-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rx4JIMeWciXSHocH4TrqO6eorv//LQDZWOuAtGZKdPH7AhidCuUivbEncmK0p54P 6zqIJcHFuhP+n6cnUCCKdw== 0000927016-02-002773.txt : 20020513 0000927016-02-002773.hdr.sgml : 20020513 ACCESSION NUMBER: 0000927016-02-002773 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020330 FILED AS OF DATE: 20020513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOORE MEDICAL CORP CENTRAL INDEX KEY: 0000074691 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 221897821 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08903 FILM NUMBER: 02643473 BUSINESS ADDRESS: STREET 1: PO BOX 1500 STREET 2: 389 JOHN DOWNEY DR CITY: NEW BRITAIN STATE: CT ZIP: 06050 BUSINESS PHONE: 2038263600 MAIL ADDRESS: STREET 1: 389 JOHN DOWNEY DRIVE CITY: NEW BRITAIN STATE: CT ZIP: 06050 FORMER COMPANY: FORMER CONFORMED NAME: OPTEL CORP DATE OF NAME CHANGE: 19850611 10-Q 1 d10q.txt FORM 10-Q ================================================================================ FORM 10 - Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 30, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from ________ to ______________ Commission file number 1-8903 MOORE MEDICAL CORP. (Exact name of registrant as specified in its charter) - -------------------------------------------------------------------------------- Delaware 22-1897821 (State of incorporation) (I.R.S. Employer Identification Number) 389 John Downey Drive P.O. Box 1500, New Britain, CT 06050 (Address of principal executive offices) 860-826-3600 (Registrant's telephone number) - -------------------------------------------------------------------------------- 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 _____ ---------- 3,156,443 number of shares of Common Stock outstanding as of March 30, 2002. ================================================================================ MOORE MEDICAL CORP. & SUBSIDIARY Consolidated Balance Sheets
- ------------------------------------------------------------------------------------------------- (Amounts in thousands, except par value) March 30, 2002 December 29, 2001 Unaudited - ------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash ................................................... $ 55 $ 835 Accounts receivable, less allowances of $1,062 and $933 ............................... 14,496 15,122 Inventories ............................................ 10,116 10,829 Prepaid expenses and other current assets .............. 2,354 1,875 Deferred income taxes .................................. 2,523 1,523 -------- -------- Total Current Assets ............................... 29,544 30,184 -------- -------- Noncurrent Assets Equipment and leasehold improvements, net .............. 7,731 8,271 Other assets ........................................... 2,421 2,673 -------- -------- Total Noncurrent Assets ............................ 10,152 10,944 -------- -------- $ 39,696 $ 41,128 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable ....................................... $ 10,719 $ 11,204 Accrued expenses ....................................... 1,494 1,873 Current portion long term debt ....................... 716 1,356 -------- -------- Total Current Liabilities .......................... 12,929 14,433 -------- -------- Deferred Income Taxes ....................................... 403 -- Long Term Notes Payable ..................................... 3,428 3,970 Shareholders' Equity Preferred stock, no shares outstanding ................. -- -- Common stock - $.01 par value; Shares authorized - 10,000 Shares issued - 3,246 .................................. 32 32 Capital in excess of par value ......................... 21,547 21,548 Note receivable ........................................ (303) (298) Retained earnings ...................................... 2,458 2,263 -------- -------- 23,734 23,545 Less treasury shares, at cost, 90 and 92 shares ........ (798) (820) -------- -------- Total Shareholders' Equity ......................... 22,936 22,725 -------- -------- $ 39,696 $ 41,128 ======== ======== - -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 2 MOORE MEDICAL CORP. & SUBSIDIARY Consolidated Statements of Operations For The Three Months Ended Unaudited
- --------------------------------------------------------------------------------------------------- (Amounts in thousands, except per share data) March 30, 20 March 31, 2001 - --------------------------------------------------------------------------------------------------- Net sales ..................................................... $ 32,437 $ 32,365 Cost of products sold ......................................... 23,441 23,946 -------- -------- Gross profit .................................................. 8,996 8,419 Sales and marketing expenses .................................. 2,566 3,450 General and administrative expenses ........................... 6,080 6,807 -------- -------- Operating income (loss) ....................................... 350 (1,838) Interest expense (income), net ................................ 47 (36) -------- -------- Income (loss) before income taxes ............................. 303 (1,802) Income tax provision (benefit) ................................ 108 (705) -------- -------- Net income (loss) ............................................. $ 195 $ (1,097) ======== ======== Basic net income (loss) per share ............................. $ 0.06 $ (0.35) Diluted net income (loss) per share ........................... $ 0.06 $ (0.35) Basic common shares outstanding* .............................. 3,154 3,117 Diluted common shares outstanding* ............................ 3,177 3,117 - ---------------------------------------------------------------------------------------------------
