<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1997
OR
[_] 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 0-22-309
ASI SOLUTIONS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 13-3903237
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
780 Third Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 319-8400
------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $0.01 per share Nasdaq National Market
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 No X
--- ---
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 definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the registrant held
by non-affiliates of the registrant on June 17, 1997 was $22,277,230.
The number of shares of the registrant's Common Stock, par value $0.01
per share, outstanding on June 17, 1997 was 6,379,624.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
Overview
ASI Solutions Incorporated (the "Company") is a leading national
provider of a comprehensive range of human resources outsourcing services
for large organizations seeking to hire, train and develop a higher
quality, more effective workforce. The Company's services are organized
into four core areas: assessment and selection, training and development,
customer contact monitoring, and employment process administration. The
Company, which has been providing human resources services for over 18
years, believes that it is well positioned to be a single-source solution
for organizations which outsource all or a portion of these human resources
functions.
The Company's assessment and selection services entail designing and
implementing assessment processes for the selection of new hires and the
evaluation of existing employees for advancement to positions of increased
responsibility. The Company's training and development services include
live simulations, competency surveys for job skill evaluation, and
situational exercises through which managers are introduced to techniques
to improve their performance. The Company's customer contact monitoring
capability typically is used by clients which utilize inbound and outbound
call centers for their customer contact service functions. The Company's
employment process administration services address clients' recurring
staffing needs resulting from regular employee turnover, as well as large-
scale, rapid hiring needs for clients who do not have the in-house capacity
to fulfill their needs. In fiscal 1997, the Company processed 403,000
candidates.
The Company's clients are in a wide range of industries, including
telecommunications, financial services, information technology, consumer
products and healthcare, and are principally Fortune 500 companies for
which customer service, sales and call center functions are critical
components of their businesses. Current customers include American Express
Company, BellSouth Corporation, Citibank, N.A., Dean Witter Reynolds, Inc.,
Georgia-Pacific Corporation, Hewlett-Packard Company, NYNEX Corporation,
Oxford Health Plans, Inc., Pepsi-Cola Bottling Co., United Parcel Service
of America, Inc. and Westinghouse Electric Corporation. The Company
provides its services primarily through its two operations centers in
Melville, New York, but also through its three regional offices and at
clients' locations.
The Company was founded in 1978 as a New York corporation by Bernard
F. Reynolds, Eli Salig and Seymour Adler and was recently reorganized (the
"Reorganization") in March 1996 as a Delaware holding company for its three
subsidiaries, Assessment Solutions Incorporated ("Assessment Solutions"),
Proudfoot Reports Incorporated ("Proudfoot") and C3 Solutions Incorporated
("C3"). On April 16, 1997, the Company completed its initial public
offering (the "Offering") of 1,800,000 shares of the Company's common
stock, par value $0.01 per share (the "Common Stock").
Services
The Company offers a wide range of human resources outsourcing
services, including the sourcing, assessment, selection and training of new
employees, and the assessment, selection, training and monitoring of
existing employees. The Company's services are organized into the
following four core areas: assessment and selection, training and
development, customer contact monitoring and employment process
administration. The Company has assigned a vice president to each one of
these core areas who is responsible for overseeing the design and assuring
the quality of delivery of the services in each of these areas.
Assessment and Selection. The Company designs and implements
assessment processes for the selection of new hires and the evaluation of
existing employees for positions of increased responsibility. These
assessment services have generally been provided for positions for which
large numbers of staff are required and where effectiveness in the job
directly impacts the business' revenue. The Company may design either a
single assessment instrument, which is delivered as part of an existing
selection process, or the entire selection process
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itself, as required by the particular client. Assessment was the first
service provided by the Company and has served as the foundation for
several of its other services.
On a typical engagement, the Company first custom designs the
assessment tools necessary for an effective selection process. This
generally involves field research and job analysis to determine the
critical components of the position and the key competencies required to
execute it successfully. Virtually all of the Company's assessment
projects include the use of live simulations, either in person or over the
telephone, in order to ensure that candidates possess the skill
requirements for the position sought. The Company has found that the use
of job-specific, behavior-based techniques to determine a candidate's
ability to actually perform the required tasks provides clients with a more
accurate selection process and a more qualified workforce. The Company's
staff of professional industrial psychologists design each assessment
instrument to meet the standards for test validity established by the
Society for Industrial and Organizational Psychology, the Uniform
Guidelines on Employee Selection Procedures issued by the federal
government in 1978, as well as other professional standards. The Company
has applied its validation procedures to selection mechanisms for a wide
variety of desired skills, including multilingual fluency, which the
Company believes is becoming an increasingly important requirement for
customer sales and service positions.
Once the Company has designed and validated an assessment process,
it then deploys a team of industrial psychologists and staff to implement
the process in a manner best suited to the particular client and the type
of position being filled. Implementation can range from performing
assessments telephonically from the Company's operations centers to
deploying an entire staff to an on-site facility at the client to
administer the selection process. In either case, the Company typically
uses its proprietary database and report generation software and customizes
it to track the process and provide information to the client. The Company
has found that its assessment services are most appropriate for large-scale
hiring needs. However, once it has established and implemented an
effective process, most businesses will retain the Company to provide these
services on an ongoing basis to replace employees lost to attrition, as
well as to hire additional employees as necessary for future growth.
