was due to the termination by mutual consent of an administrative service agreement in May, 2000 as part of a final settlement regarding disputed Company charges. Revenue had also declined in 2000 from $913,498 in 1999 to $554,196 due to the loss of two service agreements and the conversion of another from an "employer of record" contract to a "non-employer of record" which earns a lower rate.
Costs associated with the administrative service revenue are primarily clerical and administrative in nature and are not readily segregated from the Company's total general and administrative costs. An experienced industry professional has recently been recruited to develop the administrative service client program. In addition, two further police department contracts were secured during 2001 to provide back office support. This brings the total police departments being supported to three at the end of 2001.
General and Administrative Expenses
General and administrative expenses rose by $1,897,094 to $10,099,333 in 2001 from $8,202,239 the prior year. This increase was primarily due to higher office and administrative salaries of $1,046,047 which were a consequence of additional personnel to manage the increased volumes and wage increases and costs related to the employment contract of the CFO. Other cost increases were incurred on telephone ($141,901), commission payments on new sales ($49,032), increased costs of health insurance ($68,866) and conferences and related travel expenses which were incurred to promote new business ($168,156). Administrative auto expenses rose by $43,267 primarily as a result of additional vehicles and higher fuel charges and professional fees increased by $104,857. Other general administrative costs, including office supplies, dues and subscriptions, rent and utilities, increased by approximately $275,000 due to the increased level of business in fiscal 2001.
General and administrative expenses in the previous year had risen by $114,488 from $8,087,751 in 1999 to $8,202,239 in 2000. The major areas of increase were $268,900 in office and administrative salaries due to expansion in Florida and corporate charges after a reduction of $154,000 for a stock compensation settlement related credit. Recruitment advertising rose by $80,600 due to a tightened labor market and increase in new business and there was a $23,000 increase in health insurance costs due to the termination of partially self-insured health insurance program and other costs of approximately $83,000. These increases were offset by a reduction in professional fees of around $371,000 due to legal and compliance-related consulting fees incurred in 1999 in connection with the Miami airport employee background verification matter disclosed in Item 3 "Legal Proceedings."
Amortization of Intangibles
A charge of $297,440 in 2001 was $879,008 less than 2000 due to intangible assets from earlier acquisitions being fully amortized. These included the acquisition of ISS International Service System, Inc. and McVey Security Inc. The charge for 2000 of $1,176,448 was a reduction of $104,239 from the prior year due mainly to the full amortization of United Security Group and Madison Detective Services, Inc. acquisitions.
Provision for Doubtful Accounts
The provision for doubtful accounts fell by $445,633 in 2001 due to the Tower Air write off in 2000 of $738,117. The increase in 2001, excluding the Tower Air write-off, was due to a provision against a previous administrative service client of $100,982 and a provision of $140,213 relating to a debt due from a customer in New York that remains outstanding at the year end and for which a law suit has been instigated and approximates to 25% of the total debt due. The provision for doubtful accounts for 2000 had increased by $602,021 over the charge in 1999 of $367,916 because of the Tower Air issue mentioned above.
We periodically evaluate the requirements for providing for credit losses. A review of the creditworthiness of customers is undertaken as well as prior payment performance, the age of the receivables and our overall historical loss experience.
Bad Debt Recoveries
There were no bad debt recoveries in 2001. In 2000, bad debt recoveries decreased by $209,467 to $106,578 from $316,045 in 1999. This decrease was principally due to a $250,000 unusual bad debt recovery in 1999 from a former administrative service client in Texas.
Stockholder Derivative Suit Costs
A consequence of the stockholder derivative suit was additional professional fees and distraction from the management of our business. Not all costs can be readily identified but the charge of $431,445 in 2001 related to specific professional fees and settlement costs that were a direct consequence of the shareholder suit. This suit was settled in November 2000 following the purchase by Reliance Security Group plc ("Reliance") of the plaintiff's shares. Although no charges were identified in 2000, there were costs of $273,527 in 1999 that were directly due to the stockholder derivative suit.
Line of Credit Termination Fee
A one-time charge of $125,000 was incurred during 2001 relating to a fee payable to CIT Group Business/Credit Inc. following termination of the revolving loan and security agreement in November 2000. No such termination charge occurred in either 2000 or 1999.
Interest Income
Interest income reduced by $58,160 to $114,373 in 2001 due to the reduced activity on administrative service clients. The income of $172,533 in 2000 had also benefited from collection of interest from a non-employer of record ("NEOR") service client that prior to August 1998 was contracted as an employer of record ("EOR") administrative service client where interest fee structure is excluded from the contract. The reduction in 2001 was also due to the termination of this administrative service client in May 2000.
Interest Expense
An interest expense of $956,352 in 2001 was $107,492 higher than that incurred in 2000. This was primarily due to higher average rates throughout the year and higher average borrowings on the combination of the revolver and term loans. This was a consequence of the higher revenue levels and the impact in the months following the switch from CIT to LaSalle due to the change in location for submitted funds. The charge of $848,860 in 2000 was $143,358 lower than the 1999 charge of $992,218. This was due to higher average borrowing levels during 1999 offset by slightly lower average interest rates and higher interest charges on capital leases and other borrowings.
Equipment Dispositions
The $14,429 gain on equipment dispositions represents proceeds from the sale of older equipment and vehicles in excess of book value. This compared with a small gain in 2000 of $912 and a loss of $51,831 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
We pay our guard employees and those of our administrative service clients on a weekly basis, while customers generally pay for services within 60 days of billing. In order to fund our payroll and operations, we have a commercial revolving loan arrangement which up until November 2000 was with CIT Group/Business Credit, Inc. ("CIT").
In November 2000, we entered into a three-year agreement with LaSalle Business Credit Inc., ("LaSalle") under a loan and security agreement (the "agreement"). The agreement provides for borrowings up to 85% of eligible accounts receivable to a maximum of $15 million. LaSalle also provided a term loan of $3 million which is to be repaid in equal monthly installments of $100,000 through June 2003. The outstanding balance under the revolver and term loans can be made up of a combination of Prime loans and LIBOR loans although the maximum outstanding LIBOR loans at any one time must not exceed three. The revolving loans bear interest at prime on the prime rate loans and LIBOR plus 2% on the LIBOR loans. The equivalent rates on the term loans are prime and LIBOR plus 2.5%. At the end of the 2001 fiscal year, we had borrowed $6,823,985 representing approximately 81% of our maximum borrowing capacity.
Long term debt (including current maturities) increased by $2,349,108 primarily due to the new LaSalle term loan which was $2,600,000 at the 2001 year end. Other movements were a reduction in amounts due to CIT and Capital Resource Company of $191,667 and $57,674 respectively which were both repaid in full at the time of the LaSalle funding in November 2000. Debt on vehicles rose slightly from $452,938 in 2000 to $469,386 in 2001.
Our capital lease obligations reduced by $114,670 from $391,713 in 2000 to $277,043 in 2001. No new capital leases were taken out during the year and the reduction was due to repayments on the amount outstanding as at 2000. Total required principal repayments on long term debt and capital lease obligations for the year to March 2002 are approximately $1,546,000 compared to $524,000 for the prior year. The increase is primarily due to the payments required on the LaSalle term loan.
The Company and its Board of Directors were party to a legal proceeding characterized as a derivative action that was resolved in connection with the Reliance transaction through a settlement in November 2000. The Company agreed to pay certain transaction-related expenses, to reimburse for certain directors' related legal costs and incurred professional fees in connection with the settlement. Accordingly, the Company incurred charges of $431,445 during 2001.
Our operations for 2001 resulted in an operating profit of $327,865 compared to $315,016 in 2000. The 2001 result was lower than the operating profit achieved in 1999 of $877,434, primarily due to the costs of the stockholder derivative suit and the CIT termination fee. As a result of the term loan from LaSalle, working capital increased from $749,710 in 2000 to $1,874,303 in 2001. Proceeds from the term loan were also used to finance increased levels of accounts receivable. Accounts receivable have increased due to increased volume as well as additional aviation and ATM related accounts which may have delayed billing pending receipt of additional information from customers and subcontractors. We experienced a cash overdraft (defined as checks drawn in advance of future deposits) of $1,039,698 compared to $184,772 at 2000. Cash balances and book overdrafts can fluctuate materially from day to day depending upon such factors as collections, timing of billing and payroll dates and are covered by advances from the revolving loan as checks are presented for payment.
Effective July, 2000, we suspended payment of preferred stock dividends until we re-establish sufficient reserves through future earnings. As of March 31, 2001, we owed our preferred stockholders $122,022 and dividends will continue to accumulate at the rate of $40,674 per quarter.
Due to the fact that our stock had been trading below $1.00 since approximately May of 2000, we received notification from NASDAQ that our stock would be delisted from the NASDAQ Small Cap Market and effective October 25, 2000 our stock is now quoted in the OTC Bulletin Board Service. We intend to continue to comply, however, with all applicable reporting requirements of the Securities and Exchange Commission.
OUTLOOK
This outlook section contains a number of forward-looking statements, all of which are based upon current expectations. Actual results may differ materially and are qualified by the section below entitled "Forward Looking Statements."
The current year represents our first real opportunity for many years to grow and develop our business free from the diversion of the stockholder derivative suit. We now have a major shareholder who is an industry expert and who shares our vision of providing a quality service at the right price. Reliance is now our largest shareholder and brings to the table seasoned industry professionals who have joined our Board, and our new CFO. Having secured the agreement with LaSalle to fund future growth, it is a great opportunity for us to significantly develop our business throughout the United States. In addition, we have some exciting developments within our ATM and retail businesses including expansion of global alliances, most notably with Reliance in the UK. The uncertainty within the security industry following many acquisitions, most notably Burns and Pinkerton by Securitas and Argenbright by Securicor, has left many long term customers of our competitors more willing to consider new vendors.
Our outlook on revenues is largely dependent upon the success of our new sales teams which we have now taken on in all divisions. These sales teams will assist us to win new contracts in excess of any terminations that may occur. We will be looking to secure additional business within our branch network as well as at additional category X airports and our higher value added services should benefit from increased regulation of the airports currently being proposed by the FAA.
A review of the true profitability of certain contracts may result in a reduction in revenues in the short term as we look to improve rates at our more marginal contracts. We are also looking at an aggressive rate review program to improve margins to fund increased management input to our contracts. These actions may have the consequence of causing increased terminations in the short run.
We expect margins to stabilize at around 16% although this will be affected by the health of the economy. The strength of the economy and the levels of unemployment have a major impact on our ability to recruit and retain the right quantity and quality of personnel to service our contracts. This has a consequential impact on overtime and wage rates generally which are often dictated by the customer during the tender process. The margin will also be affected by the mix of our business and on our ability to sell and manage higher value services at improved margins.
The new sales force in both the guard and aviation service divisions will have a negative impact on short term profitability. This should be offset in the medium term by new business wins. There will be a positive impact on interest from the reduction in prime and LIBOR rates which occurred in the early part of 2001.
FORWARD LOOKING STATEMENTS
Certain of the statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Form 10K and in particular this report including those under the heading "Outlook," contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industry in which the Company operates, Management's beliefs, and assumptions made by Management. In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of the Company. While we believe these statements are accurate, our business is dependent upon general economic conditions and various conditions specific to our industry. Future trends and these factors could cause actual results to differ materially from the forward-looking statements that have been made. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, the actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. The Company undertakes no obligation to update publically any forward-looking statements, whether as a result of new information, future events or otherwise.
As provided for under the Private Securities Litigation Reform Act of 1995, the Company wishes to caution shareholders and investors that the following important factors, among others, could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements in this report.
Competition
The Company's assumptions regarding projected results depend largely upon the Company's ability to retain substantially all of the Company's current clients. Retention is affected by several factors including but not limited to, the quality of the services provided by the Company, the quality and pricing of comparable services offered by competitors, continuity of Management and continuity of non-management personnel. There are several major national competitors with resources far greater than those of the Company which therefore, have the ability to provide service, cost and compensation incentives to clients and employees which could result in a loss of such clients and/or employees. It is uncertain whether these competitors' status after the acquisitions discussed above, will result in a gain or loss of clients and/or employees to the Company.
Cost Management
The Company's ability to realize its projections will be largely dependent upon its ability to maintain margins, which in turn will be determined in large part by Management's control over costs. To a significant extent, certain costs are not within the control of Management and margins may be adversely affected by such items as litigation expenses, fees incurred in connection with extraordinary business transactions, inflation, labor unrest, increased payroll and related costs.
The Reliance Transaction
With regard to the Company's relationship with Reliance, the Company's reconstituted Board of Directors and its new personnel, there can be no assurance that they will have a positive impact on the Company's earnings for an extended period, if at all.
Collection of Accounts Receivable
Management has no reasonable basis to believe that a default in payment of Accounts Receivable by the Company's security guard customers or administrative service clients will occur except as stated in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operation - Provision for Doubtful Accounts." However, any such default by a significant client due to bankruptcy or otherwise, would have a material adverse impact on the Company's liquidity, results of operations, and financial condition.
Officers and Directors Potential to Control Matters Requiring Stockholder Approval
Our executive officers, directors and 5% or greater stockholders currently own beneficially 2,500,389 shares or approximately 40% (excluding any shares issuable upon exercise of warrants) and at a future date have the potential through the exercise of warrants and options, to beneficially own approximately 7,763,460 shares or approximately 67% of the outstanding shares of the Company's common stock. These stockholders, acting together may be able to effectively control matters requiring approval by stockholders, including the election or removal of directors and the approval of mergers or other business combination transactions. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have an adverse effect on the market price of our common stock or prevent our stockholders from realizing a premium over the market price for their shares of common stock.
These are representative of the factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general United States and non-United States economic conditions, including interest rate and currency exchange rate fluctuations and other factors. Additional detailed information concerning a number of factors that could cause actual results to differ materially from the information contained herein is readily available in the Company's most recent reports on Forms 10-K, 10-Q and 8-K and any amendments thereto (all as filed with the Securities and Exchange Commission from time to time).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
During the fiscal year ended March 31, 2001, the Company did not hold a portfolio of securities instruments for either trading or for other purposes.
The Company is exposed to market risk in connection with changes in interest rates, primarily in connection with outstanding balances under its revolving line of credit and term loan with LaSalle Business Credit, Inc. Based on the Company's interest rate at March 31, 2001, and average outstanding balances during the fiscal year then ended, a 1% change in the prime lending rate and LIBOR rates would impact the Company's financial position and results of operations by approximately $92,000 over the next fiscal year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See ITEM 14, "EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's by-laws require that the Board of Directors be divided into two classes. The first class consists of directors Geoffrey P. Haslehurst, Kenneth Allison and Graeme R. Halder. The second class consists of William C. Vassell, Peter J. Nekos, Carl E. Painter and Gregory J. Miller. The terms of the directors in the first class will expire at the annual meeting of shareholders in 2002 or until their successors have been elected and qualified. The terms of the directors in the second class will expire at the annual meeting of shareholders in 2001 or until their successors are elected and qualified. Each director's term is for two years. A classified board makes it more difficult for shareholders to change the majority of directors. Depending on the number of people in each class it could take two (2) annual meetings to replace a majority of the Board. This provision is applicable to every election of directors after the initial classification.
The following table provides information concerning each person who was an executive officer or director of the Company as of June 15, 2001.
Name Age Title
William C. Vassell 42 Chairman of the Board,
President and Chief Executive Officer
Gregory J. Miller 41 Director
Peter J. Nekos 73 Director
Geoffrey P. Haslehurst 42 Director
Kenneth Allison 56 Director
Graeme R. Halder 38 Chief Financial Officer and Director
Carl E. Painter 55 Director
Eugene U. McDonald 51 Sr. Vice President Guard Operations
Martin Blake 47 Vice President Aviation Services
William Dunn 48 Corporate Secretary, General Counsel
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William C. Vassell is currently President and Chief Executive Officer and has been Chairman of the Board since 1983. Mr. Vassell had been Chairman of the Board, President and Chief Executive Officer of the Company since 1983, when the Company repurchased the remaining 50% of its then-outstanding common stock (he became a 50% owner of the Company in 1980). In connection with the Company's acquisition of United Security Group Inc. ("United"), Mr. Vassell resigned from the offices of President and Chief Executive Officer on February 24, 1995, and retained his position as Chairman of the Board. He has been a director of the Company since 1980, and has been a member of the Executive Committee since March 1995. He was reappointed as President and Chief Executive Officer on November 13, 2000 in conjunction with the Reliance transaction. Mr. Vassell is active in various industry and trade associations. He twice was Chairman of the Mid-Hudson Chapter of the American Society for Industrial Security (the nationally recognized security association), and he is a Certified Protection Professional within the Society. He is also a director of the Associated Licensed Detectives of New York State and a member of the Committee of National Security Companies.
Gregory James Miller has been a director of the Company since September 1992. Since 1987 he has served as General Counsel for Goldline Connectors, Inc., a Connecticut-based electronics manufacturer, and sits on its board of directors. Mr. Miller also serves "of counsel" to Benenson & Kates, in New York, handling labor law and contract negotiations for security guard clients, and has handled various legal matters for the Company since 1985. Mr. Miller is currently employed by Goldline Connectors, Inc. He has a Bachelors Degree from Kalamazoo College, and a Juris Doctor Degree from New York Law School, where he was an Editor of the Journal of Human Rights.
Peter J. Nekos has been a director of the Company since March 1991. Mr. Nekos is a certified public accountant. From July 1984 to June 1986 he was a partner of Nekos & Kilduff, an accounting firm located in New Rochelle, New York. He operated his own accounting firm in Mamaroneck, New York from July 1986 until September 1996. At present he operates an office in Valhalla, New York.
Geoffrey P. Haslehurst has been a director of the Company since November 2000. Mr. Haslehurst has been Group Financial Director for Reliance Security Group plc since 1996. Prior to joining Reliance, he was Group Financial Director for Laura Ashley Holdings plc.
Kenneth Allison has been a director of the Company since November 2000. Mr. Allison has been managing director of Reliance Security Services Limited since 1996 and a member of the Board of Directors of Reliance Security Group plc since 1998. Mr. Allison also serves as Chairman of Reliance Group's Reliance Security Services (Scotland) Limited and Project Security Limited Company. Prior to joining Reliance, Mr. Allison was the managing director of the European food logistics division at Christian Salvesen plc.
Graeme R. Halder has been a director of the Company and its Chief Financial Officer since January 2001. Mr. Halder is qualified as a Chartered Accountant in the United Kingdom and worked from 1987 to 1988 with Touche Ross at their London office. In 1988, he moved to the Corporate head office of Granada Group plc where he worked for eight years culminating in a position as Finance Director of Granada Hospitality which had $2 billion of revenue and $3 billion in assets. Granada is involved in retail, hotels and catering. His final role at Granada Group plc was to spearhead the integration of the accounting systems of several companies following the $6 billion acquisition of Forte plc in 1996. He moved to Reliance Security Group plc in 1996 as Finance Director of the guard division before moving to the United States to take up his current position as Chief Financial Officer of Command.
Carl E. Painter has been a director of the Company since April 2001. Mr. Painter was most recently Chairman, President and Chief Executive Officer of BICC Cables Corporation which was a leading manufacturer of electrical cables in the United States and Canada with revenues in excess of $750 million. BICC Cables was a subsidiary of the London based BICC Group. In 1984, Mr. Painter was a co-founder of Cablec Corporation, a company formed to complete the management buy-out of the power cable business of the Phelps Dodge Cable & Wire Company. At the time of the MBO, revenues were $50 million. By 1989, revenues had increased to over $500 million as a result of internal growth and several acquisitions and the company was acquired by the BICC Group. During his time with the company, Mr. Painter held positions in manufacturing, sales, marketing and general management and led a number of acquisitions and the integration process following the acquisitions. He served as a director on the main board of the BICC Group and was a director on the board of Phillips Cables, Ltd., a Canadian subsidiary. He was also a director for the National Electrical Manufacturers Association, the trade association for the U.S. electrical industry. Mr. Painter received a Bachelor of Science degree in electrical engineering from Lehigh University in 1968 and an MBA degree from the Harvard Business School in 1975. He served four years as a Flight Officer in the U.S. Navy.
Eugene U. McDonald has more than twenty seven years of experience in the security business. He joined the Company in October of 1992 as Vice President of Corporate Services, and in 1995, he took over the position of Senior Vice President-Operations. Mr. McDonald has held senior management positions with Globe Security (1973-1990) and Burns International Security Services (1990-1992). He has extensive direct personal experience with the handling of specialized security personnel for cleared facilities as evidenced by his duties as Group Vice President of Energy Services for Globe Security. He is active in the American Nuclear Society, Institute of Nuclear Materials Management, American Society for Industrial Security and the Connecticut Police Chiefs Association.
Martin C. Blake, Jr. has over twenty-seven years of experience in aviation security services. Prior to joining the company in 1995, Mr. Blake retired as a Major in the United States Air Force, where he served in a variety of senior management positions. Mr. Blake's last assignment was as the Program Manager for Electronic Security Systems, Electronic Systems Division. In this capacity he managed a $20 million annual program responsible for global marketing, procurement, and deployment of electronic security systems. He was responsible for integrating security systems and programs at international airports in Germany, Turkey, and the United Kingdom. Previously, Mr. Blake was the Director of Security at the Department of Defense's largest classified air flight facility, incorporating over 1,200 square miles of restricted air space. Establishing aviation security programs for major aircraft defense contractors was an integral responsibility of his position. Mr. Blake also served as the Security Program Manager for Air Force space programs, including security for the Space Shuttle and expendable space launch vehicles. He also led the effort to integrate a shared automated entry control system for use at Cape Canaveral, Kennedy Space Center, and the Johnson Space Center.
William Dunn is the Secretary and General Counsel for Command Security Corporation. He began working with the Company in 1997 and became General Counsel in 1998, and Secretary in 2000. Mr. Dunn's duties include managing litigation, licensing and compliance, contracts, and employment-related issues. Prior to his association with Command, Mr. Dunn was with the New York City Police Department for 22 years managing investigations and legal matters in several areas. He also worked for the United States Department of Agriculture in an investigative and adjudicative position. Mr. Dunn graduated from City University of New York and New York Law School. He has been a member of the New York Bar since 1988. He has also been a member and associate of several Bar and Law enforcement organizations.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each director and executive officer of the Company who is subject to
Section 16 of the Securities Exchange Act of 1934, and each other person who
beneficially owns more than 10% of the Company's common stock, is required by
Section 16(a) of that Act to report to the Securities and Exchange Commission
by a specified date his or her ownership of and transactions in the Company's
common stock. Copies of such reports on Forms 3, 4, and 5 must also be
provided to the Company. Based solely on a review of Forms 3, 4 and 5 and any
amendments thereto, and written representations to the Company with respect
to the fiscal year ended March 31, 2001, the Company is not aware of any
person who, at any time during the fiscal year ended March 31, 2001, was a
director, officer or beneficial owner of more than ten percent (10%) of the
Company's common stock and who failed to file reports required by Section
16(a) of the Securities Exchange Act of 1934, as amended, during the fiscal
year ended March 31, 2001, except that: (i) Messrs. Blake, Dunn and McDonald
were late in filing a Form 3; and (ii) Ms. Miller was late in filing a Form
4.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth for the fiscal year ended March 31, 2001, all plan and non-plan compensation paid to, earned by, or awarded to William C. Vassell, President, Chairman of the Board and Chief Executive Officer, Graeme R. Halder, Chief Financial Officer, Eugene U. McDonald, Senior Vice President -- Operations, and Martin C. Blake, Jr., Vice-President - Aviation, Franklyn H. Snitow, Former Acting President and Chief Executive Officer, and Nathan Nelson, Former Chief Financial Officer and Executive Vice President. No other executive officer of the Company received total annual salary and bonus in excess of $100,000 for the fiscal year ended March 31, 2001 and, therefore, compensation for such other executive officers is not disclosed.