*weighted average 2001 Net Sales and Gross Profit reflect reclassifications due to the impact of EITF 00-10 "Accounting for Shipping and Handling Fees and Costs". The accompanying notes are an integral part of the consolidated financial statements. 3 MOORE MEDICAL CORP. & SUBSIDIARY Consolidated Statements of Cash Flows For The Three Months Ended Unaudited
- ----------------------------------------------------------------------------------------------------- (Amounts in thousands) March 30, 2002 March 31, 2001 - ----------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income (loss) .................................................. $ 195 $(1,097) Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: Depreciation and amortization ................................. 753 811 Changes in operating assets and liabilities: Accounts receivable ....................................... 626 (1,275) Inventories ............................................... 713 (815) Other assets .............................................. (824) (1,245) Accounts payable .......................................... (485) 1,044 Other liabilities ......................................... (384) (848) ------- ------- Net cash flows provided by (used in) operating activities 594 (3,425) ------- ------- Cash Flows From Investing Activities Equipment and leasehold improvements acquired ...................... (214) (323) ------- ------- Net cash flows (used in) investing activities ...................... (214) (323) ------- ------- Cash Flows From Financing Activities Revolving Line of Credit ........................................... 3,428 -- Sale of Treasury Stock ............................................. 22 302 Note Receivable .................................................... (5) (285) Long term notes payable ............................................ (4,605) (141) ------- ------- Net cash flows (used in) provided by financing activities .......... (1,160) (124) ------- ------- (Decrease) in cash ................................................. (780) (3,872) Cash at the beginning of year ...................................... 835 5,233 ------- ------- Cash At End Of Period .............................................. $ 55 $ 1,361 ======= ======= - -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 4 MOORE MEDICAL CORP. & SUBSIDIARY Consolidated Statement of Shareholders' Equity Unaudited
- ---------------------------------------------------------------------------------------------------------------- Common Stock $.01 par value Capital -------------- in Excess Treasury Stock Shares Par of Par Retained -------------- Note (Amounts in thousands) Issued Value Value Earnings Shares Cost Receivable - ---------------------------------------------------------------------------------------------------------------- Balance at 12/30/00 3,246 $ 32 $ 21,700 $ 3,913 (145) $ (1,287) $ - Net (loss) Stock options/stock compensation (165) (1,097) 53 467 (285) - ----------------------------------------------------------------------------------------------------------------- Balance at 3/31/01 3,246 $ 32 $ 21,535 $ 2,816 (92) $ (820) $ (285) ================================================================================================================= Balance at 12/29/01 3,246 $ 32 $ 21,548 $ 2,263 (92) $ (820) $ (298) Net income 195 Stock options/stock compensation (1) 2 22 (5) - ----------------------------------------------------------------------------------------------------------------- Balance at 3/30/02 3,246 $ 32 $ 21,547 $ 2,458 (90) $ (798) $ (303) ================================================================================================================= - -----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 5 MOORE MEDICAL CORP. & SUBSIDIARY NOTES TO FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies The Company Moore Medical is an Internet-enabled multi-channel marketer and distributor of medical, surgical and pharmaceutical products to over 100,000 health care practices and facilities in non-hospital settings nationwide, including: physicians, emergency medical technicians, schools, correctional institutions, municipalities, occupational/industrial health doctors and nurses, and other specialty practice communities. Moore Medical also serves the medical/surgical supply needs of over 26 customer community affiliates. We market to and serve our customers through direct mail, industry-specialized telephone support staff, field sales representatives, and the Internet. Our direct