In addition to the assessment of prospective new hires, the Company
also provides assessment services for the evaluation of existing employees
for advancement to positions of increased responsibility. The Company
utilizes techniques similar to those for new hires in order to identify
employees who possess the additional skills necessary for supervisory or
management positions. These techniques are also used to identify specific
skills that require training and development intervention. The Company's
programs can be conducted on the telephone and through correspondence,
electronic mail, and voicemail to replicate the manner in which a
particular client's managers actually interact with their staff. The
programs are designed through extensive field research and job analysis and
result in the delivery of development reports to each participant outlining
areas for improvement.
The Company also provides executive assessment services which
involve the evaluation of executive applicants for general and functional
management level positions. The Company uses evaluation methods similar to
those used for operational level employees, however, executive assessments
generally involve more comprehensive procedures, including in-depth
interviews and extensive testing. The Company has recently begun expanding
its executive assessment resources through staff additions and the leasing
of additional space.
Training and Development. The Company's training and development
services are an outgrowth of the Company's expertise in conducting live
simulations for job skill evaluations. A typical training and development
program begins with the administration of competency evaluation surveys to
a manager's colleagues which are analyzed by the Company's staff.
Simulations are then developed in order to allow further testing by the
Company's assessment professionals of the manager's relevant job skills.
Based on the skills necessary for the particular functions performed by the
manager, the Company develops a training program through which the manager
is introduced to techniques for improving his or her performance. Once the
training program is completed, the manager is often put through another set
of simulation exercises to determine how well the suggested improvements
have been understood and adopted by the manager. The Company then provides
each participant with a written development plan for further improvement.
2
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The Company's training and development services can also be used to
assist in determining the potential for assigning existing employees to
newly-created positions. In one instance, a team of the Company's
industrial psychologists worked with the client to define the new job
requirements and design a telephone-based simulation to assess the
employees' aptitude for the new function. The Company's staff tested more
than 2,500 customer service representatives over a three-month period. The
Company's simulation services are now used to screen over 3,000 prospective
new hires for this client annually for both the sales and service
positions.
The Company believes a major opportunity for growth in its training
and development services is in the area of remote management. Through its
client engagements, the Company has developed an understanding of the
challenges inherent in managing large numbers of employees who are
geographically dispersed. As organizations downsize and flatten their
organizational structures, executives are being asked to manage greater
numbers of individuals. In addition, due to the expanding geographical
scope of many businesses and the growing use of telecommuting, managers are
being forced to learn to communicate with, supervise and motivate their
employees telephonically and by electronic mail, rather than through face-
to-face meetings.
Customer Contact Monitoring. The Company provides monitoring
services for clients who engage in large-scale use of call centers for
their customer contact functions. These call centers may consist of
clients' employees or external vendors contracted by the client. The
establishment of call centers as the primary means by which major companies
provide customer and sales related services has led to an increased demand
for the Company's services from existing and potential clients. As
heightened domestic and global competition has led to the availability of
an increased number of alternative or substitute products and services in
many industries, the role of customer service has assumed a greater level
of importance in terms of customer acquisition and retention. As a
consequence, companies are becoming increasingly more vigorous in their
efforts to insure that customer service representatives employed by them or
by vendors operating on their behalf are complying with their service
quality standards.
The Company's proprietary monitoring system can provide analyses and
results of customer contact representatives' performance on an individual,
team and call center basis, with comparisons against established service
quality standards and group norms. Over the course of a recent three-month
pilot program, begun in October 1996 performed on behalf of a financial
services client, the Company successfully monitored approximately 10,500
calls remotely from its Melville, New York facility.
Employment Process Administration. The Company offers complete
employment process administration services to clients who have large-scale
hiring needs and who do not have the in-house capacity to fulfill their
needs. Employment processes provided by the Company typically include:
advertising for and recruiting applicants; establishing automated
telephonic voice response systems to screen prospective applicants;
arranging for the physical facilities and equipment necessary for the pre-
screening process; performing background checks on applicants; and
conducting testing and simulations utilizing the Company's assessment
expertise to select applicants for recommendation to the client. The
Company can also provide any of these services individually on an as needed
basis. In particular, the Company provides clients who have their own
internal employment processes with ongoing background check services.
To meet a client's needs, the Company is frequently asked to secure
facilities and equipment, establish an interactive voice response system to
screen prospective applicants, develop proprietary database and report
generation software and staff a facility with test administrators and
coordinators. The Company has in the past scheduled and tested up to 500
applicants per day, provided client access to the database for ongoing
status reports and provided complete support up to the point of hire.
Clients
Historically, clients that provide in excess of 10% of the Company's
revenues have changed from year to year. The only customer accounting for
more than 10% of the Company's revenues in fiscal 1997 was NYNEX
Corporation.
3
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Competition
The Company believes that the human resources industry is highly
fragmented and that no one participant or small number of participants is
dominant in the industry. The principal competition encountered by the
Company across the full range of services provided by the Company are human
resources consulting firms, smaller companies who are specialized providers
of certain services provided by the Company and consulting firms that are
affiliated with large multinational accounting firms. In addition, the
human resources staffs of many large organizations which are existing or
potential clients of the Company may already provide one or more of the
basic services provided by the Company. Key competitive factors include
depth of industry knowledge, breadth of skills and services offered, level
of experience, flexibility, responsiveness to customer requests and
availability of resources to perform a wide variety of projects in a timely
manner and price.