SUMMARY COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED MARCH 31, 2001
Annual Compensation Long-Term Compensation
Fiscal Other Shares
Year Annual Underlying
Name and Principal Ended Salary Warrants
Position March 31 Annual Salary Compensation Bonus Granted
William C. Vassell<F1>
President,
Chairman of the Board
and Chief Executive Officer
1999 $175,000 <F2> 0 0
2000 $153,846 <F2> 0 0
2001 $162,500 <F2> 0 1,217,444<F1>
Graeme R. Halder<F3>
Chief Financial Officer
2001 $30,000 $179,356<F4> $13,800 75,000<F5>
Eugene U. McDonald
Senior Vice President -
Operations
1999 $112,116 <F2> $20,000
2000 $131,000 <F2> $11,297
2001 $105,000 <F2> $26,338 50,000<F5>
Martin C. Blake, Jr.
Vice President-
- Aviation
1999 $114,539 <F2> $62,991 0
2000 $116,074 <F2> $12,900 0
2001 $119,678 <F2> $94,058 50,000<F5>
Franklyn H. Snitow<F6>
Former Acting President and
Chief Executive Officer
2000 $ 0 <F2> 0 0
2001 $ 0 <F2> 0 0
Nathan Nelson<F7>
Former Chief Financial Officer
and Executive Vice President
2000 $103,384 <F2> 0 0
2001 $100,331 <F2> 0 0
<F1> In November, 2000, Mr. Vassell was granted two warrants covering
1,217,444 shares of the Company's common stock in connection with the
Reliance transaction. The first warrant issued to Mr. Vassell in
connection with the Reliance transaction covers 204,485 shares at an
exercise price of $1.25 per share and became exercisable on November 12,
2000, but it cannot be exercised until after the exercise by Reliance of
a warrant issued to it, and then only in the same proportion as to which
Reliance has exercised its warrant. This warrant expires on November 12,
2005. The second warrant issued to Mr. Vassell in connection with the
Reliance transaction covers 1,012,159 shares at an exercise price of
$1.25 per share. It is not exercisable until November 12, 2001, and then
only to the extent as follows (i) with respect to one-third of the
warrant shares if the Company's earnings satisfy certain "Confidential
Performance Targets" (defined below under Item 11 - "Employment
Agreements and Warrants and Termination of Employment and Change of
Control Agreement - William C. Vassell") for the fiscal year ended March
31, 2002; (ii) with respect to two-thirds of the warrant shares if the
Company's earnings satisfy the Confidential Performance Targets for the
fiscal year ended March 31, 2003; and (iii) with respect to all of the
warrant shares if the Company's earnings satisfy the Confidential
Performance Targets for the fiscal year ended March 31, 2004. This
warrant expires on November 12, 2005.
<F2> All perquisites and other personal benefits, securities or property
do not exceed either $50,000, or 10% of the total annual salary and
bonus of the executive officer. All perquisites and other personal
benefits, securities or property are properly indicated in the
"Other Annual Salary Compensation" column, as they all fit into the
categories set forth in Item 402 of Regulation S-K.
<F3> Mr. Halder became Chief Financial Officer of the Company as of
January 1, 2001. Since becoming Chief Financial Officer in January
of 2001, Mr. Halder earned actual compensation in the amount of
$30,000. Pursuant to an arrangement with Reliance, Mr. Halder
provided certain services (which equaled Mr. Halder's compensation
by Reliance) to the Company in 2000. The cost of those services,
$56,478, was reimbursed by the Company to Reliance in 2001.
<F4> Pursuant to the Employment Agreement entered into between Mr.
Halder and the Company as of January 1, 2001, Mr. Halder received
perquisites and other personal benefits in excess of either $50,000
or 10% of his total annual salary and bonus. Mr. Halder received
$13,856 for reimbursement of moving costs between the UK and the
US, $6,740 for health cover, $3,877 for the use of a fully expensed
vehicle, $34,279 towards the cost of rental accommodation in the US
offset by $5,746 received on the rental of his UK property and
$27,363 in private school tuition for his two eldest children. His
employment agreement also covers him for the tax consequences of
his move to the States including any taxable benefit on the above
costs and this is estimated at $42,509.
<F5> Covered by a warrant issued pursuant to the Company's 2000 Stock
Option Plan at an exercise price of $0.75 per full share. The
warrant may become exercisable May 1, 2004, provided certain
Confidential Performance Targets, as defined below, are satisfied.
See Option Grants in Fiscal Year 2001, below.
<F6> Mr. Snitow resigned as Acting President and Chief Executive Officer
in November of 2000. Mr. Snitow was not compensated as an officer
of the Company, however, Mr. Snitow's law firm was paid legal fees
of $20,743 during the fiscal year ended March 31, 2001. During the
fiscal years ended March 31, 2000 and March 31, 1999, Mr. Snitow's
law firm received $45,662 and $72,500, respectively.
<F7> Mr. Nelson resigned as Chief Financial Officer and Executive Vice
President of the Company in November 2000.
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Stock Options/Warrants
The Company granted stock warrants pursuant to its 2000 Stock Option Plan during the fiscal year ended March 31, 2001 to three of the Company's executive officers and two other officers. The warrants granted to Messrs. Halder, McDonald, and Blake are noted in the table above and its annotations. The Company granted two stock warrants in connection with the Reliance Transaction to Mr. Vassell, the Company's Chief Executive Officer, during the fiscal year ended March 31, 2001. The warrants granted to Mr. Vassell are noted in the table above and its annotations. There were no tandem or free-standing stock appreciation rights granted to any person during the fiscal year ended March 31, 2001.
The following table sets forth information with respect to stock
options/warrants granted to the executive officers listed on the Summary
Compensation Table above during the fiscal year ended March 31, 2001.
Option Grants in Fiscal Year 2001
Number of
Securities Percent of
Underlying Total Granted Exercise Potential Realizable Value
Options/Warrants to Employees Price Per at Assumed Annual Rates of
Granted<F1> in Fiscal Year Share Expiration Stock Price Appreciation
(#) Year(%) Date for Option Term <F2>
Name 5% l0%
William C. Vassell 204,485<F3> 14.5% $ 1.25 11/12/05 $ (59,871) $ (8,612)
1,012,965<F4> 71.7% $ 1.25 11/12/05 $ (296,583) $ (42,633)
Graeme R. Halder 75,000 5.3% $ 0.75 1/31/11 $ 35,375 $ 89,648
Martin C. Blake, Jr. 50,000 3.5% $ 0.75 1/31/11 $ 23,584 $ 59,765
Eugene U. McDonald 50,000 3.5% $ 0.75 1/31/11 $ 23,584 $ 59,765
<F1> The number of options/warrants granted to executive officers in the
fiscal year ended March 31, 2001 was 1,412,444. 195,000 of those
options were granted under the 2000 Stock Option Plan. Those
options expire ten years after the date of the grant and vest upon
the Company's Board of Directors determination in 2004 that the
Confidential Performance Targets (defined below under Item 11 -
"Employment Agreements and Warrants and Termination of Employment
and Change of Control Agreement - William C. Vassell") have been
satisfied or are waived. All of the options fully vest upon a
change of control.
<F2> Potential realizable value is based on the assumption that the
Company's common stock appreciates at the annual rate shown,
compounded annually, from the date of grant until expiration of
each warrant or option term. These numbers are calculated based on
SEC requirements and do not reflect our projection or estimate of
future stock price growth. Potential realizable values are computed
by multiplying the number of shares of common stock subject to a
given option by the fair market value of the common stock on the
date of grant, assuming that the aggregate stock value derived from
that calculation compounds at the annual 5% or 10% rate shown in
the table for the entire term of the option and subtracting from
that result the aggregate option exercise price. Actual realizable
value, if any, will be dependent on the future price of the common
stock on the actual date of exercise, which may be earlier than the
stated expiration date.
<F3> This warrant issued to Mr. Vassell in connection with the Reliance
transaction covers 204,485 shares at an exercise price of $1.25 per
share and became exercisable on November 13, 2000. It cannot be
exercised until after the exercise by Reliance of a warrant issued
to it, and then only in the same proportion as to which Reliance
has exercised its warrant. This warrant expires on November 12,
2005.
<F4> This warrant issued to Mr. Vassell in connection with the Reliance
transaction covers 1,012,159 shares at an exercise price of $1.25
per share, not exercisable until November 12, 2001, and then only
to the extent as follows (i) with respect to one-third of the
warrant shares if the Company's earnings satisfy certain
Confidential Performance Targets, as defined above, for the fiscal
year ended March 31, 2002; (ii) with respect to two-thirds of the
warrant shares if the Company's earnings satisfy the Confidential
Performance Targets for the fiscal year ended March 31, 2003; and
(iii) with respect to all of the warrant shares if the Company's
earnings satisfy the Confidential Performance Targets for the
fiscal year ended March 31, 2004. This warrant expires on November
12, 2005.
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Employment Agreements and Warrants and Termination of Employment and Change of Control Agreement
William C. Vassell
The Company entered into an Employment Agreement with Mr. Vassell dated as of September 12, 2000. The Agreement went into effect when the Reliance transaction was consummated on November 13, 2000. The Agreement provides that Mr. Vassell be employed as the Company's Chairman of the Board of Directors, Chief Executive Officer and President. The contract will end on the earlier of the third anniversary of the effective date or the date on which Mr. Vassell's employment is terminated under the Agreement. Unless either party gives ninety (90) days notice to the other party prior to an anniversary of the effective date, the Agreement shall be automatically extended for one year on such anniversary date. Mr. Vassell's base salary shall be $175,000 per annum for the first employment period, $225,000 for the second employment period and $250,000 thereafter.
Mr. Vassell shall be eligible to receive incentive compensation commencing with the fiscal year ended March 31, 2001. He shall receive incentive compensation equal to 20% of his base salary if the Company's earnings before taxes for that year equal or exceed certain Confidential Performance Targets. Said Confidential Performance Targets are set forth in a confidential letter agreement between Mr. Vassell and the Company, dated September 12, 2000. Said Letter Agreement references the Company's confidential Business Plan dated March 13, 2000 and approved by the Company's Board of Directors in November, 2000 following the Reliance Transaction. For each percentage increase in earnings before taxes above the stated targets, the incentive compensation will be increased by three percentage points of the base salary up to a maximum incentive compensation equal to 50% of base salary. Mr. Vassell also received two warrants which are described in "Security Ownership of Certain Beneficial Owners and Management" and in the annotations to the table above. Mr. Vassell's employment may be terminated by the Board with or without cause or by Mr. Vassell in the event of a material breach by the Company or Reliance of the Shareholders' Agreement dated September 12, 2000, a material diminution in his duties and/or authority under the Employment Agreement, or a relocation of the Company's headquarters more than fifty (50) miles away from its his current location. Any such diminution, relocation or other uncured breach is referred to as constructive discharge. Mr. Vassell may also terminate his employment upon one hundred eighty (180) days notice or under certain circumstances following a change in control.
In the event Mr. Vassell is terminated for cause or he terminates other than for constructive discharge or following a change of control, death or disability, the Company shall have no further obligation except to pay those accrued obligations arising prior to the date of termination. In the event the Company terminates Mr. Vassell without cause or Mr. Vassell terminates as a result of constructive discharge, the Company will have no obligation to Mr. Vassell other than to pay all accrued obligations such as salary and benefits, the payment of the balance of his base salary for the year of termination, plus incentive compensation under certain circumstances.
The Employment Agreement provides that Mr. Vassell shall be subject to a Confidentiality Agreement with respect to any confidential or proprietary information, knowledge or data relating to the Company. In addition, for one (1) year following termination of his employment for any reason, Mr. Vassell shall not solicit for employment or employ any person who is a senior executive or branch manager of the Company, solicit any customer of the Company or provide to any customer of the Company services of the type offered by the Company as of the date of such termination except under certain circumstances.
The Employment Agreement goes on to provide Mr. Vassell with extensive indemnification with respect to any action taken or omission occurring after the effective date of the contract. Such indemnification provisions provide for advancement of expenses and costs.
Pursuant to the Employment Agreement which expired in July 2000, Mr. Vassell served as Chairman of the Board of the Company and received an annual salary of $175,000 in fiscal years ended March 31, 1999 and March 31, 2000. The Board determined that as of April 1, 1999, Mr. Vassell's salary would be $150,000 annually. Mr. Vassell was also entitled to an annual bonus equal to 5% of the Company's pre-tax profit for each fiscal year exclusive of (a) capital gains and losses; (b) the annual bonus; and (c) federal state and local income and franchise taxes for that year ("Pre-Tax Operating Profit") from $.5 million to $1.0 million, and 2% of all Pre-Tax Operating Profit in excess of $1.0 million. Mr. Vassell was provided with the use of a Company-owned automobile and reimbursement for automobile insurance and operating expenses.
In September of 1992, the Company entered into a Compensation
Continuation Agreement with Mr. Vassell. This Agreement provides that, if,
within specified periods of a change of control of the Company (as defined in
the Agreement) Mr. Vassell's employment is terminated by the Company without
cause (as defined in said Agreement), or if Mr. Vassell terminates his
employment for good reason (as defined in the Agreement), Mr. Vassell will be
paid 2.99 times the greater of his annual compensation as in effect on the
date of the Agreement or the highest annual compensation for any of the three
(3) years preceding the termination. All awards previously granted under any
performance incentive plan, the actual payment of which may be deferred, will
be vested as a result of the change of control and all options and warrants
held by Mr. Vassell will become immediately exercisable. Currently, the
aggregate amount payable to Mr. Vassell upon his termination in the event of
a change in control would be 2.99 times his total compensation of
approximately $175,000 for the fiscal year ended March 31, 2001, or
approximately $525,000.
Graeme R. Halder
The Company entered into an Employment Agreement with Mr. Graeme R. Halder as of January 1, 2001. The Agreement provides that Mr. Halder will be employed as the Company's Chief Financial Officer and report to Mr. Vassell. The contract contemplates a three (3) year term but may be terminated by either party prior thereto. Mr. Halder's base salary is $138,000 and he will be eligible to receive up to an additional fifty percent (50%) of his base salary based on performance. The contract indicates that Mr. Halder will be considered for a 75,000 share option and, accordingly, in February, 2001, he was issued an option covering 75,000 shares pursuant to the Company's Incentive Stock Option Plan. The perquisites offered to Mr. Halder include a Tax Equalization Agreement, an automobile, a $13,800 disturbance allowance per annum, the reasonable costs of private education for his two eldest children, a $6,000 per annum air travel allowance and reimbursement of moving costs between the United States and the United Kingdom.
Franklyn H. Snitow
The Company had an agreement pursuant to an engagement letter and an Indemnification Agreement with Mr. Snitow, the Company's former Acting President and Chief Executive Officer. In accordance with the engagement letter, Mr. Snitow was compensated at the rate of $300.00 per hour, plus reimbursable expenses, based on his hourly billing to the Company. The Indemnification Agreement between the Company and Mr. Snitow provided for the maximum indemnification permitted under New York law, and the Company's Certificate of Incorporation and By-Laws. The inclusion of the foregoing information is intended to comply with Section 725(d) of the New York Business Corporation Law.
Martin C. Blake, Jr.
The Company has executed an Employment Agreement with Mr. Blake dated as of March 20, 2000. The Agreement went into effect on April 1, 2000 and supercedes a prior Employment Agreement dated January 1, 1998. The Agreement provides that Mr. Blake be employed as the Company's Vice President and General Manager of the Company's Aviation Safeguards Division (AVSA). The contract will end on the earlier of the third anniversary of the date of the Agreement or the date on which Mr. Blake's employment is terminated under the Agreement. Mr. Blake's base salary is $120,000 per annum. He is also eligible to receive a performance related bonus. The perquisites offered to Mr. Blake include an automobile and reimbursement for all out-of-pocket business expenses.
In the event Mr. Blake is terminated for cause, the Company shall have no further obligation except to pay those accrued obligations arising prior to the date of termination. In the event the Company terminates Mr. Blake's employment without cause or Mr. Blake terminates his employment, the Company is obligated to provide six (6) months of health insurance and pay a lump sum severance amount of $70,000 for termination in the first year, $75,000 for termination in the second year, or $80,000 for termination in the third year of the Agreement.
The Agreement further provides that Mr. Blake will execute the Company's standard form of Confidentiality and Non-Compete Agreement pursuant to which, for one year following termination of his employment for any reason, he will not engage in any employment or business in competition with the Company. For one additional year he will not solicit any AVSA clients or potential clients or hire or influence Company employees to leave the Company.
Other Agreements
Other than pursuant to the Employment Agreement and the Compensation Continuation Agreement for Mr. Vassell, the employment agreements with Messrs. Halder and Blake, there is no compensation plan or arrangement for the benefit of any person named in the Summary Compensation Table that would result from the resignation, retirement or other termination of such person's employment.
Other than the compensation described above, there are no long-term incentive plans for the persons named in the Summary Compensation Table. In November 1999, the Company adopted a qualified Retirement Plan which became effective beginning calendar year 1999, and provided for elective employee deferrals and discretionary employer contributions to non-highly compensated participants. The Plan does not allow for employer matching of elective deferrals. For the period ended March 31, 2001, no discretionary amounts have been accrued or paid.
Board of Directors' Compensation
No executive officer receives any additional compensation for serving as a director, except in the case of Former Director Franklyn H. Snitow who was compensated at the rate of $300 per hour in accordance with an engagement letter between Mr. Snitow and the Company. Directors who are not employees of the Company, and excluding Mr. Snitow, received a meeting fee of $1,000 for each meeting attended, and all directors were reimbursed for expenses incurred in attending Board meetings. Directors Gregory J. Miller and Peter J. Nekos receive $1,000 per month in connection with services they provide to the Company in their capacity as members of the audit committee. Mr. Nekos also received $4,375 in connection with services he provided to the Company as Interim Chief Financial Officer prior to the engagement of Mr. Halder. With the exception of former Director Peter T. Kikis, no other directors who are not also executive officers received any plan or non-plan compensation from the Company during the last three fiscal years.
Limited Directors' Liability
Pursuant to the New York Business Corporation Law, the Company's Certificate of Incorporation, as amended, eliminates to the fullest extent of such Law the liability of the Company's Directors, acting in such capacity, for monetary damages if they should fail through negligence or gross negligence to satisfy their duty of exercising proper business judgment in discharging their duties, but not for acts or omissions in bad faith, or involving intentional misconduct or amounting to a knowing violation of law or under other limited circumstances.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the number and percentage of common stock (being the Company's only voting securities) beneficially owned by (i) each person who owns of record (or is known by the Company to own beneficially) 5% or more of the Company's common stock or as to which he has the right to acquire within sixty (60) days of June 15, 2001, (ii) each director and executive officer and (iii) all of said beneficial owners, officers and directors as a group, as of June 15, 2001. Except as indicated below, the address for each director and executive officer is the Company's principal office at Lexington Park, Route 55, Lagrangeville, New York 12540.
Other than as set forth in the following table, the Company is not aware of any person (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) who owns more than 5% of the common stock of the Company.
Amount and Nature
Of Beneficial
Name Ownership<F1> Percent of Class<F2>
William C. Vassell 2,283,744<F3> 30.43%<F2>
Peter J. Nekos 12,500<F4> <F13>
Gregory J. Miller 10,000<F5> <F13>
Geoffrey P. Haslehurst 23,500<F6> <F13>
Kenneth Allison 23,500<F6> <F13>
Carl E. Painter 0 <F13>
Graeme R. Halder 75,000<F7> 1.18%
Martin C. Blake, Jr. 50,000<F8> <F13>
Eugene U. McDonald 51,250<F9> <F13>
William Dunn 21,000<F10> <F13>
Reliance Security Group plc 5,212,966<F11> 69.32%<F2>
Boundary House
Cricketfield Road
Uxbridge, Middlesex UB81QG
Norman H. Pessin 354,500<F12> 5.6%<F2>
605 Third Avenue
19th Floor
New York, NY 10158
All Officers and 2,550,494<F2> <F3> <F4> 33.04%<F2>
Directors as a Group <F5> <F6> <F7>
(10 Persons) <F8> <F9> <F10>
<F11> <F12>
<F1> The Company has been advised that all individuals listed have the sole
power to vote and dispose of the number of shares set forth opposite
their names except as indicated.
<F2> Percent of class for each shareholder is calculated as if all shares
underlying Preferred Stock, options and warrants included in the table
for such shareholder are outstanding. The number of outstanding shares
of common stock is 6,287,343. The percent of class for all executive
officers and directors as a group is calculated as if all shares
underlying Preferred Stock, options and warrants held by any
shareholders included in the group are outstanding. The denominator for
the group calculation is 7,719,787.
<F3> The shares included under the beneficial ownership of Mr. Vassell
include 204,485 shares at an exercise price of $1.25 per share, covered
by a warrant not exercisable until November 12, 2001, and then only to
the extent of the exercise by Reliance of a warrant issued to it. Also
included are 1,012,959 shares at an exercise price of $1.25 per share,
covered by a warrant not exercisable until November 12, 2001 under which
one-third of the shares become exercisable if the Company's earnings
satisfy certain Confidential Performance Targets (defined above in Item
11 - "Employment Agreements and Warrants and Termination of Employment
and Change of Control Agreement - William C. Vassell") for the year
ending March 31, 2002,. This Warrant becomes exercisable with respect to
the two-thirds of the shares covered by it if the Company's earnings
satisfy the Confidential Performance Targets for the year ended March
31, 2003. All of the shares covered by the warrant become exercisable if
the Company's earnings satisfy the Confidential Performance Targets for
the year ended March 31, 2004. Also included are 250,000 shares held in
escrow pursuant to an Escrow Agreement between Mr. Vassell and Reliance
dated November 12, 2000. Mr. Vassell shares voting and dispository power
over 16,300 shares with his wife.
<F4> Includes 10,000 shares underlying a warrant currently exercisable.
<F5> Includes 10,000 shares underlying a warrant currently exercisable.
<F6> Messrs. Haslehurst and Allison are currently officers of Reliance
Security Group plc and hold the shares and warrants of Reliance in an
indirect capacity.
<F7> Includes 75,000 shares covered by a warrant issued pursuant to the
Company's 2000 Stock Option Plan and not exercisable until May 1, 2004.
<F8> Includes 50,000 shares covered by a warrant issued pursuant to the
Company's 2000 Stock Option Plan and not exercisable until May 1, 2004.
<F9> Includes 50,000 shares covered by a warrant issued pursuant to the
Company's 2000 Stock Option Plan and not exercisable until May 1, 2004.
<F10>Includes 20,000 shares covered by a warrant issued pursuant to the
Company's 2000 Stock Option Plan and not exercisable until May 1, 2004.