marketing and distribution business has been in operation for over 50 years. Basis of Presentation Moore Medical has prepared the accompanying unaudited financial statements in accordance with generally accepted accounting principles for interim financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the results for the interim period have been made. The results for the three months ended March 30, 2002 do not necessarily indicate the results to be expected for the fiscal year ended December 28, 2002 or any other future period. The fiscal quarters ended on March 30, 2002 and March 31, 2001. The accompanying unaudited financial statements should be read in conjunction with the Notes to Financial Statements and Management's Discussion and Analysis of Results of Operations and Financial Condition included in the Company's 2001 Annual Report filed on Form 10-K and in this Form 10-Q Quarterly Report. Certain prior year amounts have been reclassified to conform with the current year presentation. Recent Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Company has not been involved with any business combinations subsequent to June 30, 2001, therefore there is no action required with respect to this pronouncement. 6 SFAS No. 142 changes the accounting for goodwill and certain other intangible assets from an "amortization" method to an "impairment only" approach. Due to the adoption of SFAS No. 142, the Company will not amortize goodwill beginning in fiscal 2002. The goodwill amortization expense during fiscal 2001 was $137,771. The Company does not anticipate the adoption of this standard will result in a material write down during fiscal 2002. In August 2001, the FASB recently issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The statement, effective for fiscal years beginning after June 15, 2002, requires companies to record a liability for asset retirement obligations in the period in which they are incurred, which typically could be upon completion of construction or shortly thereafter. The Company does not believe that the adoption of this standard will have a material impact on its consolidated financial statements. In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." The statement is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 will supersede SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 changes the criteria for classifying an asset as held-for-sale. SFAS No. 144 will supersede APB Opinion No. 30 with regards to reporting the effects of a disposal of a segment of a business and will require expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required by APB Opinion No. 30. The new pronouncement also expands the amount of dispositions that will qualify for discontinued operations treatment in the income statement. The Company does not believe that the adoption of this standard will have a material impact on its consolidated financial statements. 7 MOORE MEDICAL CORP. & SUBSIDIARY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- RECLASSIFICATION - ---------------- Certain prior year amounts have been reclassified to conform with the current year presentation. RESULTS OF OPERATIONS - --------------------- Three Months Ended March 30, 2002 compared to Three Months Ended March 31, 2001. - -------------------------------------------------------------------------------- Net sales for the first quarter were $32.44 million, as compared to $32.37 million in the first quarter 2001. The Company's revenue attainment in the first quarter 2001 was sustained through the development and implementation of more effective targeted marketing campaigns. The Company continued to experience growth in its public sector markets led by the corrections market which had a growth rate of 22.7%, over the prior year's first quarter. During the first quarter, the Company's Internet based net sales grew 41.4% over the prior year's quarter to $3.3 million representing 10.3% of the Company's total net sales. Gross profit increased $0.6 million or 7.1%, to $9.0 million compared to $8.4 million for the same period a year ago. Overall gross profit margins increased to 27.7% in the first quarter 2002 from 26.0% in first quarter 2001, primarily attributable to product and market mix, and the realization of benefits from our supply chain initiatives. Sales and marketing expenses decreased by $0.9 million or 25.7% to $2.6 million in 2002 from $3.5 million in 2001 due to the on-going effort to establish and implement more effective targeted marketing campaigns. As a percentage of net sales, sales and marketing expenses decreased to 8.0% in the first quarter 2002 from 10.8% for the same period a year ago. General and administrative expenses decreased by $0.7 million or 10.3% to $6.1 million in 2002 from $6.8 million in 2001 reflecting the continued realization of benefits from third and fourth quarter 2001 cost containment initiatives. As a percentage of net sales, general and adminstrative expenses decreased to 18.8% in the first quarter 2002 from 21.0% for the same period a year ago. The Company believes the existing cost structure continues to be adequate to support future growth. Interest expense