In the area of assessment services, the Company encounters
competition from large firms such as Aon Consulting, Development Dimensions
International and Personnel Decisions International. In the area of
training and development, the Company competes with Aon Consulting,
Development Dimensions International, The Center for Creative Leadership
and TeleSpectrum Worldwide. In the area of employment process
administration, the Company competes with the human resources outsourcing
departments within organizations such as Ernst & Young LLP, Fiserve, Inc.,
Manpower Temporary Services and Norrell Corporation. In the area of
customer contact monitoring, the Company is presently unaware of any
competitors.
Intellectual Property and Other Proprietary Rights
The Company primarily relies on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company generally enters
into confidentiality agreements with its employees and clients that limit
access to and distribution of its proprietary information. The Company
also believes that factors such as the technical and creative skills of its
personnel, the Company's corporate knowledge and expertise in behavioral
assessment and name recognition are essential to establishing and
maintaining a leadership position in its industry. The Company seeks to
protect its database, documentation and other written materials under trade
secret and copyright laws.
Employees
As of March 31, 1997, the Company employed 282 employees, of whom
216 were full-time, and 66 were part-time. Approximately 40% of the
Company's employees have masters or doctoral degrees. Historically, the
Company has generally been able to satisfy its hiring needs. No assurance
can be given, however, that this will continue to be the case, particularly
if the Company experiences substantial future growth. The inability of the
Company to hire sufficient, qualified personnel to service its future
growth would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has no collective bargaining agreements or any similar
union agreements and the Company has never experienced any work stoppages.
The Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in leased offices
occupying approximately 11,300 square feet at 780 Third Avenue, New York,
New York 10017. The lease for this space will expire in 2006. The Company
also leases office space at the following locations: Campbell, California;
St. Louis, Missouri; and two offices in Melville, New York. The terms of
these leases expire between 1997 and 2006. In May 1997, the Company leased
23,000 square feet of space in Melville, New York, to expand the operations
center. This lease expires in 2005 and increased the approximate total
operations center square footage to 43,000 square feet. The Company
anticipates that as its business grows, it will establish more regional
offices and continue to enlarge existing offices.
4
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ITEM 3. LEGAL PROCEEDINGS
From time-to-time the Company is involved in various legal
proceedings that are incidental to the conduct of its business. The
Company is not involved in any pending or threatened legal proceedings
which the Company believes could reasonably be expected to have a material
adverse effect on the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 16, 1997, the holders of the Common Stock approved by
unanimous written consent (1) an amended and restated Certificate of
Incorporation which increased the number of authorized shares of Common
Stock to 18,000,000 and provided for 2,000,000 shares of a new class of
preferred stock, (2) the adoption of amended and restated By-Laws for the
Company, (3) the Company's 1996 Employee Stock Purchase Plan, (4) the
Company's 1996 Stock Option and Grant Plan, (5) the Company's 1996
Directors' Stock Option Plan, and (6) a stock split of 1.06006 shares of
Common Stock for each share of Common Stock outstanding as of the effective
date of the Offering.
5
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
Since the Company's Common Stock was not publicly traded until after
the Offering there was not a market for the Company's Common Stock in
fiscal 1997.
The Company's Common Stock is currently traded on the Nasdaq National
Market. As of June 17, 1997, there were 44 stockholders of record of the
Company's Common Stock.
Dividends
The Company has never paid any cash dividends on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future. The
Company currently intends to retain earnings, if any, for the development
of its business.
6
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the
Company's consolidated statements of income for the four fiscal years ended
March 31, 1994, 1995, 1996 and 1997 and consolidated balance sheets as of
March 31, 1995, 1996 and 1997 are derived from audited financial statements
of the Company. The Company's consolidated statements of operations data
for the year ended March 31, 1993 and the consolidated balance sheet data
as of March 31, 1993 and 1994 are derived from unaudited financial
statements of the Company. The unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, that the
Company considers necessary for a fair presentation of the financial
position and results of operations for these periods. The data set forth
below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
financial statements and notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- --------- ---------
(In thousands, except per share and operating
data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data (1):
Revenue.................... $ 5,152 $ 6,028 $ 8,023 $ 10,558 $ 18,819
Cost of services........... 2,852 3,207 4,179 5,207 8,706
------- ------- ------- -------- --------
Gross Profit............... 2,300 2,821 3,844 5,351 10,113
Operating expenses:
General and
administrative......... 1,169 1,688 1,948 2,225 3,224
Sales and marketing..... 514 618 744 1,100 1,890
Research and development 140 283 375 614 1,272
------- ------- ------- -------- --------
Income (loss) from
operations................ 477 232 777 1,412 3,727
Other income............... -- -- 276 -- --
Interest (expense) income,
net....................... (36) (24) (14) 2 2
------- ------- ------- -------- --------
Income before provision
for income taxes,
extraordinary item
and cumulative effect of
change in accounting
principle............... 441 208 1,039 1,414 3,729
Provision for income taxes. (270) (61) (468) (682) (1,917)
------- ------- ------- -------- --------
Income before
extraordinary item and
cumulative
effect of change in
accounting principle..... 171 147 571 732 1,812
Extraordinary item for
utilization of net
operating loss
carryforwards............. 72 -- -- -- --
Cumulative effect of
change in accounting
principal (2)............. -- 19 -- -- --
------- ------- ------- -------- --------
Net income................. $ 243 $ 166 $ 571 $ 732 $ 1,812
======= ======= ======= ======== ========
Net income per common share $ 0.05 $ 0.04 $ 0.12 $ 0.16 $ 0.39
Weighted-average number of
common shares outstanding
(3)....................... 4,667 4,667 4,667 4,667 4,667
Net income per proforma
common share.............. $ 0.04 $ 0.03 $ 0.09 $ 0.11 $ 0.28
Proforma weighted-average
number of common shares
outstanding (3)........... 6,467 6,467 6,467 6,467 6,467
Operating Data:
Number of employees........ 75 116 123 145 282
Number of candidates
processed (4)............. 46,000 55,000 84,000 145,000 403,000
<CAPTION>
March 31,
--------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (1):
Cash and cash equivalents.. $ 72 $ 22 $ 228 $ 70 $ 60
Working capital............ (218) (172) 389 530 152
Total assets............... 1,776 1,823 2,470 4,243 8,595
Total liabilities.......... 1,662 1,543 1,620 1,846 5,352
Total stockholders' equity. 114 280 850 2,396 3,243
</TABLE>
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(1) The financial statements for all periods prior to March 31, 1996, have
been presented on a consolidated basis at the historical cost basis of
the entities involved in the Reorganization in a manner similar to a
pooling of interests. As of March 31, 1996, the date of the
Reorganization, the interests of the shareholders of such entities
other than one controlling shareholder have been accounted for as a
purchase of minority interest. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview"
under Item 7 of Part II hereof and Note 1 to the Notes to Consolidated
Financial Statements under Item 8 of Part II hereof.