<F11>The shares included under the beneficial ownership for Reliance include
1,382,339 shares of common stock and 12,325.35 shares of preferred stock
convertible into 1,232,535 shares of Common Stock. Also included are two
currently exercisable warrants, one for 150,000 shares at an exercise
price of $1.03125 per full share and the second for 150,000 shares at an
exercise price of $1.875 per full share; and a warrant covering
2,298,092 shares, at an exercise price of $1.25 per share, underlying a
warrant not exercisable until November 12, 2001. This last warrant
provides that in case the Vassell warrants shall vest and become
exercisable in accordance with their terms at any time after the date
the warrants were first issued, then the number of warrant shares
issuable upon exercise of the warrant shall be proportionally adjusted
so that Reliance after such vesting shall be entitled to receive such
number of warrant shares equal to twenty percent (20%) of the
outstanding common stock taking into account the exercise of all stock
options, warrants and rights to acquire shares of common stock
outstanding on the date hereof, conversion of all shares of the
Company's preferred stock outstanding on the date hereof, and exercise
of the warrant and that portion of the Vassell warrants vested on such
date.
<F12>The shares included under the beneficial ownership for Norman H. Pessin
include 294,500 personally owned by Mr. Pessin and 60,000 shares
beneficially held by a SEP IRA Account for the benefit of Mr. Pessin.
This information is based upon a filing with the Securities and Exchange
Commission on Form 13D dated October 26, 2000.
<F13>Less than 1 percent of class.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Reliance Transaction
On or about December 4, 1997, an outside shareholder and four of the Company's former directors (Sands, P. Kikis, Saunders and T. Kikis) commenced an action in the Supreme Court of the State of New York, County of New York (Index No. 606166/97) against the other four directors (Vassell, Robinett, Nekos and Miller), the Company's outside corporate and securities counsel and the Company itself in a lawsuit characterized as a derivative action. The claims against the Company's outside corporate and securities counsel were dismissed and the entire case was settled in November, 2000. The complaint alleged that one or more of the defendant-directors engaged in improper activities, including ultra-vires acts, breach of fiduciary duty, fraud against the Company, constructive fraud and waste of corporate assets.
In order to settle the litigation, the Company and the plaintiffs entered into a Stock Purchase Agreement on September 12, 2000 with Reliance Security Group plc ("Reliance"), whereby Reliance agreed to the purchase of all the common shares owned by the plaintiffs. All of the common shares, preferred shares and options owned by the plaintiff directors represented approximately 38% of the outstanding common stock of the Company on a fully diluted basis. The plaintiffs agreed to terminate their lawsuit, relinquish their seats on the Board and terminate a shareholder agreement to which they were a party. As an inducement to Reliance to complete the transaction, the Company agreed to issue Reliance a five year warrant to purchase up to 20% of the Company's then outstanding stock on a fully diluted basis (approximately 2.3 million shares) at $1.25 per share. The Company also agreed to pay certain transaction related expenses, to reimburse for certain directors' related legal costs and incurred professional fees in connection with the settlement and accordingly has incurred charges of $431,445 during the year ended March 31, 2001. The transaction constituted a change of control and thus required shareholder approval. A special shareholder meeting was held on November 13, 2000 and the transaction was approved.
The Stock Purchase Agreement
The Stock Purchase Agreement provided for Reliance to purchase from the sellers all of their interests in the Company. This amounted to 1,382,339 shares of common stock, 12,325.82 shares of Series A Preferred Stock which are convertible into 1,232,582 shares of common stock and warrants covering 300,000 shares of common stock. The purchase price was $2.20 per share of common stock and common stock equivalent. The purchase price for the warrants will be $2.20 per share of common stock issuable upon exercise of each warrant, less the exercise price. The aggregate purchase price for these securities was approximately $6 million.
The Stock Purchase Agreement also contained several conditions to closing including but not limited to the issuance of the Reliance Warrant described above, the issuance of the Vassell Warrants covering a total of 1,217,444 shares or approximately 10.6% of the Company's outstanding common stock on a fully diluted basis, the termination of the 1995 Shareholder Agreement, and the Company's Board of Directors having been reconstituted based on the resignations of Messrs. Snitow, Robinett, Thomas Kikis, Peter Kikis, Saunders and Sands, and the Board having been reduced to seven (7) members consisting of Messrs. Vassell, Miller, Nekos, Haslehurst, Halder, Allison and a director to be mutually agreed upon by Mr. Vassell and Reliance (Mr. Painter).
The Reliance Warrant
The Company issued Reliance a warrant in conjunction with the Reliance transaction covering 2,298,092 shares or 20% of the Company's outstanding common stock on a fully diluted basis taking into account the exercise of all stock options, warrants and rights to acquire shares of common stock outstanding on the date of the warrant, conversion of all shares of preferred stock outstanding on the date of the warrant, and the exercise of the warrant itself. The warrant exercise price is $1.25 per share. Due to the closing bid price for the Company's stock of $.81 as of October 11, 2000, the Warrant had nominal value at the time of issuance. The warrant expires in five years and may not be exercised for one year from the date of its issuance. The warrant is subject to the usual and customary anti-dilution provisions. Any shares issued pursuant to exercise of the warrant are covered by a Registration Rights Agreement which provides for a piggyback registration during the five year period following consummation of the Reliance transaction and one demand registration statement during the same time period.
The Vassell Warrants
In accordance with the Employment Agreement offered to William C. Vassell in conjunction with the Reliance transaction, Mr. Vassell received, among other things, two nonqualified incentive stock options which are referenced herein as the Vassell Warrants. The first warrant covers 204,485 shares or 2% of the outstanding common stock of the Company on a fully diluted basis taking into account the exercise of all stock options, warrants and rights to acquire shares of common stock outstanding on the date of the warrant, conversion of all shares of preferred stock on the date of the warrant and exercise of the warrant. This calculation specifically excludes the second warrant issued to Mr. Vassell, described below. The warrant exercise price is $1.25 per share. Due to closing bid price for the Company's stock of $.81 as of October 11, 2000, the Warrant had nominal value at the time of issuance. The warrant expires in five years and may not be exercised for one year from the date of its issuance. The warrant is subject to the usual and customary anti-dilution provisions and may not be exercised until after the exercise by Reliance of the Reliance warrant and only to the extent of the exercise of the Reliance warrant.
A second warrant issued to Mr. Vassell in accordance with his Employment Agreement covers 1,012,959 shares which is such number of shares of common stock which, when taken together with all shares of common stock and options, warrants and rights to acquire shares of common stock held by Mr. Vassell on the date of the warrant, is equal to approximately 20% of the outstanding common stock on a fully diluted basis taking into account the exercise of all stock options, warrants and rights to acquire shares of common stock outstanding on the date of the warrant, conversion of all shares of preferred stock outstanding on the date of the warrant and exercise of the warrant. The terms of this warrant are the same as the warrant referenced above except that the number of shares covered by it are subject to the Company's performance. Due to the closing bid price for the Company's stock of $.81 as of October 11, 2000, the Warrant had nominal cash value at the time of issuance. One-third of the shares covered by the warrant become exercisable if the Company's earnings satisfy certain Confidential Performance Targets (defined above in Item 11 - "Employment Agreements and Warrants and Termination of Employment and Change of Control Agreement - William C. Vassell") for the year ended March 31, 2002. The warrant becomes exercisable with respect to two-thirds of the shares covered by the warrant if the Company's earnings satisfy the Confidential Performance Targets for the year ended March 31, 2003 exceed projected earnings before taxes for that year. All of the shares covered by the warrant become exercisable if the Company's earnings satisfy the Confidential Performance Targets for the year ended March 31, 2004. This warrant is also subject to the usual and customary anti-dilution provisions.
The Shareholders' Agreement
The Company, William C. Vassell and Reliance entered into a Shareholder's Agreement dated September 12, 2000, as part of the Reliance transaction. Pursuant to the terms of the Agreement, Mr. Vassell and Reliance agreed to vote all of their shares of common stock in accordance with the provisions contained therein. These provisions include: the establishment of a Board composed of seven directors; and an agreement that Mr. Vassell and Reliance each shall designate three individuals to be nominated to serve as directors of the Company and that the Company shall have at least one independent director jointly selected by Mr. Vassell and Reliance.
The initial designees of Mr. Vassell to the Board were William C. Vassell, Gregory J. Miller and Peter J. Nekos. The initial designees of Reliance to the Board were Geoffery P. Haslehurst, Kenneth Allison and Graeme R. Halder. The initial independent director is Mr. Carl Painter. Any vacancy in the Board of Directors will be filled by the party which under the provisions of the Shareholders' Agreement, is entitled to designate such director.
The Agreement provides for the establishment of the Confidential Performance Targets in accordance with Mr. Vassell's employment agreement. Upon a deviation from the Confidential Performance Targets for such fiscal year by more than 20%, Reliance may ask for a vote of the Board to terminate Mr. Vassell's employment. If such vote is obtained, Mr. Vassell shall resign as Chairman of the Board, President and Chief Executive Officer of the Company and cause his Board designees to resign from their positions. Notwithstanding these terms, in no event will Mr. Vassell be required to resign prior to the first anniversary of the effective date of his Employment Agreement.
If Mr. Vassell resigns under such circumstances, the parties will be released from any obligation to vote their shares to elect as members of the Board those individuals designated under the Agreement. Furthermore, the parties have agreed that Mr. Vassell may, for a period of ninety (90) days after the date of his resignation or termination of employment under certain circumstances offer to sell to Reliance all of his shares and any of his warrants or options to purchase any shares of the common stock of the Company at a purchase price determined by Mr. Vassell. Reliance shall then have forty-five (45) days from receipt of such notice to accept the terms of Mr. Vassell's offer to sell. If the offer is rejected or lapses, Mr. Vassell shall have the right to purchase from Reliance all of its shares and the Reliance warrant at the price specified in Mr. Vassell's offer.
The Shareholders' Agreement further subjects the holdings of the parties to a right of first refusal with respect to future sales of their shares. The Company provides certain representations and warranties to Reliance which are standard for a transaction of this nature.
The Company agreed on November 13, 2000 to pay former director Peter T. Kikis up to $135,000 for services rendered in connection with the Reliance transaction and his evaluation and negotiations with respect to unsuccessful transactions prior to the Reliance transaction.
As a further inducement to Reliance to proceed with the Reliance transaction, Mr. Vassell agreed to the establishment of an escrow fund with respect to 250,000 shares of his common stock. Provided the Company's earnings before interest, taxes, depreciation and amortization for the twelve month period ending September 30, 2001 meet or exceed a certain Confidential Performance Target, the escrowed shares will be released to Mr. Vassell. In the event the Confidential Performance Target is not met, the escrow agent will be directed to release the escrowed shares to Reliance. Voting control with respect to the shares covered by the Escrow Agreement remain with Mr. Vassell unless the shares are delivered to Reliance in accordance with the agreement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) Financial statements filed as part of this report:
Page No.
Independent auditor's report F-1
Balance Sheets - March 31, 2001 and 2000 F-2
Statements of Operations - years ended F-3
March 31, 2001, 2000, and 1999
Statements of changes in stockholders' equity F-4
years ended March 31, 2001, 2000, and 1999
Statements of cash flows - years ended F-5 - F-7
March 31, 2001, 2000, and 1999
Notes to Financial Statements F-8 - F-20
(2) Financial statement schedule filed
as part of this report:
Valuation and qualifying accounts - years
ended March 31, 2001, 2000, 1999 F-21
|
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.
3.1 Amended & Restated Articles Incorporated by reference to
3.3 of the form 10-K for the Exhibit of Incorporation
fiscal year ending March
31, 1993 (the "1993 10-K")
3.2 By-Laws Incorporated by reference to Exhibit
3.3 of the Form 10-K for the fiscal
year ended March 31, 1991 (the "1991
10-K")
3.3 Amendments to By-Laws Incorporated by reference to Exhibit
3.3 of the Form 10-K/A for the fiscal
year ended March 31, 1994
(the "1994 10-K/A")
3.4 Certificate of Amendment of Incorporated by reference to Exhibit
Certificate of Incorporation 3.4 of the Eighth Amendment to the
Registration Statement filed on Form
S-1, File No. 33-75336 (the "S-1").
34
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4.1 Specimen Stock Certificate Incorporated by reference to Exhibit
4.A to amendment #1 to Registrant's
Registration Statement on Form S-18,
file number 33, 35007-NY (the "S-18")
4.2 Reclassified as Exhibit
10.37
4.3 Reclassified as Exhibit
10.38
4.4 Reclassified as Exhibit
10.39
4.5 Reclassified as Exhibit
10.40
4.6 Warrant (50,000) to the CIT Incorporated by reference to Exhibit
Group/Credit Finance 4.2 of the Form 8-K filed on
March 13, 1996
4.7 Specimen Series A Preferred Incorporated by reference to Exhibit
Certificate Stock 4.2 of the Third Amendment
to the S-1.
10.1 Form of Amendment to Employment Incorporated by reference to Exhibit
Agreement for William C. 10.1 of the 10-K for the fiscal year
Vassell dated April 8, 1991 ended March 31, 1992 (the "1992
10-K")
10.2 Amended and Restated Incorporated by reference to Exhibit
Employment Agreement for William C. 10.3 of the 1992 10-K
Vassell dated June 18, 1991
10.3 Amendment #1 to Amended & Incorporated by reference to Exhibit
Restated Employment 10.5 to the 1993 10-K
Agreement for William C.Vassell
dated September 25, 1992
10.4 Form of Amendment to Incorporated by reference to Exhibit
Employment Agreement for Gordon 10.2 of the 1992 10-K
Robinett dated April 8, 1991
10.5 Amended and Restated Incorporated by reference to Exhibit
Employment Agreement for 10.4 of the 1992 10-K
Gordon Robinett dated June 18,
1991
10.6 Amendment #1 to Amended Incorporated by reference to Exhibit
Restated Employment & 10.6 of the 1993 10-K
Agreement for Gordon Robinett
dated September 25, 1992
35
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10.7 Form of Warrant Agreement Incorporated by reference to Exhibit
and Warrant for William C. 10.3 of the 1991 10-K
Vassell (175,000 shares)
and Gordon Robinett (60,000 shares)
10.8 Form of Warrant Agreement Incorporated by reference to Exhibit
dated May 15, 1992 10.7 to the 1992 10-K
for William C. Vassell
(125,000 shares), Gordon Robinett
(60,000 shares) and Peter J. Nekos
(10,000 shares)
10.9 Compensation Continuation Incorporated by reference to Exhibit
Agreement for William 10.9 of the 1993 10-K
C. Vassell dated September
25, 1992
10.10 Consulting Agreement with Incorporated by reference to Exhibit
Robert Ellin dated 10.10 of the 1992 10-K
December 2, 1992
10.11 Warrant Agreement for Incorporated by reference to Exhibit
William C. Vassell 10.16 of the Form 10-K for fiscal
(500,000) year ended March 31, 1994 (the "1994
10-K")
10.12 Franchise Offering Incorporated by reference to Exhibit
Prospectus dated 10.11 of the 1993 10-K
December 1, 1992
10.13 Warrant Agreement and Incorporated by reference to Exhibit
Warrant for Stuart James 4.B of S-18
Company, Inc.
10.14 Form of Second Amendment to Incorporated by reference to Exhibit
May 15, 1992 Warrant 10.13 in 1994 10-K
Agreement and Warrant
Certificate for William
C. Vassell and Gordon Robinett
10.15 Form of Third Amendment to Incorporated by reference to Exhibit
April 8, 1991 Warrant 10.14 in the 1994 10-K
Agreement and Warrant
Certificate for William C.
Vassell and Gordon Robinett
10.16 Form of Third Amendment to Incorporated by reference to Exhibit
May 15, 1992 Warrant Agreement 10.15 in the 1994 10-K
and Warrant Certificate for
William C. Vassell and Gordon
Robinett
10.17 Placement Agent Agreement Incorporated by reference to Exhibit
1.1 of the Form 8-K filed October 17,
1993
10.18 Registration Agreement Incorporated by reference to Exhibit
4.1 to the Form 8-K filed October 17,
1993
36
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10.19 Form of Warrant for Private Incorporated by reference to Exhibit
Placement 4.2 to the Form 8-K filed October 27,
1993
10.20 Warrant Agreement Incorporated by reference to Exhibit
(Placement Agreement) 4.3 to the Form 8-K filed October 27,
1993
10.21 William C. Vassell Indemnity Incorporated by reference to Exhibit
Agreement 10.17 of the 1994 10-K
10.22 Plan of Acquisition, Incorporated by reference to Exhibit
Reorganization, Liquidation 2 of the Form 8-K filed October 27,
or Succession of ISS 1993
International Service Systems,
Inc.
10.23 Amendment to ISS Purchase Incorporated by reference to Exhibit
Agreement 10.23 of the 1994 10-K/A
10.24 Plan of Acquisition, Incorporated by reference to Exhibit
Reorganization, Liquidation 2 of the Form 8-K filed November 12,
or Succession of Madison 1993
10.25 Purchase and Sale Agreement Incorporated by reference to Exhibit
dated February 24, 1996, for 2.1 of the Form 8-K filed March 24,
the acquisition of United 1996
Security Group Inc.
10.26 Placement Agent Agreement Incorporated by reference to Exhibit
dated February 24, 1996, 10.26 the Third Amendment
between to the Company Sands to the Form S-1.
Brothers & Co., Ltd. with
Amendment as of March 24,
1996
10.27 Shareholders Voting Agreement Incorporated by reference to Exhibit
dated March 8, 1996, by all 10.27 of the S-1.
Third Amendment to the
directors in their capacities
as Shareholders
10.28 Amendment No. 2 to Amended and Incorporated by reference to Exhibit
Restated Employment Agreement 10.28 of the Third Amendment to the
for William C. Vassell dated S-1
February 24, 1996
10.29 Amendment No. 2 to Amended and Incorporated by reference to Exhibit
Restated Employment Agreement 10.29 of the Third Amendment to the
for Gordon Robinett dated S-1
February 24, 1996
10.31 Form of Warrant (250,000) to Incorporated by reference to Exhibit
Sands Brothers & Co., Ltd. 10.31 of the Third Amendment to the
S-1
10.32 Warrant Reduction Agreement Incorporated by reference to Exhibit
(275,000) William C. Vassell 10.32 of the Third Amendment to the
S-1
37
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10.34 Loan and Security Agreement Incorporated by reference to Exhibit
with CIT Group/Credit Finance, 4.7 of the S-1.
Third Amendment to the Inc.
10.35 Term Loan Agreement with Incorporated by reference to Exhibit
Deltec Development Corp. 4.8 of the Third Amendment to the S-1
10.36 Promissory Note to William C. Incorporated by reference to Exhibit
Vassell ($85,000) dated August 10.36 of the form 10-K for the
22, 1994 fiscal year ending March 31, 1995
(the "1995 10-K")
10.37 Notes Payable - ISS Incorporated by reference as Exhibit
4.2 to the 1994 10-K/A
10.38 Bank Note - September 1, 1992 Incorporated by reference as Exhibit
maturity 4.2 to the l994 l0-K/A
10.39 Bank Note - November 1, 1997 Incorporated by reference as Exhibit
maturity 4.4 of the 1994 10-K/A
10.40 Mehlich Notes Incorporated by reference as Exhibit
4.5 of the 1994 10-K/A
11.00 Computation of Income Per Incorporated by reference to Exhibit
of Common Stock Share. 11 annexed to Financial Statements.
99.2 Placement Agent Agreement Incorporated by reference to Exhibit
dated February 24, 1995 1.1 to the Form 8-K/A dated February
24, 1995
99.3 Amendment to Exhibit C to the Incorporated by reference to Exhibit
Placement Agent Agreement 1.2 to the Form 8-K dated March 24, dated
March 24, 1995 1995
99.4 Agreement with John B. Incorporated by reference to Exhibit
Goldsborough 99.3 to the Fourth Amendment to the
S-1
99.5 Warrant Standstill Agreement Incorporated by reference to Exhibit
from William C. Vassell 99.4 to the Fourth Amendment to the
S-1
99.6 Shareholders Voting Agreement Incorporated by reference to Exhibit
dated March 8, 1995 99 to the Form 8-K dated March 24, 1995
99.7 Letter to Company from Incorporated by reference to Exhibit
D'Arcangelo & Co. L.L.P. 99.7 to the Form 8-K dated February 9,
dated February 28, 1994. 1996
99.8 Letter to Company from Incorporated by reference to Exhibit
Coopers & Lybrand L.L.P. 99.8 to the Form 8-K dated February 9,
dated February 7, 1996 1996.
confirming termination
of engagement.
38
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99.9 Letter to Company from Incorporated by reference to Exhibit
Coopers & Lybrand, L.L.P. 99.9 to the Form 8-K dated February 9,
dated February 9, 1996. 1996.
99.10 Letter (revised) to Commission Incorporated by reference to Exhibit
from Coopers & Lybrand L.L.P. 99.10 to the Form 8-K/A
filed March11, 1996. dated March 8, 1996.
99.11 Press Release dated June 25, Incorporated by reference to Exhibit 1997
re: FYE 1997 results 99.11 to the 1997 10-K.
99.12 Press Release dated Incorporated by reference to Exhibit
June 29, 1999 99.12 to the 10-K for year
ended March 31, 1999.
99.13 Stock Purchase Agreement Incorporated by reference to Exhibit
99.13 of the Form 8-K
filed September 27, 2000.
99.14 Reliance Warrant Incorporated by reference to Exhibit
99.14 of the Form 8-K
filed September 27, 2000.
99.15 Vassell Warrant Incorporated by reference to Exhibit
99.15 of the Form 8-K
filed September 27, 2000.
99.16 Vassell Warrant Incorporated by reference to Exhibit
99.16 of the Form 8-K
filed September 27, 2000.
9.17 Kikis Voting Agreement Incorporated by reference to Exhibit
99.17 of the Form 8-K
filed September 27, 2000.
99.18 Sands Voting Agreement Incorporated by reference to Exhibit
99.18 of the Form 8-K
filed September 27, 2000.
99.19 Shareholders' Agreement Incorporated by reference to Exhibit
99.19 of the Form 8-K
filed September 27, 2000.
99.20 Vassell Employment Agreement Incorporated by reference to Exhibit
99.20 of the Form 8-K
filed September 27, 2000.
99.21 Stipulation Incorporated by reference to Exhibit
99.21 of the Form 8-K
filed September 27, 2000.
99.22 Registration Rights Agreement Incorporated by reference to Exhibit
99.22 of the Form 8-K
filed September 27, 2000.
99.23 Audit Committee of the E-1
Board of Directors
Charter and Powers
99.24 Halder Employment Agreement E-2
99.25 2000 Stock Option Plan E-3
99.26 Halder Warrant E-4
99.27 Blake Warrant E-5
39
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99.28 Dunn Warrant E-6 99.29 McDonald Warrant E-7 (b) Reports on Form 8-K |
(i) Report on Form 8-K dated April 16, 1996 Item 7 (c) - Exhibit Press release dated April 15, 1996
(ii) Report on Form 8-K dated September 10, 1996 Item 7(c) - Exhibits Press release dated August 19, 1996 Press release dated September 05, 1996 Press release dated September 09, 1996
(iii) Report on Form 8-K dated September 26, 1996 Item 7(c) - Exhibit Press release dated September 17, 1996
(iv) Report on Form 8-K dated November 13, 1996 Item 7(c) - Exhibits Press release dated October 23, 1996 Press release dated November 06, 1996
(v) Report on Form 8-K dated November 19, 1996 Item 7(c) - Exhibit Press release dated November 13, 1996
(vi) Report on Form 8-K dated February 14, 1997 Item 7(c) - Exhibits Press release dated February 07, 1997 Press release dated February 10, 1997
(vii) Report on Form 8-K dated August 15, 1997 Item 7(c) - Exhibits Press release dated August 11, 1997
(viii) Report on Form 8-K dated September 11, 1997 Item 7(c) - Exhibits Press release dated September 10, 1997
(ix) Report on Form 8-K dated November 19, 1997 Item 7(c) - Exhibits Press release dated November 19, 1997
(x) Report on Form 8-K dated December 18, 1997 Item 5
(xi) Report on Form 8-K dated July 8, 1998 (item 7(c) - Exhibits Press Release dated July 7, 1998.