for the first quarter of 2002 increased to $47.3 thousand from interest income of ($36.0) thousand for the same period a year ago. The increase was attributable to the government settlement note payable, which was executed February 1, 2001 and a higher marketable security balance in the first quarter 2001. The effective income tax rate of 35.5% was lower than the prior year's effective income tax benefit rate due to impact of the government settlement on 2001's tax benefit rate. 8 Net income increased to $0.2 million, or $0.06 earnings per share compared to a net loss of ($1.1) million, or ($0.35) loss per share, the same period a year ago. Three Months Ended March 31, 2001 Compared to Three Months Ended April 1, 2000 - ------------------------------------------------------------------------------ Net sales for the first quarter ended March 31, 2001 increased to $32.4 million, an increase of $2.8 million or 9.4% from the same period a year ago. This marked the highest year-over-year quarterly growth rate in more than five years and the third consecutive quarterly increase of over 6% on a year-to-year basis. The Company's sales growth in the first quarter was primarily attributable to the acceleration of numerous marketing programs, which were planned to be initiated during the second quarter of the year, to early in the first quarter of 2001. These programs include direct mail catalogs, flyers and letters, e-marketing initiatives, customer support center representatives and specialty practice sales representatives. The sales and marketing strategy focused on optimizing direct marketing and channel deliverables resulting in a 12.2% increase in the number of customer sales orders processed in the period from the same period in 2000. The Company's e-commerce net sales quadrupled to nearly $2.4 million for the period from $0.6 million in 2000. The Company has achieved continued growth in its online web site since the opening of its integrated e-business site on May 30, 2000. Online sales growth for the three months ended March 31, 2001 was reflected across all market communities and was the result of direct marketing initiatives such as e-mail campaigns, web site promotions, investments in online communities and web affiliations. Gross profit increased $0.9 million or 12.0% to $8.4 million, compared to $7.5 million for the same period in 2000. Overall gross profit margins increased to 26.0% from 25.4% in 2000. The increase is primarily attributable to the increased sales volume, product mix and continuing improvements in our supply chain operations. Selling, general and administrative expenses (S,G&A) increased by $2.3 million or 28.8% to $10.3 million in 2001 from $8.0 million in 2000. S,G&A as a percentage of net revenue was 31.8% as compared to 27.0% in 2000. The increase was attributable to the timing of publication and distribution of our direct mail catalog, increased salary expenses relating to filling key management and staff positions, outside consulting primarily associated with e-commerce initiatives and freight and distribution expenses proportionate to net revenue growth. Besides the timing of certain marketing expenses compared to 2000, the increase in S,G&A was primarily a result of the Company's transformation from an online catalog direct marketer to a multi-channel Internet enabled marketer. The Company continues to improve efficiencies in its cost structure but believes it is adequate to attain future growth. Net loss increased to ($1.1) million or ($0.35) loss per share compared to ($0.3) million, or ($0.09) loss per share, the same period in 2000. 9 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company ended the first quarter 2002 with $55 thousand in cash and cash equivalents, a $0.8 million decrease from December 29, 2001. The liquidity decline was primarily the result of the decision to refinance the government settlement note on February 13, 2002 with a combination of cash on hand and the draw-down of the collateralized revolving credit facility. The Company's operations provided $0.6 million in cash during the first quarter 2002. The primary sources of cash from operations were: net income of $0.2 million, depreciation expense of $0.8 million, sources of cash from working capital consisting of a $0.6 million reduction in accounts receivable, a $0.7 million reduction in inventory, offset by uses of working capital consisting of a $0.8 million increase in other assets which was due to the timing of advertising material, a $0.5 million decrease in accounts payable and a $0.4 million decrease in accrued expenses. Investing activities used $0.2 million for the first quarter 2002 compared with $0.3 million in 2001. Investments were made for technology and operating efficiency initiatives which will produce future benefits for the Company. Financing activities used $1.2 million during the first quarter, which is the net of the government settlement note re-financing offset by the incremental borrowings on the Company's collateralized revolving credit facility. As a result, the Company reported borrowings were $1.2 million less than that which was reported at 2001 