(2) Upon adoption of SFAS No. 109, the Company recorded a cumulative effect
of change in accounting principle of $19,091.
(3) See Note 2 to the Notes to Consolidated Financial Statements under Item
8 of Part II hereof for a description of weighted-average number of
common shares outstanding and the proforma weighted-average number of
common shares outstanding.
(4) Represents total number of candidate interactions with one of the
Company's four service functions such as number of candidates assessed,
number of candidates trained and developed, number of service
representatives monitored and number of employment applicants
processed.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Selected Financial Data and the related notes thereto included in Item 6
and the Company's Consolidated Financial Statements and related notes
thereto included in Item 8. This report also contains, in addition to
historical information, forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Any such statements are
subject to risks and uncertainties that could cause the actual results to
differ materially from those projected in such statements, including
negative developments relating to unforseen order cancellations or the
effect of a customer delaying an order, negative developments relating to
the Company's significant customers, a reduction in demand for the
Company's services, the impact of intense competition, changes in the
industry, and changes in the general economy. The Company undertakes no
obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
Overview
ASI Solutions Incorporated is a leading national provider of a
comprehensive range of human resources outsourcing services for large
organizations seeking to hire, train and develop a higher quality, more
effective workforce. The Company's services are organized into four core
areas; assessment and selection, training and development, customer contact
monitoring and employment process administration. The Company believes
these services position the Company as a single-source solution for many
organizations which outsource all or a portion of their human resources
functions. The Company markets its services principally to Fortune 500
companies for which customer service, sales and call center functions are
critical components of their businesses. Industries served by the Company
include telecommunications, financial services, information technology,
consumer products and healthcare.
The Company was founded in 1978 to provide assessment services
principally to companies in the securities industry and later to several of
the regional telephone companies. In 1986, the Company acquired a
background investigation firm which provided pre-employment screening
services. Prior to fiscal 1994, the Company's revenue was primarily
generated from assessment and selection services and limited employment
process administration services, such as background checks.
In fiscal 1994, the Company introduced and began generating revenue from
a broader array of employment process administration services and training
and development services, which have favorably impacted the Company's
results of operations since that time. In October 1996, the Company
introduced its customer contact monitoring services and the Company expects
that revenue from such services will represent an increasing percentage of
the Company's total revenue in the future. From fiscal 1992 to fiscal
1997, the Company's revenue has increased at a compounded annual growth
rate of approximately 34%, from $4.3 million in fiscal 1992 to $18.8
million in fiscal 1997.
The Company charges for its services through contractual arrangements
which vary depending on the type of service and the nature of the Company's
relationship with the client and recognizes revenue upon completion of such
services. For assessment and selection, the Company generally charges a
fixed fee for the initial design of the assessment instruments and
selection process, and then delivers the service for a per applicant fee.
For training and development contracts, the Company generally charges a
fixed fee per person. For customer contact monitoring, the Company
generally charges a fee per-call monitored, determined by the duration of
the call, aggregate number of calls, and other relevant variables. For
employment process administration contracts, the Company charges a per-unit
fee, which varies depending upon whether the client only needs one type of
service, such as employee background checks, or an entire recruitment and
hiring process. Individual services generally are also provided on a per-
unit fee basis, while more complete services typically include a base fee
component and a per-unit fee.
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The Company's clients generally use its services on an as-needed basis,
requiring the Company to be able to respond quickly to changes in the
volume of services it must provide at a given time. The Company has taken
a variety of steps in order to address the operational challenges this
situation presents and increase its ability to control its cost of
services. For example, the Company engages many professionals, including a
number of its psychologists, on a part-time basis, which enables it to have
access to a large number of staff on relatively short notice without
incurring significant fixed labor expenses. The Company also cross-trains
its employees on multiple aspects of the delivery of its services, giving
the Company as much flexibility as possible when staffing a particular
client engagement. In addition, the Company often provides its services at
client facilities or other off-site locations, limiting the Company's need
to expand its own facilities in response to rapid increases in clients'
demands for services.