(xii) Report on Form 8-K dated July 29, 1998 Item 7(c) - Exhibits Press Release dated July 17, 1998.
(xiii) Report on Form 8-K dated September 15, 1998 Item 7(c) Press release dated August 17, 1998.
(xiv) Report on Form 8-K dated December 1, 1998 Item 7(c) Press release dated November 30, 1998.
(xv) Report on Form 8-K dated July 1, 1999 Item 7(c) Press release dated July 20, 1999.
(xvi) Report on Form 8-K dated August 24, 1999 Item 7(c) Press release dated August 27, 1999.
(xvii) Report on Form 8-K dated October 6, 1999 Item 7(c) Press release dated October 6, 1999 and October 12, 1999.
(xviii) Report on Form 8-K dated November 1, 1999 Item 7(c) Press release dated November 1, 1999.
(xix) Report on Form 8-K dated November 11, 1999 Item 7(c) Press release dated November 11, 1999.
(xx) Report on Form 8-K dated February 15, 2000 Item 7(c) Press release dated February 15, 2000.
(xxi) Report on Form 8-K dated March 3, 2000 Item 7(c) Press release dated March 3, 2000.
(xxii) Report on Form 8-K dated June 30, 2000 Item 7(c) Press release dated June 30, 2000.
(xxiii) Report on Form 8-K dated August 22, 2000 Item 7(c) Press release dated August 21, 2000.
(xxiv) Report on Form 8-K dated September 12, 2000 Item 7(c) Press release dated September 12, 2000.
(xxv) Report on Form 8-K dated November 10, 2000 Item 7(c) Press releases dated November 10, 2000 and November 14, 2000.
(xxvi) Report on Form 8-K dated February 14, 2001 Item 7(c) Press release dated February 14, 2001.
(xxvii) Report on Form 8-K dated April 18, 2001 Item 7(c) Press release dated April 17, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) Financial statements filed as part of this report:
Page No.
Independent auditor's report F-1
Balance sheets - March 31, 2001 and 2000 F-2
Statements of operations - years ended
March 31, 2001, 2000 and 1999 F-3
Statements of changes in stockholders' equity -
years ended March 31, 2001, 2000 and 1999 F-4
Statements of cash flows - years ended
March 31, 2001, 2000 and 1999 F-5 - F-6
Notes to financial statements F-7 - F-19
(2) Financial statement schedule filed as part of this report:
Valuation and qualifying accounts - years ended
March 31, 2001, 2000 and 1999 F-20
|
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.
COMMAND SECURITY CORPORATION
FINANCIAL STATEMENTS
(and Independent Auditor's Report )
YEARS ENDED
MARCH 31, 2001 AND 2000
Independent Auditor's Report
on the Financial Statements
To the Board of Directors
and Stockholders of
Command Security Corporation
We have audited the accompanying balance sheets of Command Security Corporation as of March 31, 2001 and 2000, and the related statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended March 31, 2001. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the 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 financial statements referred to above present fairly, in all material respects, the financial position of Command Security Corporation as of March 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
May 25, 2001
Poughkeepsie, New York
Command Security Corporation
Balance Sheets
March 31, 2001 and 2000
ASSETS
2001 2000
Current assets:
Restricted cash $ 466,403 $ -0-
Accounts receivable from guard service customers, less allowance for
doubtful accounts of $562,945 and $1,258,187, respectively 14,101,319 10,018,827
Accounts receivable from administrative service client customers, less
allowance for doubtful accounts of $32,840 and $30,059, respectively 391,650 1,892,657
Prepaid expenses 353,922 221,439
Other receivables, less allowance for doubtful accounts
of $2,246 and $8,717, respectively 308,842 365,137
Total current assets 15,622,136 12,498,060
Furniture and equipment at cost, net 1,230,178 1,340,331
Intangible assets, net 352,656 460,063
Restricted cash 244,620 799,993
Other assets 540,925 249,524
Total assets $17,990,515 $15,347,971
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 1,039,698 $ 184,772
Current maturities of long-term debt 1,441,080 410,603
Current maturities of obligations under capital leases 104,773 113,752
Short-term borrowings 6,942,779 7,192,515
Accounts payable and accrued expenses 4,132,346 3,328,028
Preferred dividends payable -0- 40,674
Due to administrative service clients 87,157 478,006
-
Total current liabilities 13,747,833 11,748,350
Self-insurance reserves 730,374 820,693
Long-term debt, net 1,628,307 309,676
Obligations under capital leases, net 172,270 277,961
16,278,784 13,156,680
Commitments and contingencies (Notes 13 and 14)
Stockholders' equity:
Preferred stock, convertible Series A, $.0001 par value per share, 1,000,000
shares authorized, 12,325 shares
issued and outstanding, liquidation value of $2,033,682 2,033,682 2,033,682
Common stock, $.0001 par value per share, 20,000,000 shares
authorized, issued 6,287,343 and 6,508,143, respectively 629 651
Paid-in capital 8,619,286 8,886,140
Accumulated Deficit (8,941,866) (8,502,980)
1,711,731 2,417,493
Common stock in treasury, at cost, 220,800 shares in 2000 -0- (226,202)
1,711,731 2,191,291
Total liabilities and stockholders' equity $17,990,515 $15,347,971
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See accompanying notes and auditor's report
Command Security Corporation
Statements of Operations
Years Ended March 31, 2001, 2000 and 1999
2001 2000 1999
Guard service revenue $71,320,440 $59,245,927 $57,642,041
Cost of guard service revenue 59,789,330 49,243,061 47,925,623
Gross profit 11,531,110 10,002,866 9,716,418
Administrative service revenue 274,277 554,196 913,498
11,805,387 10,557,062 10,629,916
Operating expenses:
General and administrative expenses 10,099,333 8,202,239 8,087,751
Amortization of intangibles 297,440 1,176,448 1,280,687
Provision for doubtful accounts and notes 524,304 969,937 367,916
Bad debt recoveries -0- (106,578) (316,045)
Stockholder derivative suit related expenses 431,445 -0- 273,527
Line of credit termination fee 125,000 -0- -0-
Loss on value of intangible assets -0- -0- 58,646
11,477,522 10,242,046 9,752,482
Operating income 327,865 315,016 877,434
Other income/(expense)
Interest income 114,373 172,533 151,216
Interest expense (956,352) (848,860) (992,218)
Insurance rebates 60,799 15,689 -0-
Gain/(loss) on equipment dispositions 14,429 912 (51,831)
Other income -0- 35,000 -0-
(766,751) (624,726) (892,833)
Loss before
income tax expense (438,886) (309,710) (15,399)
Income tax expense -0- -0- -0-
Net loss (438,886) (309,710) (15,399)
Preferred stock dividends (40,674) (177,851) (150,643)
Net loss applicable to common stockholders $ (479,560) $ (487,561) $ (166,042)
Loss per share of common stock $ (.08) $ (.07) $ (.02)
Weighted average number of common
shares outstanding 6,287,343 6,535,581 6,658,143
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See accompanying notes and auditor's report
Command Security Corporation
Statements of Changes in Stockholders' Equity
Years Ended March 31, 2001, 2000 and 1999
Common
Preferred Common Paid-In Accumulated Stock In
Stock Stock Capital Deficit Treasury Total
Balance at March 31, 1998 $1,883,039 $ 801 $9,431,505 $(8,177,871) $ (3,000) $3,134,474
Retirement of common
stock in treasury (135) (2,865) 3,000 -0-
Preferred stock dividends 150,643 (150,643) -0-
Net loss (15,399) (15,399)
Balance at March 31, 1999 2,033,682 666 9,277,997 (8,193,270) -0- 3,119,075
Return of escrowed
common stock (15) (214,006) (214,021)
Purchase of treasury stock (226,202) (226,202)
Preferred stock dividends (177,851) (177,851)
Net loss (309,710) (309,710)
Balance at March 31, 2000 2,033,682 651 8,886,140 (8,502,980) (226,202) 2,191,291
Retirement of common
stock in treasury (22) (226,180) 226,202
Preferred stock dividends (40,674) (40,674)
Net loss (438,886) (438,886)
Balance at March 31, 2001 $2,033,682 $ 629 $8,619,286 $(8,941,866) $ -0- $1,711,731
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See accompanying notes and auditor's report
Command Security Corporation
Statements of Cash Flows
Years Ended March 31, 2001, 2000 and 1999
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
2001 2000 1999
OPERATING ACTIVITIES
Net loss $ (438,886) $ (309,710) $ (15,399)
Adjustments to reconcile net loss to net
cash provided by/(used in) operating activities:
Depreciation and amortization 894,792 1,695,458 1,720,197
Provision for doubtful accounts and
notes receivable, net of recoveries 524,304 863,359 51,871
(Gain)/loss on equipment dispositions (14,429) (912) 51,831
Loss on value of intangible assets -0- -0- 58,646
Self-insurance reserves 369,144 448,291 572,833
Stock compensation settlement -0- (154,021) -0-
Changes in operating assets and liabilities:
Accounts receivable (3,004,807) (1,313,963) (322,530)
Prepaid expenses 27,179 215,285 460,896
Other receivables 41,085 (41,226) 38,995
Other assets 98,528 279,569 (71,944)
Accounts payable and accrued expenses 344,855 (831,214) (1,005,756)
Due to administrative service clients (384,731) (89,597) 105,971
Net cash provided by/(used in)
operating activities (1,542,966) 761,319 1,645,611
INVESTING ACTIVITIES
Purchase of equipment (226,368) (158,168) (101,372)
Purchase of intangible assets (190,033) (12,000) (45,735)
Proceeds from equipment dispositions 54,487 24,041 2,278
Notes purchased (167,185) -0- -0-
Issuance of note by administrative service client (80,769) -0- (5,000)
Principal collections on notes receivable 44,575 -0- 62,394
Net cash used in investing activities (565,293) (146,127) (87,435)
FINANCING ACTIVITIES
Net borrowings/(payments) on line of credit (332,776) 212,878 326,955
Proceeds from other borrowings 2,875,000 -0- -0-
Repayments on other short and long-term debt (1,092,873) (689,447) (1,237,369)
Repayments on capital lease obligations (114,670) (82,486) (75,397)
Cash overdraft 854,926 184,772 (449,895)
Purchase of treasury stock -0- (226,202) -0-
Payment of preferred stock dividends (81,348) (137,177) -0-
Net cash provided by/(used in)
financing activities 2,108,259 (737,662) (1,435,706)
Net increase/(decrease) in cash and cash equivalents -0- (122,470) 122,470
Cash and cash equivalents, beginning of year -0- 122,470 -0-
Cash and cash equivalents, end of year $ -0- $ -0- $ 122,470
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See accompanying notes and auditor's report
Command Security Corporation
Statements of Cash Flows, Continued
Years Ended March 31, 2001, 2000 and 1999
1. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the period for:
2001 2000 1999
Interest $ 882,569 $ 848,860 $ 997,779
Income Taxes -0- -0- -0-
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2. SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
For the years ended March 31, 2001, 2000 and 1999, the Company purchased equipment with direct installment and lease financing of $597,352, $701,662, and $247,043, respectively. These amounts have been excluded from the statements of cash flows.
The Company generally obtains short-term financing to meet its insurance needs. For the years ended March 31, 2001, 2000 and 1999, $322,621, $122,644, $107,099, respectively, have been borrowed for this purpose.These borrowings have been excluded from the statements of cash flows.
For the year ended March 31, 1999, the Company accrued accumulated dividends of $150,643 and issued 913 additional shares of its Series A convertible preferred stock to its preferred stockholders. This charge to paid-in capital and credit to preferred stock has been excluded from the statement of cash flows.
In January, 2001, the Company refinanced a note receivable from an administrative service client. The balance of the note refinanced of $78,839 along with net charges of $20,392 have been excluded from the statement of cash flows
In November, 2000, the Company refinanced its line of credit and term loan with LaSalle Business Credit, Inc.("LaSalle"). The principal balance on the previous line of credit with CIT Group/Credit Finance, Inc. ("CIT") at the time of refinancing was $7,898,547. The statement of cash flows presents only the net change for the period between both lending arrangements. As part of the lending arrangement, the Company received a $3,000,000 term loan, replacing a term loan with CIT, originally for $500,000 and a remaining balance of $125,000. Proceeds from the term loan are shown net of the CIT term loan satisfied. As part of the refinancing, the Company also purchased the remaining balances of two notes of an administrative service client and a customer list purchaser that the Company had previously guaranteed. Cash used for this purpose is shown in the accompanying statement of cash flows under cash flows from investing activities.
In December, 1999, the Company entered into an agreement modifying a stock compensation arrangement entered into in November, 1993, and canceling 150,000 shares of the Company's common stock held in escrow. The resultant charges to common stock and paid-in capital and credits to accrued expenses have been excluded from the statement of cash flows.
In August, 1999, the Company purchased certain guard service accounts and related equipment and supplies for a total consideration of $30,000. The Company paid $12,000 and issued a note for $18,000. The non-cash portion has been excluded from the purchase of accounts and issuance of notes in the statement of cash flows.
In June, 1998, the Company purchased certain guard service accounts and related equipment and supplies for a total consideration of $222,098. The Company paid $55,525 and issued two notes for $55,525 and $111,049, respectively. The second note was subsequently reduced by $31,015 as a retention adjustment. The non-cash portions have been excluded from the purchase of accounts and issuance of notes in the statement of cash flows.
See accompanying notes and auditor's report
Command Security Corporation
Notes to Financial Statements
March 31, 2001, 2000 and 1999
1. Business Description and Summary of Accounting Policies
The following is a description of the principal business activities and significant accounting policies employed by Command Security Corporation.
Principal business activities
Command Security Corporation (the Company) is a uniformed security guard service company operating in New York, Connecticut, California, Florida, Georgia, Illinois and New Jersey. In addition, the Company also provides other security guard companies (administrative service clients) and police departments in various states with administrative services, such as billing, collection and payroll, for a percentage of the related gross revenue.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include provisions for uncollectible accounts and notes receivable and reserves for general liability and workers' compensation claims, among others. Actual results could differ from those estimates.
Revenue recognition
The Company records revenue as services are provided to its customers and to its administrative service clients. Revenue consists primarily of security guard services which are typically billed at hourly rates. These rates may vary depending on base, overtime and holiday time worked. Revenue for administrative services provided to other guard companies are based on a percentage of the administrative service client's revenue and are recognized as billings for the related guard services are generated. Costs associated with the Company's guard service revenue consist of direct and indirect payroll and related expenses, subcontract costs, vehicle and other costs directly related to the guard service revenue generated. Costs related to the administrative service revenue are primarily clerical and administrative in nature and are not readily segregated from the Company's total general and administrative costs.
In December, 1999, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". Management believes that the Company's practices and policies are in compliance with SAB 101.
Cash and cash equivalents
For purposes of the cash flows statements, the Company defines cash and cash equivalents as operating cash (non restricted) and investments with maturities of three months or less.
Furniture and equipment
Furniture and equipment are stated at cost. Depreciation is accumulated using the straight-line method over the estimated useful lives of the equipment ranging from three to seven years.
Intangible assets
Intangible assets are stated at cost and consist primarily of customer lists which are being amortized on a straight-line basis over five years. The life assigned to customer lists acquired is based on management's estimate of the attrition rate. The attrition rate is estimated based on historical contract longevity and management's operating experience. Any possible impairment is evaluated annually based on anticipated undiscounted future cash flows and actual customer attrition in accordance with the provisions of SFAS 121.
Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
1. Business Description and Summary of Accounting Policies, continued
Advertising costs
The Company expenses advertising costs as incurred. Amounts incurred for recruitment and general business advertising were $184,697, $214,142, and $133,553 for the years ended March 31, 2001, 2000 and 1999, respectively.
Reserve for doubtful accounts
The Company periodically evaluates the requirement for providing for credit losses on its accounts receivables. Criteria used by management to evaluate the adequacy of the allowance for doubtful accounts include, among others, the creditworthiness of the customer, prior payment performance, the age of the receivables and the Company's overall historical loss experience.
Income/(loss) per common share
Under the requirements of Financial Accounting Standards Board Statement No. 128 (SFAS 128), "Earnings Per Share," the dilutive effect of potential common shares, if any, is excluded from the calculation for basic earnings per share. No diluted earnings per share are presented because the effect of assumed issuance of common shares in connection with warrants and stock options outstanding and preferred stock conversions was antidilutive.
Accounting for stock options
Financial Accounting Standards Board Statement No. 123 (SFAS 123) provides companies with a choice to follow the provisions of SFAS 123 in the determination of stock-based compensation expenses or to continue with the provisions of APB 25, "Accounting for Stock Issued to Employees." The Company will continue to follow APB 25 and will provide pro forma disclosures as required by SFAS 123. SFAS 123 did not have an impact on the Company's financial condition or results of operations for the periods presented. Stock-based compensation issued to non employees are accounted for based on the fair value and nature of goods and/or services received.
2. Furniture and Equipment
Furniture and equipment at March 31, consist of the following:
2001 2000
Transportation equipment $ 1,392,073 $ 1,394,723
Security equipment 582,075 594,563
Office furniture and equipment 2,128,993 1,987,073
4,103,141 3,976,359
Accumulated depreciation (2,872,963) (2,636,028)
$ 1,230,178 $ 1,340,331
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Depreciation expense for the years ended March 31, 2001, 2000 and 1999, was $597,352, $519,010, and $439,510, respectively, and includes amortization of assets purchased under capital lease arrangements (see Note 14).
Command Security Corporation
Notes to Financial Statements, Continued
March 31, 2001, 2000 and 1999
3. Intangible Assets
Intangible assets at March 31, consist of the following:
2001 2000
Customer lists $ 547,284 $ 3,675,390
Borrowing costs 190,034 50,000
Covenant not to compete -0- 180,000
Goodwill 34,007 34,007
771,325 3,939,397
Accumulated amortization (418,669) (3,479,334)
$ 352,656 $ 460,063
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Amortization expense for the years ended March 31, 2001, 2000 and 1999, was $297,440, $1,176,448, and $1,280,687, respectively. During the year ended March 31, 2001 and 2000, the Company removed fully amortized customer lists with an initial cost of $3,128,105 and $2,012,342, respectively, from its accounts. During the year ended March 31, 1999, the Company removed a customer list with a cost of $83,780 and related accumulated amortization of $25,134 from its accounts and recognized an impairment loss of $58,646 on its purchased customer list due to lack of retention in one of its branches. Management believed that the future expected cash flows would not be sufficient to recover the remaining unamortized costs associated with this list.
4. Restricted Cash
Restricted cash represents deposits for the benefit of the Company's insurance carrier as collateral for workers compensation claims. The Company's insurance carrier released $466,403 from the restrictions in June, 2001.
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at March 31, consist of the following:
2001 2000
Trade accounts payable $ 1,097,298 $ 669,552
Payroll and related expenses 2,021,922 1,526,877
Insurance 589,398 594,608
Sales tax 48,139 70,189
Accrued interest payable 73,783 -0-
Accrued professional fees 60,000 152,000
Accrued loss contingencies
and settlements 42,000 75,000
Liabilities assumed in acquisitions -0- 79,000
Other 199,806 160,802
$ 4,132,346 $ 3,328,028
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As of March 31, 2001 and 2000, the Company has accrued $42,000 and $75,000, respectively, for loss contingencies and settlements in connection with certain legal proceedings and labor claims where either a monetary settlement has been reached or management has determined that it is probable that a liability has been incurred.
Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
6. Short-Term Borrowings
Short-term borrowings at March 31, consist of the following:
2001 2000
Bank line of credit $ 6,823,985 $ 7,156,761
Various insurance financing arrangements,
interest ranging from 7.72% to 11.27% 118,794 35,754
$ 6,942,779 $ 7,192,515
In November, 2000, the Company entered into a three year agreement
with LaSalle Busines Credit, Inc. ("LaSalle") under a loan and
security agreement (the "agreement"), providing for a line of
credit of up to 85% of eligible accounts receivable, as defined in
the agreement, but in no event in excess of $15 million. At March
31, 2001, the Company had used $6,823,985 of this line,
representing approximately 81% of its maximum borrowing capacity.
Interest is payable at LIBOR plus 2% (7.233%)on the first
$5,000,000 and at prime (8%) on the excess, or $1,823,985, at March
31, 2001. The line is collateralized by customer accounts
receivable and substantially all other assets of the Company.
The Company terminated its previous agreement with CIT
Group/Business Credit, Inc. ("CIT"), which provided for financing
based on 85% of eligible accounts receivable, as defined, but in no
event in excess of $10 million. Interest was payable monthly at
1.5% over prime. The line was collateralized by customer accounts
receivable and substantially all other assets of the Company. The
agreement was scheduled to expire in February, 2001, and, in
accordance with the terms of the CIT agreement, the Company paid a
$125,000 early termination fee.
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7. Long-Term Debt
Long-term debt at March 31, consists of the following:
2001 2000
Capital Resource Company, (two notes and four notes)
due October, 2000 and June, 2001, interest at 14%, unsecured $ -0- $ 57,674
CIT Group/Business Credit, Inc., due February 1, 2002
interest at prime plus 1.5% <F1> -0- 191,667
LaSalle Business Credit, Inc., due May, 2003, interest at LIBOR
plus 2.5% (8.016%) on the first $2,000,000 and at prime (8%) on
the remaining
$600,000 at March 31, 2001 <F2> 2,600,000 -0-
Various installment loans due at various dates
through February, 2004, with interest ranging
from 10.6% to 12.75% <F3> 469,387 470,938
3,069,387 720,279
Current maturities (1,441,080) (410,603)
$ 1,628,307 $ 309,676
<F1> Term loan from CIT Group/Business Credit, Inc., payable in
monthly installments of $8,333 plus interest at prime plus
1.5% per annum, was collateralized with security pledged
under the revolving loan and security agreement and paid off
in connection with the refinancing with LaSalle
(see Note 6).
<F2> Term loan from LaSalle Business Credit, Inc., payable in
monthly installments of $100,000 plus interest per above,
adjusted monthly. Collateralized with security pledged under
the revolving loan and security agreement (see Note 6).
<F3> Payable to General Motors Acceptance Corporation and Ford Motor
Credit Corporation. The notes are collateralized by automobiles
and security equipment.