year-end. On January 26, 2001, the Company entered into a three-year bank financing agreement which will provide up to $15 million in a collateralized revolving credit facility. The credit facility provides the Company with the latitude it needs to implement strategic initiatives as they arise. During the first quarter of 2002, the Company utilized its collateralized revolving credit facility to refinance the government settlement note in full to take advantage of the current low interest rate environment. The Company believes that cash flows from operations and available cash and cash equivalents are adequate to fund the Company's operations for the foreseeable future. FORWARD-LOOKING INFORMATION - --------------------------- This report contains statements about future events and expectations that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management's beliefs, assumptions and expectations of the Company's future economic performance, taking into account the information that is currently available to management. These statements are not statements of historical fact. Forward-looking statements involve 10 risks and uncertainties (including, but not limited to, economic, competitive, governmental and technological factors outside our control) that may cause the Company's actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Factors that could contribute to these differences include, but are not limited to: Business Strategy Factors ... The inability to generate adequate revenues and income from our strategy to transform the Company to a multi-channel e-commerce enabled business. ... Changes in demand for the Company's products. ... Pressures on revenues resulting from, for example, customer consolidations or changes in customer buying patterns. ... Changes in the availability or salability of products manufactured by our suppliers. Operating Factors ... Unforeseen web site hosting or other service disruptions, or online credit card fraud or security breaches in the Company's web site. ... Failure to keep up with rapidly changing technologies or Internet developments. ... Our internal systems are located in a single facility, the loss of which would significantly impact our continued business operations. ... Disruptions in or cost increases for services or systems on which we are dependent, such as the trucking companies that deliver products from our suppliers, common carriers (such as United Parcel Service and Federal Express) which deliver products to our customers, telecommunication services, computer systems services, and printing services. Competitive Factors ... Intense competition in health care product distribution from, distributor consolidations, new online entrants and pricing pressures from larger distributors able to benefit from economies of scale or other operating efficiencies. Governmental Factors ... Changes in, or compliance with, laws regulating the distribution of drugs and medical devices. 11 ... Changes in governmental support or insurance coverage of health care products or services, including, potential governmental reductions in health care funding affecting our customers' services or revenues. ... New governmental regulation of the Internet. ... New sales tax collection obligations. General Economic Factors ... The effect of general economic conditions, inflation and interest rates. ... Changes in currency exchange rates and political and economic conditions nationwide. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that the Company's expectations will be achieved. We qualify any forward-looking statements entirely by these cautionary factors, and readers are cautioned not to place undue reliance on forward-looking statements. The words "believe," "may," "will," "could," "should," "would," "anticipate," "estimate," "expect," "intend," "project," "objective," "seek," "strive," "might," "seeks," "likely result," "build," "grow," "plan," "goal," "expand," "position," or similar words, or the negatives of these words, or similar terminology, identify forward-looking statements. The forward-looking statements contained in this report only speak as of the date of this report. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statements to reflect any change in management's expectations or any change in events, conditions or circumstances on which the forward-looking statements are based. ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK -------------------------------------------------------- We have no material market risk exposure associated with activities in derivative financial statements, other financial instruments, or derivative commodity instruments. The Company does not expect changes in interest rates to have a material effect on income or cash flows in fiscal 2002, although there can be no assurances that interest rates will not significantly change. 12 PART II. OTHER INFORMATION ----------------- Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibit ------- 2002 Bonus Program Exhibit 10.21 (b) Reports on Form 8-K ------------------- No report on Form 8-K was filed during the quarter. 