Cost of services includes payroll and other expenses directly
attributable to the services delivered by the Company, as well as
facilities costs, including telephone expenses, costs for third party data
utilized in background reports (e.g., credit bureau reports) and any
necessary travel directly related to providing such services. Cost of
services as a percentage of revenue has decreased in each of the last four
years, from 53.2% in fiscal 1994 to 46.3% in fiscal 1997. No assurance can
be given that these trends will continue in the future.
The Company generally has experienced lower cost of services on its newer
offerings, particularly in the employment process administration and
training and development categories. Employment process administration
services have tended to have lower associated labor costs due to
efficiencies achieved through the use of various automation technologies
which have reduced the Company's staffing level requirements. Such
technologies include interactive voice response used to automate components
of the Company's recruitment process, and remote access to several of the
Company's services through its worldwide web site. In addition, the
provision of employment process administration services does not require as
many professionals with advanced degrees as are required in the Company's
other services, resulting in lower payroll rates. With respect to training
and development, while these services typically are provided by experienced
staff who have masters or doctoral degrees, the relatively high payroll
expense associated with such personnel is offset by higher pricing for the
services they provide. In addition, provision of training and development
services has not generally required a significant increase in the Company's
facilities because off-site temporary locations and client facilities
typically are used to provide such services.
General and administrative expense includes payroll and related expenses
attributable to senior management, finance, information systems, human
resources and office administration personnel, facilities costs and general
office expenses pertaining to these functions, as well as outside
professional fees. General and administrative expense as a percentage of
revenue has decreased in each of the last three years, from 28.0% in fiscal
1994 to 17.1% in fiscal 1997. No assurance can be given that these trends
will continue in the future. To date, the Company has been able to leverage
its existing management and administrative infrastructure to support its
expanded services. The Company believes, however, that additional
investment in management personnel, administrative staff and facilities
will be required to continue to support anticipated future growth.
Sales and marketing expense consists of salaries, commissions on a small
number of the Company's services, travel-related costs associated with the
solicitation of new business, the cost of designing, producing and
distributing marketing materials, and facilities and office-related expense
pertaining to these activities. Sales and marketing expense as a
percentage of revenue has averaged approximately 10.0% over the last four
years. Over the next two years, the Company intends to substantially
increase its sales and marketing efforts through staffing additions and
expenditures for marketing materials and advertising.
Research and development expense includes payroll and related expenses,
facilities costs and necessary travel expenses pertaining to the
professional staff which develop new programs used in the conduct of
assessment and selection testing, training and development activities and
customer contact monitoring. Such research and development typically is
only conducted in connection with services being performed under existing
client contracts, and is expensed as incurred.
9
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The Company's operations are subject to federal, New York State, New York
City and certain additional franchise taxes, resulting in an effective tax
rate typically in excess of 40%.
Because of the significant size and financial resources of the Company's
existing clients, write-offs for bad debts have historically not been
material. As of March 31, 1997, the following five customers represented
59% of the Company's total accounts receivable: NYNEX Corporation,
Ameritech Corporation, American Express Company, Hewlett-Packard Company,
and Southwestern Bell Telephone Company.
In March 1996, the Company completed the Reorganization pursuant to which
its two predecessor companies, Assessment Solutions and Proudfoot, which
were separately owned but commonly controlled, became subsidiaries of the
Company and substantially all of the stockholders of the predecessors
became stockholders of the Company. The Reorganization has been accounted
for as a reorganization of entities under common control to the extent of
the ownership of one stockholder who held an approximately 60% interest in
the entities both prior and subsequent to the Reorganization. The
remaining approximately 40% of the ownership interests have been treated as
if acquired and have been accounted for as a purchase, resulting in an
increase in goodwill of approximately $1,063,000. This goodwill is being
amortized over ten years.
Results of Operations
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of revenues:
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Revenue............................ 100.0% 100.0% 100.0%
Cost of services................... 52.1 49.3 46.3
----- ----- -----
Gross profit....................... 47.9 50.7 53.7
Operating expenses:
General and administrative........ 24.3 21.1 17.1
Sales and marketing............... 9.3 10.4 10.0
Research and development.......... 4.7 5.8 6.8
----- ----- -----
Income from operations............. 9.6 13.4 19.8
Other income....................... 3.4 -- --
Interest (expense) income, net..... (0.1) -- --
----- ----- -----
Income before provision for income
taxes and cumulative effect of
change in accounting principle... 12.9 13.4 19.8
Provision for income taxes......... (5.8) (6.5) (10.2)
Cumulative effect of change in
accounting principle.............. -- -- --
----- ----- -----
Net income......................... 7.1% 6.9% 9.6%
===== ===== =====
</TABLE>
Fiscal 1997 Compared With Fiscal 1996
Revenue. Revenue increased $8.2 million or 77.4% from $10.6 million for
fiscal 1996 to $18.8 million for fiscal 1997. This increase was
attributable to revenue increases from all four business areas. Assessment
and selection revenue increased $1.8 million or 39.1% from $4.6 million for
fiscal 1996 to $6.4 million for fiscal 1997. Revenue gains from assessment
and selection services were attributable to a general increase in demand
for the Company's services from existing clients. Training and development
revenue increased $1.8 million or 150% from $1.2 million for fiscal 1996 to
$3.0 million for fiscal 1997. Revenue gains from training and development
services were principally due to expansion of programs at two of the
Company's existing clients. Customer contact monitoring revenue increased
$730,000 or 252% from $284,000 for fiscal 1996 to $1.0 million for fiscal
1997. Revenue gains from customer contact monitoring services were
attributable to the implementation of a new service offering. Employment
process administration revenue increased $3.9 million or 86.7% from
10
<PAGE>
$4.5 million for fiscal 1996 to $8.4 million for fiscal 1997. Revenue gains
from employment process administration services were principally due to
expansion of programs at two of the Company's existing clients.