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Command Security Corporation
Notes to Financial Statements
March 31, 2001, 2000 and 1999
The aggregate amount of required principal payments of long-term debt is as follows:
Year ending: March 31, 2002 $ 1,441,080
March 31, 2003 1,365,719
March 31, 2004 262,588
$ 3,069,387
8. Stockholders' Equity
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Changes in the number of equity shares of the Company's preferred and common stock for the years ended March 31, 2001, 2000 and 1999, are as follows:
Preferred Common Treasury
Stock Stock Stock
Balance at March 31, 1998 11,412 8,013,543 1,355,400
Preferred stock dividend
shares issued 913
Retirement of common
stock in treasury (1,355,400) (1,355,400)
Balance at March 31, 1999 12,325 6,658,143 -0-
Return of escrowed common stock (150,000)
Purchase of treasury stock 220,800
Balance at March 31, 2000 12,325 6,508,143 220,800
Retirement of treasury stock (220,800) (220,800)
Balance at March 31, 2001 12,325 6,287,343 -0-
9. Retirement Plans
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In November, 1999, the Company adopted a qualified retirement plan providing for elective employee deferrals and discretioary employer contributions to non-highly compensated participants. The plan does not allow for employer matching of elective deferrals. For the years ended March 31,2001 and 2000, no discretionary amounts have been accrued or paid.
Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
10. Concentration of Risk
Geographic concentrations of credit risk with respect to trade receivables are primarily in the New York Metropolitan area consisting of 43% and 45% of total receivables as of March 31, 2001 and 2000, respectively. The remaining trade receivables consist of a large number of customers dispersed across many different geographic regions. During the years ended March 31, 2001, 2000 and 1999, the Company generated 43%, 38% and 31%, respectively, of its revenue from the commercial airline industry. Trade receivables due from the commercial airline industry comprised 37% and 31% of net receivables as of March 31, 2001 and 2000, respectively. The Company's remaining customers are not concentrated in any specific industry.
During the years ended March 31, 2000 and 1999, 56%, and 53% of administrative service revenue, respectively, was earned from one administrative service client. The contract with this administrative service client terminated in May, 2000.
The Company maintains its cash accounts in commercial banks. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At March 31, 2001, bank balances exceeded insured balances by approximately $341,000.
11. Significant Customers
During the year ended March 31, 2000, one customer accounted for approximately $6,027,000, or 10%, of revenue. During the years ended March 31, 2001 and 1999, no customers accounted for 10% or more of revenue.
12. Self-Insurance
For the years from March 1, 1997 to February 29, 2000, the Company provided a partially self-insured health insurance program to all eligible administrative personnel. There was a maximum loss of $30,000 per year per employee and an aggregate amount per year, based on the number of participants, that the Company could be responsible for. A stop-loss insurance policy covered all claims in excess of the above amounts. As of March 1, 2000, the Company is providing traditional fully insured coverage to its employees. The previous partially self-insured plan provided for a three month extension of benefit period following termination to provide for claim submission of losses incurred prior to the termination date. Claims submitted during the benefit extension period, net of refunds of previously paid claims in excess of the self-insured limits, were negligible. Amounts accrued for health insurance under the partially self-insured plan and included in general and administrative expenses were $326,817, and $328,938 for the policy years ended February 29, 2000, and February 28, 1999, respectively, and were based on the maximum aggregate for each year presented.
The Company has an insurance policy covering workers' compensation claims in most states that the Company performs services. Annual premiums are based on incurred losses as determined at the end of the coverage period, subject to a minimum and maximum premium. Estimated accrued liabilities are based on the Company's historical loss experience and the ratio of claims paid to the Company's historical payout profiles for the year ended March 31, 2001. For the years ended March 31, 2000 and 1999, the Company based its estimated losses on industry payout profiles. Charges for estimated workers' compensation related losses incurred and included in cost of sales were $1,802,379, $1,584,916, and $1,465,603 for the years ended March 31, 2001, 2000 and 1999, respectively. Had the Company used its own historical payout profile for the years ended March 31, 2000 and 1999, the charges for workers' compensation related losses would not have differed by a material amount.
Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
12. Self-Insurance, continued
The nature of the Company's business also subjects it to claims or litigation alleging that it is liable for damages as a result of the conduct of its employees or others. The Company insures against such claims and suits through general liability policies with third-party insurance companies. Such policies have limits of $1,000,000 per occurrence and $10,000,000 in the aggregate. In addition, the Company has obtained an excess general liability insurance policy that covers claims for an additional $50,000,000 in the aggregate ($30,000,000 prior to October 1, 1999). The Company retains the risk for the first $25,000 per occurrence ($50,000 for claims based on losses incurred prior to October 1, 2000). Charges for general liability self-insurance expense of $369,144, $448,291, and $572,833, are included in cost of sales for the years ended March 31, 2001, 2000 and 1999, respectively. Estimated accrued liabilities are based on specific reserves in connection with existing claims as determined by third party risk management consultants and actuarial factors to provide for estimated losses incurred but not yet reported.
Cumulative amounts estimated to be payable by the Company with respect to pending and potential claims for all years in which the Company is liable under its health, general liability risk retention and workers' compensation policies have been accrued as liabilities. Such accrued liabilities are necessarily based on estimates; thus, the Company's ultimate liability may exceed or be less than the amounts accrued. The methods of making such estimates and establishing the resultant accrued liability are reviewed continually and any adjustments resulting therefrom are reflected in current earnings.
13. Contingent Liabilities
The nature of the Company's business is such that there is a significant volume of routine claims and lawsuits that are issued against it, the vast majority of which never lead to substantial damages being awarded. The Company maintains general liability, casualty and workman's compensation insurance coverage that it believes is appropriate to the relevant level of risk and potential liability. Some of the claims brought against the Company could result in significant payments, however, the exposure to the Company under general liability is limited to the first $50,000 for cases before October 1, 2000, and $25,000 for cases after that date. The only potential impact would be on future premiums, which may be adversely effected by a poor claims history.
In addition to such cases, the Company has been named as a defendant in several uninsured employment related claims which are currently before various courts, the EEOC or various state and local agencies. The Company has instituted policies to minimize these occurrences and monitors those that do occur. At this time the Company is unable to determine the impact on the financial position and results of operation that these claims may have should the investigations conclude that they are valid. Certain cases have been cited by the Company in past documents because of their complexity, the large size of the demand or to illustrate the nature of some of these employment related cases, for example in May, 1996, a complaint was filed in Queens County Civil Court by three former employees alleging emotional distress, anguish, mental distress and injury to their professional reputation due to retaliatory discharge and related matters. Plaintiffs each seek $2 million for compensatory damages and $2 million in punitive damages in addition to payment of overtime wages of $25,000. The Company's customer, also a defendant and a former employer, has engaged counsel representing all defendants. On November 27, 1998, the Kings County Supreme Court ruled on a motion dismissing three counts concerning contractual allegations but allowed the remaining nine counts to proceed to findings. At this time the Company is unable to estimate the possible loss, if any, that may be incurred as a result of this action. The ultimate outcome may or may not have a material impact on the Company's financial position or results of operations.
Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
13. Contingent Liabilities, continued
On or about December 4, 1997, an outside shareholder and four of the Company's directors (Sands, P. Kikis, Saunders and T. Kikis) commenced an action in the Supreme Court of the State of New York, County of New York (Index No. 606166/97) against the other four directors (Vassell, Robinett, Nekos and Miller), the Company's outside corporate and securities counsel and the Company itself in a lawsuit characterized as a derivative action. The claims against the Company's outside corporate and securities counsel have since been dismissed. The complaint alleges that one or more of the defendant-directors engaged in improper activities, including ultra-vires acts, breach of fiduciary duty, fraud against the Company, constructive fraud and waste of corporate assets. These claims have been settled as part of the Reliance transaction cited in the following paragraph.
On September 12, 2000, the Company entered into an agreement in connection with the purchase by Reliance Security Group plc ("Reliance") , whereby Reliance purchased of all the common shares owned by the plaintiff outside stockholder and all common shares, preferred shares and options owned by the plaintiff directors which represent approximately 38% of the outstanding common stock of the Company on a fully diluted basis. As a result the plaintiffs terminated their lawsuit, relinquished their seats on the Board and terminated a shareholder agreement to which they were a party. As an inducement to Reliance to complete the transaction, the Company issued of a five year warrant to purchase up to 20% of the Company's then outstanding stock on a fully diluted basis (approximately 2.3 million shares) at $1.25 per share. The Company paid certain transaction related expenses, reimbursed certain directors' related legal costs and incurred professional fees in connection with the settlement. These expenses amounted to $431,445 and are included with operating expenses in the accompanying statements of operations for the year ended March 31, 2001. The transaction constituted a change of control and thus required shareholder approval. A special shareholder meeting was held on November 13, 2000 and the proposal was approved, resulting in the termination of the plaintiff's lawsuit and the shareholder agreement to which they were a party.
14. Lease Commitments
The Company is obligated under various operating lease agreements for office space, equipment and auto rentals. Rent expense under operating lease agreements approximated $646,700, $564,900, and $569,200, for the years ended March 31, 2001, 2000 and 1999, respectively.
The Company leases certain equipment and vehicles under agreements which are classified as capital leases. Most equipment leases have purchase options at the end of the original lease term. Cost and related accumulated depreciation of leased capital assets included in furniture and equipment at March 31, 2001, are $648,744 and $298,552 and at March 31, 2000, $730,163 and $246,852, respectively.
The future minimum payments under long-term noncancellable capital and operating lease agreements are as follows:
Capital Operating
Leases Leases
Year ending: March 31, 2002 $ 134,730 $ 400,605
March 31, 2003 107,491 265,252
March 31, 2004 55,480 142,852
March 31, 2005 37,023 42,846
March 31, 2006 3,183 4,727
337,907 $ 856,282
Amounts representing
interest (60,864)
$ 277,043
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Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
15. Stock Option Plan and Warrants
In November, 2000, the Company's Board of Directors and stockholders approved the adoption of a qualified stock option plan. Under the option plan, substantially all employees are eligible to receive options to purchase up to an aggregate of 500,000 shares at an exercise price which cannot be less than the fair market value of the shares on the date the options are granted. A previous similar plan allowing for the purchase of up to 107,500 shares expired in May, 2000. In February, 2001, options to purchase 225,000 shares of common stock have been issued. These options are exercisable at any time after April 30, 2004, and before January 31, 2011, at $.75 per share and are further restricted based on the achievement of certain financial results of the Company for the years ending March 31, 2002 through 2004.
The Company issued warrants to its former Treasurer to purchase 107,500 shares of its common stock at an exercise price of $5 per share. In July, 1996, the exercise price of these warrants was adjusted to $2.50 and the expiration date extended to July, 2000, when the warrants expired.
On April 8, 1991, as amended on June 18, 1991, the Board of Directors approved the issuance to each of the Company's President (now also Chairman of the Board) and former Treasurer, for $100, a five-year warrant to purchase 175,000 and 60,000 shares of common stock, respectively, at an exercise price of $3.375 per share, the market value at the time of the grant. The warrants vested on March 31, 1992. The exercise price was adjusted to $3.25, fair value on date of adjustment, and the expiration date extended to April, 1998, during fiscal 1994. The warrant extended to the Chairman of the Board expired in April, 1998. The exercise price for the warrant extended to the former Treasurer was adjusted again in July, 1996, to $2.50 per share and the expiration date extended to July, 2000, when the warrant expired.
In May 1992, the Board of Directors approved the issuance to the Company's Chairman, former Treasurer and Board member a five year warrant to purchase 125,000, 60,000 and 10,000 shares of common stock, respectively, at an exercise price of $3.88 per share, the fair market value at the time of the grant. The exercise price was adjusted to $3.25, the fair value on date of adjustment, and the expiration date extended to May, 1999, during fiscal 1994. The warrants issued to the Chairman and Board member expired in May, 1999. The exercise price for the warrant extended to the former Treasurer was adjusted again in July, 1996, to $2.50 per share and the expiration date extended to July, 2000, when the warrant expired.
The Company entered into a consulting agreement dated November 1, 1993, under which the Company agreed to issue stock or warrants in exchange for consulting services. The aggregate value of such stock or warrants to be granted will not exceed $300,000. The Company fully expensed the consulting fee by October, 1994. During the fiscal year ended March 31, 1994, the Company issued warrants for 200,000 shares and in July, 1994 issued additional warrants for 100,000 shares. The warrants expired in July, 1997, however, the Company had reserved 150,000 shares of common stock to provide the consultant with up to $300,000 of compensation. During the year ended March 31, 1999, $85,979 was paid in cash, reducing the stock to be released to a value not to exceed $214,021. In December, 1999, the Company entered into an agreement to pay an additional $60,000 to the consultant as full settlement of any and all claims of the consultant in connection with this agreement. Consequently, the 150,000 shares of the Company's common stock held in escrow were canceled.
On December 16, 1993, the Company granted to the Chairman of the Board a five-year warrant for 500,000 shares of common stock at an exercise price of $3.75, the fair value at time of grant, for services rendered in connection with the ISS acquisition. On March 31, 1995, the Chairman relinquished and waived his right to purchase 275,000 shares underlying this warrant. The warrant for the remaining 225,000 shares expired in December, 1998.
On February 24, 1995, the Company issued warrants for 250,000 shares of common stock to a firm owned by a member of the Company's Board of Directors and warrants for 50,000 shares of common stock to a lender who provided the Company's working capital line of credit until November, 2000, respectively, in connection with the financing for the acquisitions of the security guard business of United Security Group Inc. The warrants issued to the firm expired in February, 1998. The warrants issued to the lender were exercisable at $2.10 per share and expired in November, 2000.
Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
15. Stock Option Plan and Warrants, continued
On October 4, 1996, the Company issued warrants for 35,000, 150,000, 10,000 and 10,000 shares of common stock to the Company's then Chief Financial Officer and three Board members, respectively. The warrant for 35,000 shares was canceled due to the termination of the former Chief Financial Officer's employment. The remaining warrants are exercisable at $1.875 and expire on September 30, 2001.
On November 25, 1996, warrants to purchase 50,000 shares of common stock were subscribed to for $500 by the Company's public relations firm. The warrants are exercisable at $2.25 per share and expire in November, 2001.
On November 11, 1999, the Company authorized the issuance of warrants to purchase 150,000 shares of common stock to a former Board member in recognition of services to the Company, at an exercise price of $1.031 per share, the fair market value at the time of the grant. The warrants expire in November, 2004.
In November, 2000, the Company issued warrants to purchase 2,298,092 shares of common stock to Reliance in connection with the settlement of the derivative action described in Note 13. The warrants are exercisable at $1.25 per share at anytime after November 13, 2001, expiring November 13, 2005.
In November, 2000, the Company also issued warrants and incentive stock options to the Chairman of the Board and current President to purchase 204,485 and 1,012,959 shares of common stock, respectively, exercisable at $1.25 per share after November 13, 2001, and expiring November 13, 2005. The warrants are exercisable only after the exercise by Reliance of its warrants and only to the extent of the Reliance exercise. The options are exercisable with respect to one-third of the shares covered for each of the years ending March 31, 2002 through 2004, and are further restricted based on the achievement of certain financial results of the Company for the years ending March 31, 2002 through 2004.
Certain of the option and warrant agreements contain anti-dilution adjustment clauses.
The following is a summary of activity related to all Company stock option and warrant arrangements:
Options Warrants
Exercise Number of Exercise Number of
Price Shares Price Shares
Outstanding at March 31, 1998 $2.25 - $2.50<F1> 160,000 $1.87 - $3.75 960,000
Expired 3.25 - 3.75 (400,000)
Outstanding at March 31, 1999 2.25 - 2.50 160,000 1.87 - 3.25 560,000
Issued 1.03 150,000
Expired 2.25 (52,500) 3.25 (135,000)
Outstanding at March 31, 2000 2.50 107,500 1.03 - 2.50 575,000
Issued .75 - 1.25 1,237,959 1.25 2,502,577
Expired 2.50 (107,500) 2.10 - 2.50 (205,000)
Outstanding at March 31, 2001 $ .75 - $1.25 1,237,959 $1.03 - $2.25 2,872,577
<F1>Adjusted
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Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
16. Stock Option Plan and Warrants, continued
At March 31, 2001, there were 1,237,959 and 2,872,577 options and warrants outstanding, respectively, exercisable at prices ranging from $.75 to $2.25, and 4,385,536 shares reserved for issuance under all stock arrangements.
Significant option and warrant groups outstanding at March 31, 2001, and the related weighted average exercise price and life information are as follows:
Weighted Weighted
Options/ Options/ Average Average
Range of Warrants Warrants Exercise Remaining
Exercise Price Outstanding Exercisable Price Life (years)
$ .75 225,000 -0- $ .750 9.84
1.031 - 1.250 3,665,536 150,000 1.241 4.29
1.875 - 2.250 220,000 220,000 1.960 .54
$ .75 - $2.250 4,110,536 370,000 1.2535 .70
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As disclosed in Note 1, the Company continues to follow the provisions of APB 25, "Accounting for Stock Issued to Employees," when determining the value of stock based compensation. Accordingly, no compensation expense has been recognized for its stock based compensation. If the Company had used the fair value method of accounting for stock based compensation, there would have been no significant effect on the net income or loss of the Company for the years ended March 31, 2001, 2000 or 1999. The weighted fair value of options and warrants granted during the years ended March 31, 2001 and 2000, were $.03 and $.10 per equivalent share, respectively. There were no options or warrants issued during the year ended March 31, 1999. For the years ended March 31, 2001 and 2000, the fair value was estimated using the exercise price on the date of the grant and the following assumptions: risk free interest rate of 4.30% and 5.35%, volatility of 53.76% and 62.49% and a dividend yield of 0.00% for each year, respectively.
17. Preferred Stock
The Board of Directors has been authorized to issue preferred stock in series and to fix the number, designation, relative rights, preferences and limitations of each series of such preferred stock. Of the 1,000,000 shares authorized for issuance, 12,325 have been designated as Series A Convertible Preferred Stock ("Series A").
The Series A shareholders are entitled to receive annual dividends equal to 8% of the liquidation value of their shares, payable by the issuance of additional Series A stock until such time as all amounts due on the Deltec debt have been paid in full and then in cash thereafter. The $1.5 million Deltec indebtedness was repaid in full in February, 1999. During the year ended March 31, 1999, 913 Series A shares have been issued, representing dividends accrued through February 24, 1999. Upon liquidation or redemption the Series A shareholders are entitled to $165 per share. The Company has suspended payment of preferred dividends as of July 1, 2000, until it can re-establish sufficient surplus in accordance with applicable regulations. Total dividends in arrears as of March 31, 2001, were $122,022, or $.02 per common share.
Any holder of Series A shares may at any time convert their shares into common stock of the Company at a conversion ratio of 100 shares of common stock for each share of Series A stock.
Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
18. Income Taxes
Income tax expense/(benefit) for the years ended March 31 consists of the following:
2001 2000 1999
Current:
Federal $ -0- $ -0- $ -0-
State and local -0- -0- -0-
-0- -0- -0-
Deferred:
Federal -0- -0- -0-
State and local -0- -0- -0-
-0- -0- -0-
Income tax
expense/(benefit) $ -0- $ -0- $ -0-
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The differences (expressed as a percentage of pretax income) between the statutory Federal income tax rate and the effective income tax rate as reflected in the accompanying statements of operations are as follows:
2001 2000 1999
Statutory federal income tax rate 34.0 34.0 34.0
State and local income taxes,
net of federal benefit 9.8 9.8 9.8
Valuation allowences and reserves (38.4) (38.4) (20.7)
Permanent differences (5.4) (5.4) (23.1)
Effective tax rate 0.0% 0.0% 0.0%
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The significant components of deferred tax assets and liabilities as of March 31, 2001 and 2000, are as follows:
2001 2000
Current deferred tax assets:
Accounts receivable $ 98,054 $ 72,507
Accrued expenses 106,140 139,424
204,194 211,931
Valuation allowance (204,194) (211,931)
Net current deferred tax asset $ -0- $ -0-
Non-current deferred tax assets/
(liabilities):
Equipment $ (54,756) $ (48,811)
Intangible assets 897,047 982,898
Self-insurance 314,130 352,898
Net operating loss carryover 2,490,827 2,192,112
3,647,248 3,479,097
Valuation allowance (3,647,248) (3,479,097)
Net non-current deferred
tax asset $ -0- $ -0-
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The valuation allowance increased by $160,414, $53,550, and $14,962 during the years ended March 31, 2001, 2000 and 1999, respectively. Federal and State net operating loss carry-overs were approximately $5,512,000 and $5,897,000, respectively, at March 31, 2001. They begin to expire in 2010.
Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
19. Administrative Service Agreements
The Company has entered into agreements with various security guard companies (administrative service clients) whereby the Company administers the billing, collection and payroll functions and the administrative service clients administer the operations of the respective guard contracts. Under these arrangements, the Company receives title to all the receivables generated and is obligated to pay the administrative service clients' guards and related expenses. The transfer of receivables are accounted for as a sale/purchase in accordance with SFAS No. 125, relating to transfers and servicing of financial assets. Under some arrangements the Company may for Internal Revenue reporting, workers compensation, general liability and disability insurance coverage purposes become the employer of record for all applicable guard personnel. Where the Company provides insurance resources, such costs are allocated to the administrative service clients based on payroll. All contracts contain renewal provisions based on the volume of business generated by the respective service companies. Although title to the receivables generated belong to the Company, the rights to service the guard contracts are retained by the service company.
The Company records the billings for administrative service clients contracts in accounts receivable with a corresponding liability, "due to administrative service clients," net of the Company's administrative fees and payroll and related expenses paid by the Company, at the time the services are provided to the administrative service clients' customers. Receivables not collected are charged back to the administrative service clients generally after 90 days. The administrative fees charged to the administrative service clients, which are based on either a percentage of guard revenue or gross profit, are recognized as "administrative service revenue" on the Company's statements of operations.
The Company may extend operating loans to these administrative service clients. As of March 31, 2001, the Company had one loan outstanding with a balance of $174,000, providing for monthly payments of $3,000 plus interest at 14 % per annum.
The following is a summary of the administrative service clients' activities for the years ended March 31, 2001, 2000 and 1999, respectively, the components of which have been excluded from the Company's financial statements:
2001 2000 1999
Employer of record administrative service revenue
Administrative service clients' guard service revenue $ -0- $566,190 $ 7,528,163
Cost of revenue -0- (444,664) (5,612,727)
Gross profit -0- 121,526 1,915,436
Administrative service clients' share of gross profit -0- (87,634) (1,468,608)
-0- 33,892 446,828
Non employer of record administrative service revenue 274,277 520,304 466,670
Administrative service revenue $ 274,277 $554,196 $ 913,498
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20. Fair Value
The fair value of the Company's long-term notes receivable is based on the current rates offered by the Company for notes of the same remaining maturities. The fair value of the Company's long-term debt is based on the borrowing rates currently available to the Company for loans with similar terms and average maturities. At March 31, 2001 and 2000, the fair value of long-term notes receivable and long-term debt approximates their carrying amounts.
Command Security Corporation
Notes to Financial Statements, Continued March 31, 2001, 2000 and 1999
21. Acquisitions
During the years ended March 31, 2000 and 1999, the Company acquired two security guard businesses, consisting principally of customer lists, for approximately $30,000 and $181,000, respectively, payable in cash and notes. The Company accounted for these acquisitions using the purchase method. The financial statements include the operations of these businesses from the acquisition date. The customer lists are being amortized over a five year period, the estimated economic lives of the lists.