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. MOORE MEDICAL CORP. (REGISTRANT) BY: /s/ Linda M. Autore BY: /s/ James R. Simpson - ----------------------------------- -------------------------------------- Linda M. Autore, President James R. Simpson, Executive and Chief Executive Officer Vice President and Chief May 13, 2002 Financial Officer May 13, 2002 BY: /s/ John M. Zinzarella -------------------------------------- John M. Zinzarella, Vice President and Controller May 13, 2002 13 EX-10.21 3 dex1021.txt 2002 BONUS PROGRAM Exhibit 10.21 Moore Medical Corp. 2002 Bonus Plan 1. Purpose - ---------- This plan (the "Plan") is designed to provide incentive compensation to all employees of Moore Medical Corp. (the "Company") for the successful achievement of its financial objectives. This Plan supersedes and replaces all other exempt, nonexempt and hourly bonus plans. The Plan's purposes are: . To encourage outstanding individuals to accept or continue employment with the Company. . To refocus organization behavior to achieve critical drivers. . To clearly link individual performance to critical drivers. . To encourage overachievement. 2. Period Covered - ----------------- The Plan is for the 2002 fiscal year. The President and CEO with the approval of the Compensation Committee of the Board of Directors has the right to terminate and/or amend the Plan at any time. 3. Eligibility - -------------- Participants under the Plan consist of all employees of the Company. The bonus amount earned will be based on hire date, and prorated as appropriate. Unless otherwise stated, a Participant will be eligible for payment of bonus only if he or she is in the active employ of the Company on the last day of the fiscal year. An employee must be rated as "meets objectives" or above in order to be eligible to participate in the Plan. (A competency area rating of "Take Action" can preclude an individual from participating in said bonus). 4. Eligible Pay - --------------- Eligible pay is defined as a Participant's "Base Salary", his or her W-2 gross ----------- regular pay for 2002, excluding (i) any bonus under this Plan or any other agreement or plan, (ii) any compensation paid for a period (other than normal vacation) during which he or she was not actively working full-time for the Company, such as for a period of disability or for severance, (iii) any Company-401(k) contribution, car allowance, and (iv) other company-provided benefits. 5. Impact of Commissions on Bonus Eligibility - --------------------------------------------- Employees who participate in a commission-based incentive plan will be eligible to receive 75% of the Bonus Percentage as stated under Section 6 below unless a different percentage is agreed upon in writing by the Participant and approved in writing by the President/CEO, VP Human Resources and CFO. 6. Bonus Percentages - -------------------- TABLE I ------- Position Bonus Percentage (applied to Base Salary) Corporate Officer 20.0% Vice President 20.0% Director 15.0% Senior Manager 15.0% Manager/Assistant Manager 10.0% Project Leader Supervisor Sr. Project Specialist 7.5% Team Leader/Group Leader All other employees 5.0% Any change in position will prorate any bonus calculation. 7. Bonus Calculation - -------------------- In order for the bonus to be paid, the Company must achieve at minimum the Net Sales Base Target, as established by the Board of Directors, and achieve Earnings Before Interest and Taxes (EBIT) Base Target, as established by the Board of Directors. Achievement of these threshold targets will result in a bonus payment equal to 50% of the Bonus Percentages listed above in Table I, with linear increases in payments based on actual EBIT attainment. Achievement of the Net Sales Base Target and actual EBIT achievement at the Full Payout EBIT Target, as established by the Board of Directors, will result in a Bonus Payment of 100% of the Bonus Percentages listed above in Table I. Achievement of the Net Sales Base Target and actual EBIT achievement above the Full Payout EBIT Target, as established by the Board of Directors, will provide an upside payment in excess of the Bonus percentages listed above in Table I. 2 8. No Employment Rights - ------------------------ Nothing in the Plan shall confer upon any Participant the right to continue in the employ of the Company or interfere with or restrict in any way the rights of the Company to discharge or change the terms of employment of any Participant at any time for any reason whatsoever, with or without cause. 9. Other Provisions - -------------------- The President and the Board of Directors' Compensation Committee must approve any and all exceptions and/or modifications to the Plan in writing. The Company reserves the right to withdraw and terminate this Plan by action of the Board of Directors or of the Compensation Committee provided that the majority of said Board or Committee authorizing such withdrawal and termination consists of Continuing Directors (as defined in the Company's 2001-2002 Change of Control and Change of Position Payment Plan). This Plan supersedes and replaces all other exempt, nonexempt and hourly bonus plans. 3 -----END PRIVACY-ENHANCED MESSAGE-----