Cost of services. Cost of services increased $3.5 million or 67.3% from
$5.2 million for fiscal 1996 to $8.7 million for fiscal 1997. The increase
was primarily attributable to personnel additions as well as to increases
in facilities costs due to office expansion, travel expense associated with
training and development services and the cost of third party data used in
the Company's background reports offset, in part, by a decrease in
personnel expense necessary to generate such reports. As a percentage of
revenue, cost of services decreased from 49.3% for fiscal 1996 to 46.3% for
fiscal 1997, principally due to the fact that a significant portion of the
Company's outsourcing services and training and development services were
performed off-site at temporary locations and clients' offices which
resulted in facilities costs increasing at a slower rate than the rate of
increase in revenue. This decrease was offset in part by increases in
revenue during the period from lower margin services, particularly customer
contact monitoring and employment background reports.
General and administrative. General and administrative expense increased
$1.0 million or 45.5% from $2.2 million in fiscal 1996 to $3.2 million in
fiscal 1997. This increase was primarily attributable to an increase in
salary expense relating to personnel additions, higher facilities costs due
to office expansion and amortization of goodwill associated with the
Reorganization. As a percentage of revenue, general and administrative
expense decreased from 21.1% in fiscal 1996 to 17.1% in fiscal 1997 due to
the Company's ability to service a portion of the additional business
generated during the period with existing personnel. In addition, the
Company reduced its utilization of temporary workers and reduced its costs
for medical premiums by moving to a managed care health plan. As the
Company matures, it expects to employ additional personnel necessary to
service its growth.
Sales and marketing. Sales and marketing expense increased $789,000 or
71.7% from $1.1 million in fiscal 1996 to $1.9 million in fiscal 1997.
This increase was principally due to increases in expenditures for
marketing materials and the ongoing cost of maintaining the Company's
internet website. As a percentage of revenue, sales and marketing expense
decreased from 10.4% in fiscal 1996 to 10.0% in fiscal 1997 due to the fact
that revenue increased at a faster rate than increases in salary expense.
Research and development. Research and development expense increased
$658,000 or 107.2% from $614,000 in fiscal 1996 to $1.3 million in fiscal
1997. This increase was primarily attributable to the hiring of additional
research and development personnel and the resulting expenditures for
payroll increases which accompanied such hiring and to increases in travel-
related expenses attributable to new business development. Research and
development expense increased as a percentage of revenue from 5.8% in
fiscal 1996 to 6.8% in fiscal 1997 due to the expansion of the professional
staff, principally senior level industrial psychologists to support new
business development efforts and existing programs.
Interest (expense) income, net. Net interest (expense) income represents
interest paid on bank borrowings offset by interest income accrued on notes
receivable due from shareholders.
Provision for income taxes. The difference between the effective federal
income tax provision calculated using statutory rates and the actual
provision recorded is principally due to the effect of state and local
taxes. Provision for income taxes for fiscal 1997 also includes $236,000
relating to the nondeductibility of certain expenses resulting from an
Internal Revenue Service examination.
Fiscal 1996 Compared With Fiscal 1995
Revenue. Revenue increased $2.5 million or 31.6% from $8.0 million in
fiscal 1995 to $10.6 million in fiscal 1996. The increase was primarily
attributable to increased revenue from the Company's employment processing
administration services and from training and development services.
Assessment and selection revenue decreased $251,000 or 5.2% from $4.8
million in fiscal 1995 to $4.6 million in fiscal 1996. Revenue decreases
from assessment and selection services were attributable to a general
decrease in demand for the Company's services from existing clients.
Training and development revenue increased $738,000 or 162.9% from $453,000
11
<PAGE>
in fiscal 1995 to $1.2 million in fiscal 1996. Revenue gains from training
and development services were due to the expansion of a training program by
one of the Company's regular clients and the retention by that client of
the Company's services in implementing such training program. In fiscal
1996, the Company commenced its customer contact monitoring operations
which contributed $284,000 in revenues during the year. Employment process
administration revenue increased $1.8 million or 64.2% from $2.8 million in
fiscal 1995 to $4.5 million in fiscal 1996. Revenue gains from employment
process administration services were due to an increase in the Company's
marketing efforts related to background reports during this period.
Cost of services. Cost of services increased $1.0 million or 24.6% from
$4.2 million in fiscal 1995 to $5.2 million in fiscal 1996. The increase
was principally attributable to personnel additions of $2.4 million as well
as to fees paid for third party data used in the Company's background
reports of $495,931. As a percentage of revenue, cost of services
decreased from 52.1% in fiscal 1995 to 49.3% in fiscal 1996. This decrease
was attributable to the Company's ability to utilize personnel without
advanced education on the masters level to perform many of the Company's
outsourcing services.