22. Related Party Transactions
In connection with providing security guard services to one of its multi-national clients, the Company has engaged Reliance Security Group plc, a significant stockholder (see Note 13), as a subcontractor for these services. Included in cost of sales for the year ended March 31, 2001, are $52,510 charged by Reliance for these services. This amount, as well as advances by Reliance in connection with the cost of providing the Company with financial oversight services of $140,000 are included with current liabilities as of March 31, 2001. These amounts do not provide for interest and are expected to be paid in the ordinary course of business.
A director of Deltec International SA, the parent of Deltec Development Corporation, the former subordinated debt lender to the Company, was also a member of the Board of Directors of the Company until November, 2000. Interest paid in connection with the Deltec debt amounted to $32,813 for the year ended March 31, 1999. The debt was paid in full in February, 1999. Expenses of $16,000, $20,800, and $20,800 were paid on behalf of this director as compensation for services rendered for the years ended March 31, 2001, 2000 and 1999, respectively.
23. Reclassifications
Certain 2000 amounts have been reclassified to conform with the 2001 presentation. These reclassifications had no impact on financial condition or results of operations.
24. Quarterly Results (unaudited)
Summary data relating to the results of operations for each quarter for the years ended March 31, 2001 and 2000, follows:
Three Months Ended
June 30 Sept. 30 Dec. 31 March 31
Fiscal year 2001
Guard service revenue $16,117,665 $18,322,148 $18,836,792 $18,043,835
Gross profit 2,681,553 2,932,147 3,099,764 2,817,646
Net income/(loss) 70,107 (421,912) (75,261) (11,820)
Net income/(loss)
per common share (basic) .005 (.07) (.02) (.002)
Fiscal year 2000
Guard service revenue 13,402,632 15,217,897 15,322,437 15,302,961
Gross profit 2,468,437 2,860,228 2,503,814 2,170,387
Net income/(loss) 189,434 550,969 49,846 (1,099,959)
Net income/(loss)
per common share (basic) .02 .07 .01 (.17)
The second quarter 2001 loss includes stockholder derivative
suit related expenses of $373,746. The fourth quarter 2000 loss
includes a bad debt charge of $738,117 due to the bankruptcy of
a major client.
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COMMAND SECURITY CORPORATION
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
Against
Amounts Uncollectible
Balance at Charged to Due to Charged Accounts Balance
Beginning Costs and Administrative to Other Writte at End of
of Period Expenses Service Clients Accounts Recoveries Off Period
Year ended March 31, 2001:
Deducted from asset accounts:
Allowance for doubtful accounts
receivable - current maturities $1,288,246 $ 417,656 $ 32,840 $ 5,407 $ $1,148,364 $ 595,785
Allowance for doubtful notes
receivable - current maturities 8,717 6,471 2,246
Allowance for other doubtful
receivables - current maturities -0- 113,119 113,119 -0-
Allowance for doubtful notes
and long-term receivables,
net of current maturities -0- -0-
Year ended March 31, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts
receivable - current maturities 701,325 969,937 106,972<F1> 71,970 418,018 1,288,246
Allowance for doubtful notes
receivable - current maturities 267,790 34,408 34,608 258,873 8,717
Allowance for other doubtful
receivables - current maturities 987,192 987,192 -0-
Allowance for doubtful notes and
long-term receivables,
net of current maturities -0- -0-
Year ended March 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts
receivable - current maturities 716,347 309,348 (36,143) 288,227 701,325
Allowance for doubtful notes
receivable - current maturities 273,715 88,447 60,448 33,924 267,790
Allowance for other doubtful
receivables - current maturities 1,024,319 58,568 (88,447) 250,000<F2> 255,597 1,651 987,192
Allowance for doubtful notes
and long-term receivables,
net of current maturities -0- -0-
<F1> Represents sales tax refund claims ($85,823) and expense accrual
reduction ($21,149).
<F2> Represents cash received for item previously removed from accounts.
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See auditor's report
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
COMMAND SECURITY CORPORATION
By: /s/ William C. Vassell
-------------------------------------
William C. Vassell
President, Chairman and Chief
Executive Officer
Date: July 2, 2001
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PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
/s/ William C. Vassell President, Chairman and July 2, 2001 ----------------------------- Chief Executive Officer William C. Vassell /s/ Graeme R. Halder ----------------------------- Chief Financial Officer July 2, 2001 Graeme R. Halder /s/ Gregory J. Miller ----------------------------- Director July 2, 2001 Gregory J. Miller ----------------------------- Director July 2, 2001 Carl E. Painter /s/ Peter J. Nekos ----------------------------- Director July 2, 2001 Peter J. Nekos ----------------------------- Director July 2, 2001 Geoffrey P. Haslehurst ----------------------------- Director July 2, 2001 Kenneth Allison /s/ Eugene U. McDonald Sr. Vice President July 2, 2001 ---------------------------- Guard Operations Eugene U. McDonald /s/ Martin C. Blake Vice President July 2, 2001 ---------------------------- Aviation Service Martin C. Blake /s/ William Dunn Corporate Secretary July 2, 2001 ----------------------------- General Counsel William Dunn |
EXHIBIT 99.23
COMMAND SECURITY CORPORATION
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER AND POWERS
FIRST AMENDMENT AND RESTATEMENT
PURPOSE
The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities in connection with the financial reporting and disclosure process for which management is responsible.
ORGANIZATION
The Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be an independent director(1) free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment in carrying out the responsibilities of a director. All members of the Committee shall have a working familiarity with fundamental financial and accounting practices, and at least one member of the Committee shall have accounting or related financial management expertise. Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Corporation or by another accredited program.
The members of the Committee shall be elected by the Board at the annual organizational meeting of the Board or until their successors shall be duly elected and qualified. Unless a Chair is elected by the full Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership.
RESOLVED, that the powers and duties of the Audit Committee of the Board of Directors (the "Audit Committee") shall be to:
o Hold such regular meetings as may be necessary and such special
meetings as may be called by the Chairman of the Audit Committee or at
the request of the independent auditors or at the request of the
internal auditors;
o Maintain minutes or other records of meetings and activities of the
Audit Committee, with the Chairman submitting or discussing all
communications at these events with the Board of Directors;
o Review, at least annually, and update or amend this Charter
periodically, as conditions dictate;
o Review the performance of the independent accountants, make
recommendations to the Board of Directors regarding selection
or termination of the independent accountants, as the case may
warrant, considering independence and effectiveness;
o Confer with the independent accountants and the internal auditors
concerning the scope of their examinations of the books and records
of the Company and its subsidiaries;
o Review and approve the independent accountants' annual engagement
letter;
o Review the Company's audited annual financial statements and the
independent accountants' opinion rendered with respect to such
financial statement, including review the nature and extent of
any significant changes in accounting principles or the
application therein;
o Request from the independent accountants and internal auditors
their recommendations regarding internal controls and other
matters relating to the accounting procedures and the books and
records of the Company and its subsidiaries and review the
correction of controls deemed to be deficient;
o Provide an independent, direct communication between the Board of
Directors, internal auditors and independent accountants;
o Review the procedures established by the Company that monitor the
compliance by the Company with its loan covenants and restrictions;
o Review the range and cost of audit and non-audit services performed by
the independent accountants;
o Review with management, the independent accountants and internal
auditors significant risks and exposures, audit activities and
significant audit findings;
o With respect to the Company's annual report:
* Review the audited financial statements with management including a
discussion of the quality of the accounting principles as applied and
significant judgments affecting the Company's financial statements;
* Discuss with the outside auditors their judgments of the quality of
the accounting principles as applied and significant judgment affecting
the Company's financial statements;
* Discuss among the members of the Audit Committee, without management
or the outside auditors present, the information disclosed to the Audit
Committee in the two foregoing items;
* Determine whether the Committee believes that the Company's financial
statements are fairly presented in conformity with Generally Accepted
Accounting Principles in all material respects;
o Recommend to the Board whether to include the audited financial
statements in the annual report on form 10-K.
o Review the powers of the Committee annually and report and make
recommendations to the Board of Directors on these responsibilities;
o Conduct or authorize investigations into any matters within the Audit
Committee's scope of responsibilities. The Audit Committee shall be
empowered to retain independent counsel, accountants, or others to
assist it in the conduct of any investigation;
Dated: January 8, 2001
/s/ Peter J. Nekos
--------------------------
Peter J. Nekos, Chairman
/s/ Gregory J. Miller
--------------------------
Gregory J. Miller
/s/ Geoffrey P. Haslehurst
--------------------------
Geoffrey Haslehurst
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Original approval date: August 21, 2000
Amended and Restated: January 8, 2001
EXHIBIT 99.24
HALDER EMPLOYMENT AGREEMENT
Mr. G. R. Halder,
7, Wood Lane,
Hertwell,
Northants, NN7 2HG. 27th July, 2000
Dear Graeme
Further to our several recent meetings I am pleased to confirm, on behalf of Command Security Corporation Inc., an offer to transfer your employment from Reliance Security Services Limited to the position of Chief Financial Officer, as a Command Board Director, reporting to Bill Vassell, CEO. The appointment will formally commence upon completion of the legal processes which will secure for the Reliance Security Group, an investment in Command Security Corporation Inc..
The principal conditions of this transfer are as follows:-
1. Basic Salary
Your basic salary will be $138,000 with effect from 20th August, 2000, payable in the USA. As you are aware, because of time delays in securing a Visa, for the first few months you will be paid by Reliance Security Services Limited, in the UK.
2. Bonus arrangements
For achievement of the Business Plan in year one you will receive a payment of 20% of basic salary. You may also receive an additional payment of up to a further 30% of basic salary on a sliding scale, for performance in excess of Plan, subject to achievement of a series of personal objectives to be agreed with Bill Vassell. Recognising the uncertainty of these objectives and the Plan at the time of writing, in this first year, you will be guaranteed a minimum payment of 10% of basic salary, payable at the end of the month following publication of Command's annual results and subject to you being in employment and not under notice at that time. These bonus arrangements are discretionary and may be altered or withdrawn by the Company at any time.
3. Pension
Under current Inland Revenue regulations you are allowed to remain a member of the Reliance Security Group Pension Scheme. Your own pension contributions and those of Command as your employer will be paid into the scheme using a notional salary of (pound)90,000 for calculation, this being the UK rate for the role you will be fulfilling in the USA.
4. Share Options
As soon as possible after finalising the Reliance investment an Executive Share Option Scheme will be established within Command which it is intended will be broadly in line with a UK approved type scheme but obviously subject to US legislation. Once the scheme is established you will be entitled to 75,000 share options at a price equivalent to the average market price of the three days prior to the date of grant, which it is intended will be during the period of six weeks following announcement of the transaction. Fifty percent of the options allocated will be exercisable on the third anniversary of grant, with a further twenty five percent exercisable on the fourth and fifth anniversaries. In principle, the main conditions of exercise will be the achievement of the agreed Command Business Plan over the three year period 2000/01 to 2002/03 and subject to you being in the employment of Command Security Corporation Inc. for at least three years at the first exercise date and Command or Reliance Security Group for the second and third exercise dates; and not under notice at any of the points of exercise. In the event that you return to the UK after at least two years with Command and we are unable to offer you employment at an appropriate level within the Reliance Security Group in the UK, then you will be entitled to exercise your full option entitlement within three months of leaving by reason of redundancy.
Exact terms of the right to exercise will be determined by the rules of the scheme established.
5. US -v- UK Tax Liability
It is our intention that, with regard to the relevant tax regimes, you should be no better or no worse off as a result of your assignment to the USA. To achieve this the Company will enter into a `tax equalisation' agreement with you. You will pay tax in the US as a normal employee but at the year end our advisers will calculate the `hypothetical tax' you would have paid had you stayed in the UK. A reconciliation will follow with the company reimbursing you for any `excess' tax paid. Similarly if you have `underpaid' tax in the US then Reliance Security Services Limited will charge you the difference which will be collected in a mutually acceptable manner. The calculation will take into account and re-imburse you, if appropriate, for any tax paid on supplements or allowances paid as a result of the assignment - e.g. for housing, school fees, air fares, etc..
6. Car/Fuel
You will be provided with a car in line with the Command car policy prevailing at any one time. The car will be fully expensed.
7. Holiday
You will be entitled to twenty two days annual holiday and 10 days public holiday per year, commencing at 1st January 2001. For the remainder of this holiday year to 31st December you will be entitled to take 11 days plus 4 public holidays.
8. Disturbance Allowance
You will be paid a disturbance allowance of $13800 per annum. This amount will be divided into twelve equal amounts and paid monthly as a supplement to your basic salary.
9. Housing
The Company will fund the monthly rental of a suitable property in the US less a sum equivalent to the actual net rental income (after agency fees) received from the let of your Hertwell property during a similar period. Upon your return to the UK the Company will pay a sum of 10% of the actual net rental of your UK property towards any refurbishment necessary.
10. Schooling
The Company will fund 100% of the reasonable costs of private education for your two eldest children. You will be responsible for the cost of any extra- curricular activities, books, trips, etc.
11. Air Travel
The Company will pay an allowance of $6000 per annum towards the cost of return air fares to the UK. This amount will be divided into twelve equal amounts and paid monthly as a supplement to your basic salary.
12. Health Insurance
You will be provided with health insurance cover for yourself and your Family, with a suitable insurer, on the basis applicable in Command.
13. Sickness
In the event of absence due to sickness you will be entitled to receive full pay for the first 8 weeks of absence.
14. Removal and Storage
The Company will refund all reasonable costs of removal of your personal furnishings to the USA and, subject to paragraph 16 hereof, back to the UK at the end of your proposed appointment with Command, including any short term storage necessary, provided you are not under notice of termination at the date of return to the UK.
15. Notice
You will be entitled to receive and required to give six months notice of intention to terminate your employment.
16. Duration
Whilst it is not the intention that this offer should form the basis of a fixed term contract, it is expected that your appointment in the US will probably last for three years, following which your transfer back to the UK will be on the basis of continuity of employment within the Reliance Security Group. If, however, you wish to return having completed at least two years service then the Company will refund the costs of repatriation outlined above and will do its utmost to secure an appointment for you within the Reliance Security Group. If you wish to return before a period of two years has elapsed, from 20th August 2000, then you will resign and any costs of repatriation will be at your own expense.
Finally, Graeme it only remains for me to wish you every good fortune in this new venture. Having worked with you for the last four years I am in no doubt you will make it a great success and if I personally can help you in any way then I will be only too pleased to do so. Good luck
Yours sincerely
Geoff Haslehurst
Group Finance Director
EXHIBIT 99.25
2000 STOCK OPTION PLAN
OF
COMMAND SECURITY CORPORATION
1. Purpose. The purpose of this Stock Option Plan is to advance the interests of Command Security Corporation (the "Corporation") by encouraging and enabling the acquisition of a larger personal proprietary interest in the Corporation by Eligible Recipients upon whose judgment and keen interest the Corporation and its Subsidiaries are largely dependent for the successful conduct of their operations. It is anticipated that the acquisition of such proprietary interest in the Corporation will stimulate the efforts of such Eligible Recipients on behalf of the Corporation and its Subsidiaries and strengthen their desire to remain with the Corporation and its Subsidiaries. It is also expected that the opportunity to acquire such a proprietary interest will enable the Corporation and its Subsidiaries to attract desirable personnel.
2. Definitions. When used in this Plan, unless that context otherwise requires:
(a) "Board of Directors" or "Board" shall mean the Board of Directors of Command security Corporation as constituted at any time.
(b) "Chairman of the Board" shall mean the person who at the time shall be Chairman of the Board of Directors.
(c) "Committee" shall mean the Stock Option Committee of the Board of Directors, as described in Section 3.
(d) "Corporation" shall mean Command Security Corporation.
(e) "Eligible Recipients" shall mean employees of the Corporation or its Subsidiaries, including directors who are also employees but not directors who are not employees.
(f) "Fair Market Value" on a specified date shall mean the average of the bid and asked closing prices at which one Share is reported to have traded in the OTC Bulletin Board Service, as reported on the National Association of Securities Dealers Automated Quotation System, or the closing price for a Share on the stock exchange, if any, on which Shares are primarily traded, but if no Shares were traded on such date, then on the last previous date on which a Share was so traded, or, if none of the above is applicable, the value of a Share as established by the Board of Directors for such date using any reasonable method of valuation.
(g) "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended.
(h) "Options" shall mean the stock options issued pursuant to this Plan.
(i) "Plan" shall mean this 2000 Stock Option Plan of Command Security Corporation as adopted by the Board of Directors as of November 13, 2000, as such Plan may be amended from time to time.
(j) "Share" shall mean a share of common stock of the Corporation, par value $.0001.
(k) "Subsidiary" shall mean any "Subsidiary corporation", as such term is defined in Section 425(f) of the Internal Revenue Code.
3. Administration of the Plan. The Board of Directors shall appoint a Committee of at least three (3) members of the Board of Directors, each of whom shall be a "disinterested person" within the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934, as amended, which shall have the authority to administer the Plan as provided herein. Each member of the Committee shall hold office until the next regular annual meeting of the Board of Directors following his designation and until his successor is designated as a member of the Committee. Any vacancy in the Committee may be filled by a resolution adopted by a majority of the full Board of Directors. Any member of the Committee may be removed at any time, with or without cause, by resolution adopted by a majority of the full Board of Directors. A member of the Committee may resign from the committee at any time by giving written notice to the President or Secretary of the Corporation, and unless otherwise specified therein, such resignation shall take effect upon receipt thereof. The acceptance of such resignation shall not be necessary to make it effective. The Committee shall establish such rules and procedures as are necessary or advisable to administer the Plan.
4. Participants. Except as hereinafter provided, the class of individuals who are potential recipients of options to be granted under this Plan consists of those individuals who are Eligible Recipients, as determined by the Committee. The Eligible Recipients to whom Options are granted under this Plan and the number of Shares subject to each such option shall be determined by the Committee, in its sole discretion, in accordance with the terms and conditions of this Plan.
5. Shares; Grant of Options. The Committee may, but shall not be required to, grant, in accordance with this Plan, Options to purchase an aggregate of up to 500,000 Shares, which may be either Treasury Shares or authorized but unissued Shares.
Options granted under this Plan may be either "incentive stock options" (within the meaning of Section 422A of the Internal Revenue Code) or non-qualified stock options. An Option granted under this Plan shall be deemed to be an incentive stock option (within the meaning of section 422A of the Internal Revenue Code), unless the Committee, in its sole discretion, designates otherwise. Options which are designated not to be incentive stock options shall not be treated as such for purposes of this Plan and the Internal Revenue Code.
If any Option shall expire, be cancelled or terminate for any reason without having been exercised in full, the unpurchased Shares subject thereto may again be made subject to Options under the Plan.
Nothing herein contained shall be construed to prohibit the grant of Options at different times to the same Eligible Recipient.
The form of Option shall be determined from time to time by
the Committee. The terms and provisions of the Option shall be set forth in
writing in a certificate or agreement (the "Option Certificate") signed by
the Option holder and on behalf of the Corporation by the Chairman of the
Board of Directors or the President or a Vice President of the Corporation.
The Option Certificate shall state whether or not the Option is an incentive
stock option. The Committee may, in its sole discretion, at the time an
Option is granted, establish one or more conditions to the exercise of an
Option, provided that, if such Option is designated as an incentive stock
option, then such condition or conditions shall not be inconsistent with
Section 422A of the Internal Revenue Code.
6. Price. The exercise price per share of the Shares to be purchased pursuant to any option shall be fixed by the Committee at the time an option is granted, but in no event shall it be less than the Fair Market Value of a Share on the day on which the option is granted.
7. Duration of Options. The duration of any Option granted under this Plan shall be for a period fixed by the Committee but not more than ten (10) years from the date upon which the Option is granted.
8. Limitations Regarding Ten Percent Stockholders. No option which is intended to qualify as an incentive stock option may be granted under this Plan to any Eligible Recipient who, at the time the Option is granted, owns, or is considered as owning, within the meaning of Section 422A of the Internal Revenue Code, shares possessing more than ten percent (10%) of the total combined voting power or value of all classes of stock of the Corporation or a Subsidiary, unless the exercise price under such Option is at least 110 percent (110%) of the Fair Market value of a Share on the date such Option is granted and the duration of such Option is no mere than five (5) years.
9. Option Holder Not a Stockholder. An Option holder shall not be deemed to be the holder of, or to have any of the rights of a stockholder with respect to, any Shares subject to such Option unless and until the Option shall have been exercised pursuant to the terms thereof, the Corporation shall have issued and delivered Shares to the Option holder, and said holder's name shall have been entered as a stockholder of record an the books of the Corporation. Thereupon, said holder shall have full voting, dividend and other ownership rights with respect to such Shares.
10. Consideration for Options. As consideration for the grant of an Option, the Corporation may, in its discretion, obtain in each case: (a) from any Eligible Recipient who is an employee of the Corporation or a Subsidiary and who, at the time the Option is granted, shall not have been under a contract of employment, an option to have the services of such Eligible Recipient for such period, up to one (1) year, as the Corporation shall determine; or (b) from any Eligible Recipient who is under an employment contract at the time the Option is granted, an option to extend the term of his contract for a period of up to one (1) year upon such terms and conditions as the Corporation and the Eligible Recipient may agree, but if they are unable to agree, then upon the same terms and conditions of such contract; or (c) from either an Eligible Recipient who is or is not under an employment contract at the time the Option is granted, such other consideration as the Committee, in its discretion, shall request.
11. Non-transferability of Options. Options and all rights thereunder shall be non-transferable and non-assignable by the holder thereof, except to the extent that the representative of the estate or the heirs of a deceased option holder may be permitted to exercise them, and during the holder's lifetime shall be exercisable only by the holder.
12. Exercise of Options. Except as otherwise provided herein, an Option, after the grant thereof, shall be exercisable by the holder at such rate and times as may be fixed by the Committee at the time the Option is granted.
Notwithstanding any other provision of this Plan to the contrary, any option granted under the Plan which is an incentive stock option shall not be exercisable to the extent that the Fair Market Value of the Shares (determined as of the date of grant) with respect to which such option (and any other incentive stock option granted to the holder under this Plan or any other stock option plan maintained by the Corporation or any Subsidiary) first becomes exercisable in any calendar year exceeds $100,000.
All or any part of any remaining unexercized Options granted to any person may be exercised in full, whether or not then exercisable, upon the occurrence of such special circumstance or event as in the sole discretion of the Committee merits special consideration.
An Option shall be exercised by the delivery of a written notice duly signed by the Option holder thereof (or the representative of the estate or the heirs of a deceased Option holder) to such effect, together with the Option Certificate and either cash, a certified check payable to the order of the Corporation or Shares duly endorsed over to the Corporation (which Shares shall be valued at their Fair Market Value as of the date preceding the day of such exercise) or any combination of such methods of payment, which together amount to the full exercise price of the Shares purchased pursuant to the exercise of the Option, to the Chairman of the Board, the President or an officer of the Corporation who has been designated for the purpose of receiving the same; provided, however, that a holder may not use any Shares acquired pursuant to the exercise of an Option granted under this Plan or any other stock option plan maintained by the Corporation or any Subsidiary unless the holder has beneficially owned such Shares for at least six months. No Option may be granted pursuant to the Plan or exercised at any time when such Option, or the granting or exercise thereof, may result in the violation of any law or governmental order or regulation.