General and administrative. General and administrative expense increased
$277,000 or 14.3% from $1.9 million in fiscal 1995 to $2.2 million in
fiscal 1996. This increase was primarily attributable to the hiring of
additional management personnel, as well as expenditures for information
systems and office support. As a percentage of revenue, general and
administrative expense decreased from 24.3% in fiscal 1995 to 21.1% in
fiscal 1996 as these expenses increased at a slower rate than the rate of
increase in revenue. As the Company matures and this growth necessitates
the hiring of additional personnel and an additional investment in office
support for such personnel, there can be no assurance that general and
administrative expense will continue to increase at a rate lower than that
of revenue.
Sales and marketing. Sales and marketing expense increased $356,000 or
47.8% from $744,000 in fiscal 1995 to $1.1 million in fiscal 1996. As a
percentage of revenue, sales and marketing expense increased from 9.3% in
fiscal 1995 to 10.4% in fiscal 1996 due to an expansion of sales and
marketing personnel, increases in commissions earned from new business
developed and increases in marketing expenses to support ongoing marketing
efforts, including maintaining the Company's internet web site.
Research and development. Research and development expense increased
$239,000 or 63.7% from $375,000 in fiscal 1995 to $614,000 in fiscal 1996.
This increase was primarily attributable to the hiring of additional
research and development personnel and the resulting expenditures for
payroll increases which accompanied such hiring. As a percentage of
revenue, research and development expense increased from 4.7% in fiscal
1995 to 5.8% in fiscal 1996 due to an increase in the number of research
personnel utilized during the year to support business growth and the
related costs of operating a larger department.
Other income. Other income represents income earned from the early
termination of a facility lease in fiscal 1995.
Interest (expense) income, net. Net interest (expense) income decreased
during fiscal 1996 principally due to the repayment of notes payable to a
bank and shareholder.
Provision for income taxes. The difference between the effective federal
income tax provision calculated using statutory rates and the actual
provision recorded is principally due to the effect of state and local
taxes.
Liquidity and Capital Resources
The Company's liquidity needs arise from capital requirements, capital
expenditures and principal and interest payments on debt. Historically,
the Company's source of liquidity has been cash flow generated internally
from operations, supplemented by short-term borrowings under bank lines of
credit and long-term equipment financing. Cash flow provided by operating
activities was $691,000, $290,000 and $986,000 in fiscal years 1995, 1996
and 1997, respectively, on net income of $571,000, $732,000 and $1,812,000,
respectively.
12
<PAGE>
Cash flow used in investing activities was $242,000, $280,000 and
$2,053,000 in fiscal years 1995, 1996 and 1997, respectively. These
investment expenditures were primarily for computer equipment, for
furniture and equipment for a new operations center in Melville, New York
and for expansion of the corporate headquarters in New York City.
Cash flow generated from financing activities was $1,057,000 in fiscal
1997 and was attributable to an increase in short-term bank borrowings.
Cash flow used in financing activities was $243,000 and $169,000 for the
fiscal years ended 1995 and 1996, respectively, and was primarily used for
debt repayment, offset by increased short-term bank borrowings of $100,000
in fiscal 1996 the proceeds of which were used for working capital
purposes.
The Company's external sources of liquidity have principally been
borrowings under bank lines of credit. As of March 31, 1997, the Company
had available bank lines of credit aggregating $3.3 million, of which
approximately $1.3 million was unused. These lines of credit mature in
September 1997. The Company has a commitment to replace its existing bank
credit facility with a new facility that provides up to $10.0 million in
availability. The Company also has a $1.9 million equipment lease
facility, of which approximately $1.5 million was unused as of March 31,
1997. Borrowings under this facility convert to term loans payable over
five years after the related assets are placed in service. All of the
approximately $400,000 of borrowings under this facility have been
converted and have maturity dates ranging from November 2001 to February
2002.
The Company has used a portion of the net proceeds from the Offering to
repay the bank lines of credit of $2 million and other payables of $1
million. The Company intends to use the remaining net proceeds of
approximately $6 million for working capital purposes, including management
staff additions, funding additional expansion of facilities, software
development and possible acquisitions.
The Company believes that funds generated from operations, together with
existing cash, available credit lines under bank facilities and the net
proceeds from the Offering will be sufficient to finance its current
operations, and planned expansion and internal growth for at least the next
twelve months.
Inflation
Inflation has had a minimal effect on the results of the Company.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Page
----
<S> <C>
Report of Independent Accountants...................................... 15
Consolidated Balance Sheets as of March 31, 1997 and 1996.............. 16
Consolidated Statements of Income for the years ended March 31,
1997, 1996 and 1995................................................... 17
Consolidated Statements of Stockholders' Equity for the years
ended March 31, 1997, 1996 and 1995................................... 18
Consolidated Statements of Cash Flows for the years ended March 31,
1997, 1996 and 1995.................................................. 19
Notes to Consolidated Financial Statements............................. 20-29
</TABLE>
14
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of ASI Solutions Incorporated:
We have audited the consolidated financial statements of ASI Solutions
Incorporated and Subsidiaries listed in the index on page 14 of this annual
report on Form 10-K. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ASI
Solutions Incorporated and Subsidiaries as of March 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles.
Melville, New York Coopers & Lybrand L.L.P.