Within a reasonable time after exercise of an Option, the Corporation shall cause to be delivered to the person entitled thereto a certificate for the Shares purchased pursuant to the exercise of the Option. If the Option shall have been exercised with respect to less than all of the Shares subject to the Option, the Corporation shall also cause to be delivered to the person entitled thereto a new Option Certificate in replacement of the Option Certificate surrendered at the time of the exercise of the option, indicating the number of Shares with respect to which the option remains available for exercise, or the original option Certificate shall be endorsed to give effect to the partial exercise thereof.
13. Termination of Services. All or any part of any Option, to the extent unexercised, shall terminate immediately if the Option holder ceases to be an employee of the corporation or a Subsidiary, except that the Option holder shall have until the end of the tenth (10th) business day following the date he ceases to be an employee of the corporation, or a Subsidiary, and no longer, to exercise any unexercised Option that he could have exercised on the day on which such employment or position terminated; provided, that such exercise must be accomplished prior to the expiration of the term of such Option. Notwithstanding the foregoing, if an individual ceases to be an employee of the corporation or a subsidiary due to retirement on or after attaining the, age of sixty-five (65) years (or such earlier date as such person shall be permitted to retire under the Corporation's retirement plan, if any), or to disability (as such term is defined in Section 422A(c)(7) of the Internal Revenue Code, the existence of which disability shall be determined by the Committee, in its sole discretion, which determination shall be conclusive) or to death, the Option holder, or the representative of the estate or the heirs of a deceased Option holder, shall have the privilege of exercising the options which are unexercisad at the time of such retirement, disability or death, but only to the extent that such Options are then exercisable: (a) within three (3) months of the option holder's retirement; (b) within one year of the Option holders, disability, or (c) within one year of the Option holder's death, as the case may be; Provided, however, that such exercise must be accomplished prior to the expiration of the term of such Option. If an Option holder ceases to be an employee of the Corporation or a Subsidiary because of the Option holder's violation of his duties to the Corporation and its Subsidiaries as he may from time to time have, the existence of which violation shall be determined by the Committee, in its sole discretion
(which determination by the Committee shall be conclusive), whether before or after the Option holder's termination, all unexercised Options of such Option holder shall terminate immediately upon such termination and such Option holder shall have no right after such termination to exercise any unexercised Option he might have exercised prior to the date he ceased to be an employee of the Corporation or a Subsidiary.
Nothing contained herein or in the Option Certificate shall be construed to confer on any Eligible Recipient any right to continue in the employ of the Corporation or its Subsidiaries or as a director of the Corporation or its Subsidiaries or derogate from any right of the Corporation or its Subsidiaries to retire, request the resignation of or discharge such Eligible Recipient, at any time, with or without cause.
14. Adjustment of Shares. If prior to the complete exercise of any option there shall be declared and paid a stock dividend upon the common stock of the corporation or if the common stock of the Corporation shall be split-up, converted, exchanged, reclassified, or in any way substituted for, the option, to the extent that it has not been exercised, shall entitle the holder thereof upon the future exercise of the Option to such number and kind of securities or cash or other property, subject to the terms of the Option, to which he would have been entitled had he actually owned the Shares subject to the unexercised portion of the Option at the time of the occurrence of such stock dividend, split-up, conversion, exchange, reclassification or substitution; and the aggregate exercise price upon the future exercise of the option shall be the same as if the originally optioned Shares were being purchased thereunder. If prior to the complete exercise of any Option there shall be a spin-off transaction pursuant: to the reorganization of the Corporation, the Option to the extent that it has not been exercised, shall be adjusted by adjusting the exercise price of the Option and adjusting the number of shares subject thereto, in order to reflect the decrease, if any, in the fair market value of the Shares, resulting from the spin-off transaction; in any such case, the option as adjusted, shall entitle the holder thereof, upon the future exercise of the Option, to the number of Shares which have a fair market value immediately after the occurrence of the spin-off transaction equal to the fair market value of the Shares subject to the Option on the day before the occurrence of such spin-off transaction, and the aggregate exercise price upon the future exercise of the Option shall be the same as the aggregate exercise price of the Shares subject to the option on the day before the occurrence of such spin-off transaction. Any fractional shares or other securities payable upon the exercise of the Option as a result of such adjustment due to the occurrence of such stock dividend, split-up, conversion, exchange, reclassification, substitution or spin-off shall be payable in Cash based upon the Fair market Value of such shares or securities at the time of such exercise. If any such event should occur, the number of Shares with respect to which Options remain to be issued, or with respect to which Options may be reissued, shall be adjusted in a similar manner.
Upon the dissolution or liquidation of the Corporation, or upon a reorganization, merger or consolidation in which the Corporation is not the surviving corporation, or in which the Corporation becomes a subsidiary of another corporation, or upon the sale of substantially all of the property of the Corporation to another corporation, the Plan and the Options issued thereunder shall terminate, unless provision is made in connection with such transaction for the assumption of Options theretofore granted, or the substitution for such Options of new options of the successor employer corporation or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares and the per share exercise prices.
15. Issuance of Shares and Compliance with Securities Laws. Before issuing and delivering any Shares to an option holder, the
Corporation may: (i) require the holder to give satisfactory assurances that the Shares are being purchased for investment and not with a view to resale or distribution, and will not be transferred in violation of applicable securities laws; (ii) restrict the transferability of such Shares and require a legend to be endorsed on the certificates representing the Shares; and (iii) condition the exercise of an Option or the issuance and delivery of Shares upon the listing, registration or qualification of the Shares covered by such Option upon a securities exchange or under applicable securities laws.
The Plan is intended to comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended. Any provision inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan.
16. Income Tax Withholding. If the Corporation or a Subsidiary shall be required to withhold any amounts by reason of any federal, state or local tax rules or regulations in respect of the issuance of Shares pursuant to the exercise of an Option, the Corporation or such Subsidiary shall be entitled to deduct and withhold such amount from any cash payments to be made to the Option holder. In any event, the holder shall make available to the Corporation or such Subsidiary, promptly when requested by the Corporation or such Subsidiary, sufficient funds to meet the requirements of such withholding, and the Corporation or such Subsidiary shall be entitled to take and authorize such steps as it may deem advisable in order to have such funds made available to the Corporation or such Subsidiary cut of any funds or property due or to become due to the holder.
17. Administration and Amendment of the Plan. Except as hereinafter provided, the Board of Directors and the Committee, if any, may at any time withdraw or from time to time amend the Plan as it relates to, and the terms and conditions of, any Options not theretofore granted, and the Board of Directors and the Committee, if any, with the consent of each adversely affected Option holder, may at any time cancel any outstanding Option or withdraw or from time to time amend the Plan as it relates to, and the terms and conditions of, any outstanding Option. Notwithstanding the foregoing, any amendment which would increase the number of Shares issuable under Options or change the class of employees to whom options may be granted must be adopted by the Board of Directors and shall be subject to the approval of the stockholders of the Corporation within one (1) year of such amendment.
Determinations of the Committee as to any question which may arise with respect to the interpretation of the provisions of the Plan and options shall be final. The Committee may authorize and establish such rules, regulations and revisions thereof, not inconsistent with the provisions of the Plan, as it may deem advisable to make the Plan and Options effective or provide for their administration, and may take such other action with regard to the Plan and Options as it shall deem desirable to effectuate their purpose.
18. Indemnification of Committee. In addition to such other rights of indemnification as they may have as members of the Board of Directors or as members of the Committee, the Corporation shall indemnify the members of the Committee against all costs and expenses reasonably incurred by them in connection with any action suit or proceeding to which they or any of them may be party by reason or any action taken or failure to act under or in connection with the Plan or any award made under the Plan, and against all amounts paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith. Upon the institution of any such action, suit or proceeding, a Committee member shall notify the Corporation in writing, giving the Corporation an opportunity, at its own expense, to handle and defend the same before such Committee member undertakes to handle it on his own behalf.
19. Effective Date. This Plan shall be effective as of November 13, 2000, the date on-which the Plan was adopted by the Board of Directors of the Company and approved by the holders of a majority of the outstanding Shares of the Company at a duly held Stockholders' meeting.
20. Final Issuance Date. No Option shall be granted under the Plan after 2010.
EXHIBIT 99.26
HALDER WARRANT
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT OR REGULATION AND NOTIFICATION UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY)
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
No. 19 Warrant to Purchase 75,000 Shares
of Common Stock
WARRANT TO PURCHASE COMMON STOCK
of
COMMAND SECURITY CORPORATION
Void after January 31, 2011
Issued February 1, 2001
Amended June 28, 2001
This certifies that, for value received, Graeme R. Halder (the
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"Holder"), is entitled, subject to the terms set forth below, at any time before January 31, 2011, to purchase from Command Security Corporation, a New York corporation (the "Company"), with its principal office at Route 55, Lexington Park, Lagrangeville, NY 12540, Seventy Five Thousand (75,000) shares (the "Shares") of common stock, $.0001 par value of the Company, upon surrender hereof, at the principal office of the Company, with the Election to Purchase form attached hereto duly executed, and simultaneous payment therefor in lawful money of the United States, or otherwise as hereinafter provided, at a price equal to $0.75 per full Share. (Such price hereinafter referred to as the "Purchase Price"). The Purchase Price, number and character of such Shares are subject to adjustment as provided below, and the term "Shares" shall mean, unless the context otherwise requires, the stock and other securities and property at the time receivable upon the exercise of this Warrant. The term "Warrant" as used herein shall include this Warrant and any warrants delivered or deliverable in substitution or exchange thereof as provided herein. This Warrant is an incentive stock option pursuant to the Company's 2000 Stock Option Plan.
1. (a) Exercise. This Warrant may be exercised at any time after May 1, 2004 or from time to time thereafter, on any business day for up to the number of Shares called for hereby. This Warrant shall be exercised by surrendering it at the principal office of the Company, with the Election to Purchase form duly executed, together with payment in cash or by certified or official bank check, payable to the order of the Company, of the sum obtained by multiplying (i) the number of Shares indicated on the Election to Purchase form by (ii) the appropriate Purchase Price. Subject to the prior written consent of the Stock Option Committee (the "Committee"), which consent may be withheld in the sole discretion of the Committee, the purchase price may be paid in whole or in part through the surrender of previously acquired Shares at their fair market value on the exercise date. In the event the Holder ceases for any reason to be employed by the Company, this Warrant, to the extent not previously exercised, shall terminate and become null and void immediately upon such termination. This Warrant may be exercised for less than the full number of Shares at the time called for hereby, but not for less than 1,000 Shares unless the number of Shares called for on the face thereof is less than 1,000 in which event the minimum number will be the number of Shares called for on the face. Upon a partial exercise this Warrant shall be surrendered, and a new Warrant of the same tenor and for the purchase of the number of such Shares not purchased upon such exercise shall be issued by the Company to Holder. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of such Shares of record as of the close of business on such date. As soon as practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full Shares issuable upon such exercise, together with cash, in lieu of any fraction of a Share, equal to such fraction of the current market value of one full Share. If surrendered by mail, the date of surrender shall be the date the Warrant is mailed consistent with the requirements for notice as described in Section 7.
(b) Termination. This Warrant is subject to termination if the Holder ceases to be an employee of the Company as provided under the Company's 2000 Stock Option Plan.
(c) Vesting. The Holder of this Warrant is further restricted in that the Warrant may not be exercised unless and until the Company's Board of Directors determines that the confidential targets stated in the Company's Business Plan dated March 13, 2000 and approved by the Board in November of 2000 shall have been satisfied or waived by the Company's Board of Directors in its sole discretion. This Board determination will be made by a vote within 30 days after April 30, 2004. The Company's confidential targets have been made accessible to the Holder on a confidential basis and the Holder has acknowledged such on the receipt annexed hereto.
2. Payment of Taxes. All Shares issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable, and the Company shall pay any transfer taxes (excluding income tax, capital gains tax, etc.) and other governmental charges that may be imposed in respect of the issue or delivery thereof. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for Shares in any name other than that of the registered Holder of the Warrant surrendered in connection with the purchase of such Shares, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the Company's satisfaction that no tax or other charge is due.
3. Protection Against Dilution. The Shares covered by this Warrant and the Purchase Price payable therefor shall be subject to appropriate adjustment as follows:
(a) If a Share dividend is declared on the Shares, or if an increase or decrease has been effected in the number of outstanding Shares by reason of subdivision of such Shares or combination of such Shares into a lesser number, the number of Shares which may thereafter be purchased under this Warrant shall be the number of Shares which would have been received by the Holder on such dividend, subdivision or combination had the Holder been the Holder of record of the number of Shares then under this Warrant but not theretofore purchased and issued.
(b) If there is any other capital reorganization or reclassification of the stated capital of the Company, or any consolidation or merger of the Company with any other corporation or corporations, or the sale or distribution of all or substantially all of the Company's property and assets, adequate provision shall be made by the Company so that there shall remain and be substituted under this Warrant the Shares, securities, or assets which would have been issuable or payable in respect of or in exchange for the Shares then remaining under this Warrant and not theretofore purchased and issued hereunder, as if the Holder of this Warrant had been the owner of such Shares on the applicable record date.
(c) If any of the events described in Sections 3(a) or (b) occur, the Purchase Price shall be adjusted to that price determined by multiplying the then current Purchase Price by a fraction (x) the numerator of which shall be the total number of outstanding Shares immediately prior to such event and (y) the denominator of which shall be the total number of outstanding Shares immediately after such event.
4. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it (in the exercise of reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of any Warrant and (in the case of mutilation) upon surrender and cancellation thereof, the Company will execute and deliver in lieu thereof a new Warrant of like tenor.
5. Reservation of Stock. The Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued Shares as will be sufficient to permit the exercise in full of all outstanding Warrants.
6. Restrictions on Transfer. In accordance with the Company's 2000 Stock Option Plan, this Warrant and all rights hereunder shall be nontransferable and nonassignable by the Holder accept to the extent that the representatives of the estate or the heirs of the deceased option Holder may be permitted to exercise them, and during the Holder's lifetime shall be exercisable only by the Holder.
7. Notices. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class registered or certified mail, postage-prepaid, to the last address furnished to the Company in writing by the Holder.
8. No Rights as Shareholder; Limitation of Liability. This Warrant shall not entitle any Holder hereof to any of the rights of a shareholder of the Company. No provision hereof, in the absence of affirmative action by the Holder hereof to purchase Shares, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the purchase price of the Shares issuable on exercise of this Warrant or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. No provision of this Warrant and no right or option granted or conferred hereunder shall in any way limit, affect, or abridge the exercise by the Company of any of its corporate rights or powers to revise its corporate targets, financial or otherwise, to recapitalize, amend its certificate of incorporation, reorganize, consolidate or merge with or into another corporation, to transfer all or any part of its property or assets, or to exercise any other of its corporate rights and powers.
9. Change; Waiver. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
10. Headings. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part thereof.
11. Stock Option Plan. This Warrant is granted pursuant to the terms of the Company's 2000 Stock Option Plan, the terms of which are incorporated herein by reference, and the Warrant shall in all respects be interpreted in accordance with the said Plan. The Committee shall construe and interpret the Plan and this instrument, and its interpretations of determinations shall be conclusive and binding on the parties hereto and any other person claiming an interest hereunder, with respect to any issue arising hereunder or thereunder.
12. Employment. Neither the granting of this Warrant nor its exercise shall be construed as the granting to the Holder of any right with respect to continuance of employment. Except as may otherwise be limited by a written agreement between the Company and the Holder, the right of the Company to terminate at will the Holder's employment with it at any time (whether by dismissal, discharge, retirement or otherwise) is specifically reserved by the Company, as the employer and acknowledged by the Holder.
13. Amendment. This Warrant may be amended by the Board or the Committee at any time (i) if the Board of Directors or Committee determine in their sole discretion that amendment is necessary or advisable in the light of any addition to or change in the Internal Revenue Code or in the regulations issued thereunder, or any federal or state securities law or other law or regulation, which change occurs after the date hereof and by its terms applies to the Warrant; or (ii) other than in the circumstances described in clause (i), with the consent of the Holder.
14. Law Governing. This Warrant is delivered in New York and shall be construed and enforced in accordance with and governed by the laws of such State.
Dated: June 28, 2001
COMMAND SECURITY CORPORATION
By: /s/ William C. Vassell
----------------------
William C. Vassell
President
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Accepted and Agreed to:
By: /s/ Graeme R. Halder
--------------------
Holder
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ELECTION TO PURCHASE
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this Warrant and purchases __________ of the number of Shares of common stock of Command Security Corporation purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant.
Dated: __________ ______________
Warrant Number
_____________________________
signature of registered owner
____________
printed name
______________
street address
___________________
city, state and zip
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ACKNOWLEDGMENT OF RECEIPT
I, Graeme R. Halder, hereby acknowledge the receipt of Warrant No. 19, amended June __, 2001 exercisable before January 31, 2011 for 75,000 shares at a price of $.75 per full share.
By signing below, I also acknowledge that I have reviewed or had the opportunity to review a copy of the Company's Business Plan dated March 13, 2000 containing the confidential targets referenced in Section 1(c) of the Warrant. I acknowledge that the information contained in the Company's Business Plan is confidential and proprietary, that I will maintain such confidentiality of the Business Plan, and that I may review the Business Plan upon five (5) days written notice to the Company's President, William C. Vassell and Corporate Secretary, William Dunn.
I hereby consent to the June ___, 2001 amendment of this Warrant pursuant to 13(ii) of the original Warrant dated February 1, 2004.
Dated: _____________
Name: Graeme R. Halder Address:
To: William Dunn
Command Security Corporation
Route 55, Lexington Park
Lagrangeville, NY 12540
cc: David J. Pollitzer, Esq.
Herzog, Engstrom & Koplovitz, P.C.
Corporate Woods - 7 Southwoods Boulevard
Albany, New York 12211
EXHIBIT 99.27
BLAKE WARRANT
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT OR REGULATION AND NOTIFICATION UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY)
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
No. 20 Warrant to Purchase 50,000 Shares
of Common Stock
WARRANT TO PURCHASE COMMON STOCK
of
COMMAND SECURITY CORPORATION
Void after January 31, 2011
Issued February 1, 2001
Amended June 28, 2001
This certifies that, for value received, Martin C. Blake, Jr. (the
|
"Holder"), is entitled, subject to the terms set forth below, at any time before January 31, 2011 to purchase from Command Security Corporation, a New York corporation (the "Company"), with its principal office at Route 55, Lexington Park, Lagrangeville, NY 12540, Fifty Thousand (50,000) shares (the "Shares") of common stock, $.0001 par value of the Company, upon surrender hereof, at the principal office of the Company, with the Election to Purchase form attached hereto duly executed, and simultaneous payment therefor in lawful money of the United States, or otherwise as hereinafter provided, at a price equal to $.75 per full Share. (Such price hereinafter referred to as the "Purchase Price"). The Purchase Price, number and character of such Shares are subject to adjustment as provided below, and the term "Shares" shall mean, unless the context otherwise requires, the stock and other securities and property at the time receivable upon the exercise of this Warrant. The term "Warrant" as used herein shall include this Warrant and any warrants delivered or deliverable in substitution or exchange thereof as provided herein. This Warrant is an incentive stock option pursuant to the Company's 2000 Stock Option Plan.
1. (a) Exercise. This Warrant may be exercised at any time after May 1, 2004 or from time to time thereafter, on any business day for up to the number of Shares called for hereby. This Warrant shall be exercised by surrendering it at the principal office of the Company, with the Election to Purchase form duly executed, together with payment in cash or by certified or official bank check, payable to the order of the Company, of the sum obtained by multiplying (i) the number of Shares indicated on the Election to Purchase form by (ii) the appropriate Purchase Price. Subject to the prior written consent of the Stock Option Committee (the "Committee"), which consent may be withheld in the sole discretion of the Committee, the purchase price may be paid in whole or in part through the surrender of previously acquired Shares at their fair market value on the exercise date. In the event the Holder ceases for any reason to be employed by the Company, this Warrant, to the extent not previously exercised, shall terminate and become null and void immediately upon such termination. This Warrant may be exercised for less than the full number of Shares at the time called for hereby, but not for less than 1,000 Shares unless the number of Shares called for on the face thereof is less than 1,000 in which event the minimum number will be the number of Shares called for on the face. Upon a partial exercise this Warrant shall be surrendered, and a new Warrant of the same tenor and for the purchase of the number of such Shares not purchased upon such exercise shall be issued by the Company to Holder. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of such Shares of record as of the close of business on such date. As soon as practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full Shares issuable upon such exercise, together with cash, in lieu of any fraction of a Share, equal to such fraction of the current market value of one full Share. If surrendered by mail, the date of surrender shall be the date the Warrant is mailed consistent with the requirements for notice as described in Section 7.
(b) Termination. This Warrant is subject to termination if the Holder ceases to be an employee of the Company as provided under the Company's 2000 Stock Option Plan.
(c) Vesting. The Holder of this Warrant is further restricted in that the Warrant may not be exercised unless and until the Company's Board of Directors determines that the confidential targets for the Aviation Services Division of the Company as stated in the Company's Business Plan dated March 13, 2000 and approved by the Board in November of 2000 shall have been satisfied or waived by the Company's Board of Directors in its sole discretion. This Board determination will be made by a vote within 30 days after April 30, 2004. The Company's confidential targets have been made accessible to the Holder on a confidential basis and the Holder has acknowledged such on the receipt annexed hereto.
2. Payment of Taxes. All Shares issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable, and the Company shall pay any transfer taxes (excluding income tax, capital gains tax, etc.) and other governmental charges that may be imposed in respect of the issue or delivery thereof. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for Shares in any name other than that of the registered Holder of the Warrant surrendered in connection with the purchase of such Shares, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the Company's satisfaction that no tax or other charge is due.
3. Protection Against Dilution. The Shares covered by this Warrant and the Purchase Price payable therefor shall be subject to appropriate adjustment as follows:
(a) If a Share dividend is declared on the Shares, or if an increase or decrease has been effected in the number of outstanding Shares by reason of subdivision of such Shares or combination of such Shares into a lesser number, the number of Shares which may thereafter be purchased under this Warrant shall be the number of Shares which would have been received by the Holder on such dividend, subdivision or combination had the Holder been the Holder of record of the number of Shares then under this Warrant but not theretofore purchased and issued.
(b) If there is any other capital reorganization or reclassification of the stated capital of the Company, or any consolidation or merger of the Company with any other corporation or corporations, or the sale or distribution of all or substantially all of the Company's property and assets, adequate provision shall be made by the Company so that there shall remain and be substituted under this Warrant the Shares, securities, or assets which would have been issuable or payable in respect of or in exchange for the Shares then remaining under this Warrant and not theretofore purchased and issued hereunder, as if the Holder of this Warrant had been the owner of such Shares on the applicable record date.
(c) If any of the events described in Sections 3(a) or (b) occur, the Purchase Price shall be adjusted to that price determined by multiplying the then current Purchase Price by a fraction (x) the numerator of which shall be the total number of outstanding Shares immediately prior to such event and (y) the denominator of which shall be the total number of outstanding Shares immediately after such event.
4. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it (in the exercise of reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of any Warrant and (in the case of mutilation) upon surrender and cancellation thereof, the Company will execute and deliver in lieu thereof a new Warrant of like tenor.
5. Reservation of Stock. The Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued Shares as will be sufficient to permit the exercise in full of all outstanding Warrants.
6. Restrictions on Transfer. In accordance with the Company's 2000 Stock Option Plan, this Warrant and all rights hereunder shall be nontransferable and nonassignable by the Holder accept to the extent that the representatives of the estate or the heirs of the deceased option Holder may be permitted to exercise them, and during the Holder's lifetime shall be exercisable only by the Holder.
7. Notices. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class registered or certified mail, postage-prepaid, to the last address furnished to the Company in writing by the Holder.
8. No Rights as Shareholder; Limitation of Liability. This Warrant shall not entitle any Holder hereof to any of the rights of a shareholder of the Company. No provision hereof, in the absence of affirmative action by the Holder hereof to purchase Shares, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the purchase price of the Shares issuable on exercise of this Warrant or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. No provision of this Warrant and no right or option granted or conferred hereunder shall in any way limit, affect, or abridge the exercise by the Company of any of its corporate rights or powers to revise its corporate targets, financial or otherwise, to recapitalize, amend its certificate of incorporation, reorganize, consolidate or merge with or into another corporation, to transfer all or any part of its property or assets, or to exercise any other of its corporate rights and powers.
9. Change; Waiver. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
10. Headings. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part thereof.
11. Stock Option Plan. This Warrant is granted pursuant to the terms of the Company's 2000 Stock Option Plan, the terms of which are incorporated herein by reference, and the Warrant shall in all respects be interpreted in accordance with the said Plan. The Committee shall construe and interpret the Plan and this instrument, and its interpretations of determinations shall be conclusive and binding on the parties hereto and any other person claiming an interest hereunder, with respect to any issue arising hereunder or thereunder.
12. Employment. Neither the granting of this Warrant nor its exercise shall be construed as the granting to the Holder of any right with respect to continuance of employment. Except as may otherwise be limited by a written agreement between the Company and the Holder, the right of the Company to terminate at will the Holder's employment with it at any time (whether by dismissal, discharge, retirement or otherwise) is specifically reserved by the Company, as the employer and acknowledged by the Holder.
13. Amendment. This Warrant may be amended by the Board or the Committee at any time (i) if the Board of Directors or Committee determine in their sole discretion that amendment is necessary or advisable in the light of any addition to or change in the Internal Revenue Code or in the regulations issued thereunder, or any federal or state securities law or other law or regulation, which change occurs after the date hereof and by its terms applies to the Warrant; or (ii) other than in the circumstances described in clause (i), with the consent of the Holder.
14. Law Governing. This Warrant is delivered in New York and shall be construed and enforced in accordance with and governed by the laws of such State.
Dated: June 28, 2001
COMMAND SECURITY CORPORATION
By: /s/ William C. Vassell
----------------------
William C. Vassell
President
|
Accepted and Agreed to:
By: /s/ Martin C. Blake, Jr.
------------------------
Holder
|
ELECTION TO PURCHASE
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this Warrant and purchases __________ of the number of Shares of common stock of Command Security Corporation purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant.
Dated: __________ _______________
Warrant Number
_____________________________
signature of registered owner
____________
printed name
______________
street address
___________________
city, state and zip
|
ACKNOWLEDGMENT OF RECEIPT
I, Martin C. Blake, Jr., hereby acknowledge the receipt of Warrant No. 20, amended June __, 2001 exercisable before January 31, 2011 for 50,000 shares at a price of $.75 per full share.
By signing below, I also acknowledge that I have reviewed or had the opportunity to review a copy of the Company's Business Plan dated March 13, 2000 containing the confidential targets referenced in Section 1(c) of the Warrant. I acknowledge that the information contained in the Company's Business Plan is confidential and proprietary, that I will maintain such confidentiality of the Business Plan, and that I may review the Business Plan upon five (5) days written notice to the Company's President, William C. Vassell and Corporate Secretary, William Dunn.
I hereby consent to the June ___, 2001 amendment of this Warrant pursuant to 13(ii) of the original Warrant dated February 1, 2004.
Dated: _____________
Name: Martin C. Blake, Jr.
Address:
To: William Dunn
Command Security Corporation
Route 55, Lexington Park
Lagrangeville, NY 12540
cc: David J. Pollitzer, Esq.
Herzog, Engstrom & Koplovitz, P.C.
Corporate Woods - 7 Southwoods Boulevard
Albany, New York 12211
EXHIBIT 99.28
DUNN WARRANT
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT OR REGULATION AND NOTIFICATION UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY)
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
No. 22 Warrant to Purchase 20,000 Shares
of Common Stock
WARRANT TO PURCHASE COMMON STOCK
of
COMMAND SECURITY CORPORATION
Void after January 31, 2011
February 1, 2001
Amended June 28, 2001
This certifies that, for value received, William Dunn (the
|
"Holder"), is entitled, subject to the terms set forth below, at any time before January 31, 2011, to purchase from Command Security Corporation, a New York corporation (the "Company"), with its principal office at Route 55, Lexington Park, Lagrangeville, NY 12540, Twenty Thousand (20,000) shares (the "Shares") of common stock, $.0001 par value of the Company, upon surrender hereof, at the principal office of the Company, with the Election to Purchase form attached hereto duly executed, and simultaneous payment therefor in lawful money of the United States, or otherwise as hereinafter provided, at a price equal to $.75 per full Share. (Such price hereinafter referred to as the "Purchase Price"). The Purchase Price, number and character of such Shares are subject to adjustment as provided below, and the term "Shares" shall mean, unless the context otherwise requires, the stock and other securities and property at the time receivable upon the exercise of this Warrant. The term "Warrant" as used herein shall include this Warrant and any warrants delivered or deliverable in substitution or exchange thereof as provided herein. This Warrant is an incentive stock option pursuant to the Company's 2000 Stock Option Plan.
1. (a) Exercise. This Warrant may be exercised at any time after May 1, 2004 or from time to time thereafter, on any business day for up to the number of Shares called for hereby. This Warrant shall be exercised by surrendering it at the principal office of the Company, with the Election to Purchase form duly executed, together with payment in cash or by certified or official bank check, payable to the order of the Company, of the sum obtained by multiplying (i) the number of Shares indicated on the Election to Purchase form by (ii) the appropriate Purchase Price. Subject to the prior written consent of the Stock Option Committee (the "Committee"), which consent may be withheld in the sole discretion of the Committee, the purchase price may be paid in whole or in part through the surrender of previously acquired Shares at their fair market value on the exercise date. In the event the Holder ceases for any reason to be employed by the Company, this Warrant, to the extent not previously exercised, shall terminate and become null and void immediately upon such termination. This Warrant may be exercised for less than the full number of Shares at the time called for hereby, but not for less than 1,000 Shares unless the number of Shares called for on the face thereof is less than 1,000 in which event the minimum number will be the number of Shares called for on the face. Upon a partial exercise this Warrant shall be surrendered, and a new Warrant of the same tenor and for the purchase of the number of such Shares not purchased upon such exercise shall be issued by the Company to Holder. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of such Shares of record as of the close of business on such date. As soon as practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full Shares issuable upon such exercise, together with cash, in lieu of any fraction of a Share, equal to such fraction of the current market value of one full Share. If surrendered by mail, the date of surrender shall be the date the Warrant is mailed consistent with the requirements for notice as described in Section 7.
(b) Termination. This Warrant is subject to termination if the Holder ceases to be an employee of the Company as provided under the Company's 2000 Stock Option Plan.
(c) Vesting. The Holder of this Warrant is further restricted in that the Warrant may not be exercised unless and until the Company's Board of Directors determines that the confidential targets stated in the Company's Business Plan dated March 13, 2000 and approved by the Board in November of 2000 shall have been satisfied or waived by the Company's Board of Directors in its sole discretion. This Board determination will be made by a vote within 30 days after April 30, 2004. The Company's confidential targets have been made accessible to the Holder on a confidential basis and the Holder has acknowledged such on the receipt annexed hereto.
2. Payment of Taxes. All Shares issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable, and the Company shall pay any transfer taxes (excluding income tax, capital gains tax, etc.) and other governmental charges that may be imposed in respect of the issue or delivery thereof. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for Shares in any name other than that of the registered Holder of the Warrant surrendered in connection with the purchase of such Shares, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the Company's satisfaction that no tax or other charge is due.
3. Protection Against Dilution. The Shares covered by this Warrant and the Purchase Price payable therefor shall be subject to appropriate adjustment as follows:
(a) If a Share dividend is declared on the Shares, or if an increase or decrease has been effected in the number of outstanding Shares by reason of subdivision of such Shares or combination of such Shares into a lesser number, the number of Shares which may thereafter be purchased under this Warrant shall be the number of Shares which would have been received by the Holder on such dividend, subdivision or combination had the Holder been the Holder of record of the number of Shares then under this Warrant but not theretofore purchased and issued.
(b) If there is any other capital reorganization or reclassification of the stated capital of the Company, or any consolidation or merger of the Company with any other corporation or corporations, or the sale or distribution of all or substantially all of the Company's property and assets, adequate provision shall be made by the Company so that there shall remain and be substituted under this Warrant the Shares, securities, or assets which would have been issuable or payable in respect of or in exchange for the Shares then remaining under this Warrant and not theretofore purchased and issued hereunder, as if the Holder of this Warrant had been the owner of such Shares on the applicable record date.
(c) If any of the events described in Sections 3(a) or (b) occur, the Purchase Price shall be adjusted to that price determined by multiplying the then current Purchase Price by a fraction (x) the numerator of which shall be the total number of outstanding Shares immediately prior to such event and (y) the denominator of which shall be the total number of outstanding Shares immediately after such event.
4. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it (in the exercise of reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of any Warrant and (in the case of mutilation) upon surrender and cancellation thereof, the Company will execute and deliver in lieu thereof a new Warrant of like tenor.
5. Reservation of Stock. The Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued Shares as will be sufficient to permit the exercise in full of all outstanding Warrants.
6. Restrictions on Transfer. In accordance with the Company's 2000 Stock Option Plan, this Warrant and all rights hereunder shall be nontransferable and nonassignable by the Holder accept to the extent that the representatives of the estate or the heirs of the deceased option Holder may be permitted to exercise them, and during the Holder's lifetime shall be exercisable only by the Holder.
7. Notices. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class registered or certified mail, postage-prepaid, to the last address furnished to the Company in writing by the Holder.
8. No Rights as Shareholder; Limitation of Liability. This Warrant shall not entitle any Holder hereof to any of the rights of a shareholder of the Company. No provision hereof, in the absence of affirmative action by the Holder hereof to purchase Shares, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the purchase price of the Shares issuable on exercise of this Warrant or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. No provision of this Warrant and no right or option granted or conferred hereunder shall in any way limit, affect, or abridge the exercise by the Company of any of its corporate rights or powers to revise its corporate targets, financial or otherwise, to recapitalize, amend its certificate of incorporation, reorganize, consolidate or merge with or into another corporation, to transfer all or any part of its property or assets, or to exercise any other of its corporate rights and powers.
9. Change; Waiver. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
10. Headings. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part thereof.
11. Stock Option Plan. This Warrant is granted pursuant to the terms of the Company's 2000 Stock Option Plan, the terms of which are incorporated herein by reference, and the Warrant shall in all respects be interpreted in accordance with the said Plan. The Committee shall construe and interpret the Plan and this instrument, and its interpretations of determinations shall be conclusive and binding on the parties hereto and any other person claiming an interest hereunder, with respect to any issue arising hereunder or thereunder.
12. Employment. Neither the granting of this Warrant nor its exercise shall be construed as the granting to the Holder of any right with respect to continuance of employment. Except as may otherwise be limited by a written agreement between the Company and the Holder, the right of the Company to terminate at will the Holder's employment with it at any time (whether by dismissal, discharge, retirement or otherwise) is specifically reserved by the Company, as the employer and acknowledged by the Holder.
13. Amendment. This Warrant may be amended by the Board or the Committee at any time (i) if the Board of Directors or Committee determine in their sole discretion that amendment is necessary or advisable in the light of any addition to or change in the Internal Revenue Code or in the regulations issued thereunder, or any federal or state securities law or other law or regulation, which change occurs after the date hereof and by its terms applies to the Warrant; or (ii) other than in the circumstances described in clause (i), with the consent of the Holder.
14. Law Governing. This Warrant is delivered in New York and shall be construed and enforced in accordance with and governed by the laws of such State.
Dated: June 28, 2001
COMMAND SECURITY CORPORATION
By: /s/ William C. Vassell
----------------------
William C. Vassell
President
|
Accepted and Agreed to:
By: /s/ William Dunn
----------------
Holder
|
ELECTION TO PURCHASE
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this Warrant and purchases __________ of the number of Shares of common stock of Command Security Corporation purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant.
Dated: __________ _______________
Warrant Number
_____________________________
signature of registered owner
____________
printed name
______________
street address
___________________
city, state and zip
|
ACKNOWLEDGMENT OF RECEIPT
I, William Dunn, hereby acknowledge the receipt of Warrant No. 22, amended June __, 2001 exercisable before January 31, 2011 for 20,000 shares at a price of $.75 per full share.
By signing below, I also acknowledge that I have reviewed or had the opportunity to review a copy of the Company's Business Plan dated March 13, 2000 containing the confidential targets referenced in Section 1(c) of the Warrant. I acknowledge that the information contained in the Company's Business Plan is confidential and proprietary, that I will maintain such confidentiality of the Business Plan, and that I may review the Business Plan upon five (5) days written notice to the Company's President, William C. Vassell and Corporate Secretary, William Dunn.
I hereby consent to the June ___, 2001 amendment of this Warrant pursuant to 13(ii) of the original Warrant dated February 1, 2004.
Dated: _____________
Name: William Dunn Address:
To: William Dunn
Command Security Corporation
Route 55, Lexington Park
Lagrangeville, NY 12540
cc: David J. Pollitzer, Esq.
Herzog, Engstrom & Koplovitz, P.C.
Corporate Woods - 7 Southwoods Boulevard
Albany, New York 12211
EXHIBIT 99.29
MCDONALD WARRANT
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT OR REGULATION AND NOTIFICATION UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY)
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
No. 21 Warrant to Purchase 50,000 Shares
of Common Stock
WARRANT TO PURCHASE COMMON STOCK
of
COMMAND SECURITY CORPORATION
Void after January 31, 2011
Issued February 1, 2001
Amended June 28, 2001
This certifies that, for value received, Eugene U. McDonald (the
|
"Holder"), is entitled, subject to the terms set forth below, at any time before January 31, 2011, to purchase from Command Security Corporation, a New York corporation (the "Company"), with its principal office at Route 55, Lexington Park, Lagrangeville, NY 12540, Fifty Thousand (50,000) shares (the "Shares") of common stock, $.0001 par value of the Company, upon surrender hereof, at the principal office of the Company, with the Election to Purchase form attached hereto duly executed, and simultaneous payment therefor in lawful money of the United States, or otherwise as hereinafter provided, at a price equal to $.75 per full Share. (Such price hereinafter referred to as the "Purchase Price"). The Purchase Price, number and character of such Shares are subject to adjustment as provided below, and the term "Shares" shall mean, unless the context otherwise requires, the stock and other securities and property at the time receivable upon the exercise of this Warrant. The term "Warrant" as used herein shall include this Warrant and any warrants delivered or deliverable in substitution or exchange thereof as provided herein. This Warrant is an incentive stock option pursuant to the Company's 2000 Stock Option Plan.
1. (a) Exercise. This Warrant may be exercised at any time after May 1, 2004 or from time to time thereafter, on any business day for up to the number of Shares called for hereby. This Warrant shall be exercised by surrendering it at the principal office of the Company, with the Election to Purchase form duly executed, together with payment in cash or by certified or official bank check, payable to the order of the Company, of the sum obtained by multiplying (i) the number of Shares indicated on the Election to Purchase form by (ii) the appropriate Purchase Price. Subject to the prior written consent of the Stock Option Committee (the "Committee"), which consent may be withheld in the sole discretion of the Committee, the purchase price may be paid in whole or in part through the surrender of previously acquired Shares at their fair market value on the exercise date. In the event the Holder ceases for any reason to be employed by the Company, this Warrant, to the extent not previously exercised, shall terminate and become null and void immediately upon such termination. This Warrant may be exercised for less than the full number of Shares at the time called for hereby, but not for less than 1,000 Shares unless the number of Shares called for on the face thereof is less than 1,000 in which event the minimum number will be the number of Shares called for on the face. Upon a partial exercise this Warrant shall be surrendered, and a new Warrant of the same tenor and for the purchase of the number of such Shares not purchased upon such exercise shall be issued by the Company to Holder. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of such Shares of record as of the close of business on such date. As soon as practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full Shares issuable upon such exercise, together with cash, in lieu of any fraction of a Share, equal to such fraction of the current market value of one full Share. If surrendered by mail, the date of surrender shall be the date the Warrant is mailed consistent with the requirements for notice as described in Section 7.
(b) Termination. This Warrant is subject to termination if the Holder ceases to be an employee of the Company as provided under the Company's 2000 Stock Option Plan.
(c) Vesting. The Holder of this Warrant is further
restricted in that the Warrant may not be exercised unless and until the
Company's Board of Directors determines that the confidential targets for the
[Guard] Division of the Company as stated in the Company's Business Plan
dated March 13, 2000 and approved by the Board in November of 2000 shall have
been satisfied or waived by the Company's Board of Directors in its sole
discretion. This Board determination will be by a vote within 30 days after
April 30, 2004. The Company's confidential targets have been made accessible
to the Holder on a confidential basis and the Holder has such on the receipt
annexed hereto.
2. Payment of Taxes. All Shares issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable, and the Company shall pay any transfer taxes (excluding income tax, capital gains tax, etc.) and other governmental charges that may be imposed in respect of the issue or delivery thereof. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for Shares in any name other than that of the registered Holder of the Warrant surrendered in connection with the purchase of such Shares, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the Company's satisfaction that no tax or other charge is due.
3. Protection Against Dilution. The Shares covered by this Warrant and the Purchase Price payable therefor shall be subject to appropriate adjustment as follows:
(a) If a Share dividend is declared on the Shares, or if an increase or decrease has been effected in the number of outstanding Shares by reason of subdivision of such Shares or combination of such Shares into a lesser number, the number of Shares which may thereafter be purchased under this Warrant shall be the number of Shares which would have been received by the Holder on such dividend, subdivision or combination had the Holder been the Holder of record of the number of Shares then under this Warrant but not theretofore purchased and issued.
(b) If there is any other capital reorganization or reclassification of the stated capital of the Company, or any consolidation or merger of the Company with any other corporation or corporations, or the sale or distribution of all or substantially all of the Company's property and assets, adequate provision shall be made by the Company so that there shall remain and be substituted under this Warrant the Shares, securities, or assets which would have been issuable or payable in respect of or in exchange for the Shares then remaining under this Warrant and not theretofore purchased and issued hereunder, as if the Holder of this Warrant had been the owner of such Shares on the applicable record date.
(c) If any of the events described in Sections 3(a) or (b) occur, the Purchase Price shall be adjusted to that price determined by multiplying the then current Purchase Price by a fraction (x) the numerator of which shall be the total number of outstanding Shares immediately prior to such event and (y) the denominator of which shall be the total number of outstanding Shares immediately after such event.
4. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it (in the exercise of reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of any Warrant and (in the case of mutilation) upon surrender and cancellation thereof, the Company will execute and deliver in lieu thereof a new Warrant of like tenor.
5. Reservation of Stock. The Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued Shares as will be sufficient to permit the exercise in full of all outstanding Warrants.
6. Restrictions on Transfer. In accordance with the Company's 2000 Stock Option Plan, this Warrant and all rights hereunder shall be nontransferable and nonassignable by the Holder accept to the extent that the representatives of the estate or the heirs of the deceased option Holder may be permitted to exercise them, and during the Holder's lifetime shall be exercisable only by the Holder.
7. Notices. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class registered or certified mail, postage-prepaid, to the last address furnished to the Company in writing by the Holder.
8. No Rights as Shareholder; Limitation of Liability. This Warrant shall not entitle any Holder hereof to any of the rights of a shareholder of the Company. No provision hereof, in the absence of affirmative action by the Holder hereof to purchase Shares, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the purchase price of the Shares issuable on exercise of this Warrant or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. No provision of this Warrant and no right or option granted or conferred hereunder shall in any way limit, affect, or abridge the exercise by the Company of any of its corporate rights or powers to revise its corporate targets, financial or otherwise, to recapitalize, amend its certificate of incorporation, reorganize, consolidate or merge with or into another corporation, to transfer all or any part of its property or assets, or to exercise any other of its corporate rights and powers.
9. Change; Waiver. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.
10. Headings. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part thereof.
11. Stock Option Plan. This Warrant is granted pursuant to the terms of the Company's 2000 Stock Option Plan, the terms of which are incorporated herein by reference, and the Warrant shall in all respects be interpreted in accordance with the said Plan. The Committee shall construe and interpret the Plan and this instrument, and its interpretations of determinations shall be conclusive and binding on the parties hereto and any other person claiming an interest hereunder, with respect to any issue arising hereunder or thereunder.
12. Employment. Neither the granting of this Warrant nor its exercise shall be construed as the granting to the Holder of any right with respect to continuance of employment. Except as may otherwise be limited by a written agreement between the Company and the Holder, the right of the Company to terminate at will the Holder's employment with it at any time (whether by dismissal, discharge, retirement or otherwise) is specifically reserved by the Company, as the employer and acknowledged by the Holder.
13. Amendment. This Warrant may be amended by the Board or the Committee at any time (i) if the Board of Directors or Committee determine in their sole discretion that amendment is necessary or advisable in the light of any addition to or change in the Internal Revenue Code or in the regulations issued thereunder, or any federal or state securities law or other law or regulation, which change occurs after the date hereof and by its terms applies to the Warrant; or (ii) other than in the circumstances described in clause (i), with the consent of the Holder.
14. Law Governing. This Warrant is delivered in New York and shall be construed and enforced in accordance with and governed by the laws of such State.
Dated: June 28, 2001
COMMAND SECURITY CORPORATION
By: /s/ William C. Vassell
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William C. Vassell
President
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Accepted and Agreed to:
By: /s/ Eugene U. McDonald
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Holder
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ELECTION TO PURCHASE
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this Warrant and purchases___________of the number of Shares of common stock of Command Security Corporation purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant.
Dated:_________ ______________
Warrant Number
_____________________________
signature of registered owner
____________
printed name
______________
street address
___________________
city, state and zip
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ACKNOWLEDGMENT OF RECEIPT
I, Eugene U. McDonald, hereby acknowledge the receipt of Warrant No. 21, amended June _______, 2001 exercisable before January 31, 2011 for 50,000 shares at a price of $.75 per full share.
By signing below, I also acknowledge that I have reviewed or had the opportunity to review a copy of the Company's Business Plan dated March 13, 2000 containing the confidential targets referenced in Section 1(c) of the Warrant. I acknowledge that the information contained in the Company's Business Plan is confidential and proprietary, that I will maintain such confidentiality of the Business Plan, and that I may review the Business Plan upon five (5) days written notice to the Company's President, William C. Vassell and Corporate Secretary, William Dunn.
I hereby consent to the June _____ , 2001 amendment of this Warrant pursuant to 13(ii) of the original Warrant dated February 1, 2004.
Dated:____________
Name: Eugene U. McDonald Address:
To: William Dunn
Command Security Corporation
Route 55, Lexington Park
Lagrangeville, NY 12540
cc: David J. Pollitzer, Esq.
Herzog, Engstrom & Koplovitz, P.C.
Corporate Woods - 7 Southwoods Boulevard
Albany, New York 12211