May 29, 1997.
15
<PAGE>
ASI Solutions Incorporated and Subsidiaries
Consolidated Balance Sheets
March 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS: 1997 1996
<S> <C> <C>
Current assets:
Cash $ 60,190 $ 69,583
Accounts receivable, net 4,184,886 2,029,045
Prepaid expenses and other current assets 343,455 42,201
Deferred income taxes 5,910 12,683
Notes receivable from stockholders 389,191 72,746
--------------- ---------------
Total current assets 4,983,632 2,226,258
Property and equipment, net 2,219,801 520,724
Notes receivable from stockholders 290,984
Intangibles, net 1,121,815 1,107,871
Other assets 269,990 96,768
--------------- ---------------
Total assets $ 8,595,238 $ 4,242,605
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable to bank $ 1,844,000 $ 100,000
Current portion, long-term debt 66,506
Accounts payable and accrued expenses 1,874,139 839,382
Accrued income taxes 1,046,584 756,503
--------------- ---------------
Total current liabilities 4,831,229 1,695,885
Deferred income taxes 78,303
Long-term debt, less current portion 306,626
Other liabilities 136,194 150,492
--------------- ---------------
Total liabilities 5,352,352 1,846,377
--------------- ---------------
Commitments (Note 6)
Stockholders' equity:
Common stock, $.01 par value, authorized
5,000,000 shares; issued and outstanding
4,625,158 shares 46,252 46,252
Additional paid-in capital 1,109,218 1,109,218
Retained earnings 3,052,450 1,240,758
Less deferred offering costs (965,034)
--------------- ---------------
Total stockholders' equity 3,242,886 2,396,228
--------------- ---------------
Total liabilities and stockholders' equity $ 8,595,238 $ 4,242,605
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
ASI Solutions Incorporated and Subsidiaries
Consolidated Statements of Income
for the years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenue $ 18,818,839 $ 10,558,113 $ 8,022,623
Cost of services 8,705,528 5,206,854 4,178,736
--------------- ---------------- ---------------
Gross profit 10,113,311 5,351,259 3,843,887
Operating expenses:
General and administrative 3,224,083 2,225,551 1,947,384
Sales and marketing 1,889,910 1,100,205 744,433
Research and development 1,272,043 613,906 375,086
--------------- ---------------- ---------------
Income from operations 3,727,275 1,411,597 776,984
Other income 276,202
Interest (expense) income, net 1,343 2,227 (14,374)
--------------- ---------------- ---------------
Income before provision for income taxes 3,728,618 1,413,824 1,038,812
Provision for income taxes 1,916,926 681,455 467,876
--------------- ---------------- ---------------
Net income $ 1,811,692 $ 732,369 $ 570,936
=============== ================ ===============
Net income per common share (Note 2) $ 0.39 $ 0.16 $ 0.12
=============== ================ ===============
Weighted average common shares outstanding (Note 2) 4,667,404 4,667,404 4,667,404
=============== ================ ===============
Unaudited pro forma net income per common share (Note 2) $ 0.28 $ 0.11 $ 0.09
=============== ================ ===============
Unaudited pro forma weighted average common shares
outstanding (Note 2) 6,467,404 6,467,404 6,467,404
=============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
ASI Solutions Incorporated and Subsidiaries
Consolidated Statements of Stockholders' Equity
for the years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
ASI Solutions Assessment Solutions
Incorporated Incorporated
Common Stock Common Stock (1)
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
March 31, 1994 100 $ 16,750
Net income
---------- -----------
March 31, 1995 100 16,750
Net income
Settlement of stockholder note
Recapitalization of Company 4,625,158 $ 46,252 (100) (16,750)
--------- ----------- ---------- -----------
March 31, 1996 4,625,158 46,252
Net income
Deferred offering costs
--------- ----------- ---------- -----------
March 31, 1997 4,625,158 $ 46,252 - $ -
========= =========== ========== ===========
<CAPTION>
Proudfoot Reports
Incorporated Additional Deferred
Common Stock (2) Paid-in Retained Offering
Shares Amount Capital Earnings Costs Total
<S> <C> <C> <C> <C> <C> <C>
March 31, 1994 1,900,000 $ 19,000 $ 306,324 $ (62,547) $ 279,527
Net income 570,936 570,936
----------- ---------- ---------- ----------- ----------- -----------
March 31, 1995 1,900,000 19,000 306,324 508,389 850,463
Net income 732,369 732,369
Settlement of stockholder note (250,000) (250,000)
Recapitalization of Company (1,900,000) (19,000) 1,052,894 1,063,396
----------- ---------- ---------- ----------- ----------- -----------
March 31, 1996 1,109,218 1,240,758 2,396,228
Net income 1,811,692 1,811,692
Deferred offering costs $ (965,034) (965,034)
----------- ---------- ---------- ----------- ----------- -----------
March 31, 1997 - $ - $1,109,218 $ 3,052,450 $ (965,034) $ 3,242,886
=========== ========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
ASI Solutions Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 1,811,692 $ 732,369 $ 570,936
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 434,614 174,576 154,582
Provision for doubtful accounts (9,200) (4,956)
Accrual of straight-line rent (14,298) 63,553 (12,948)
Loss on write-off of leasehold improvements 17,120
Deferred income taxes 113,060 (7,943) (4,317)
Changes in operating assets and liabilities:
Accounts receivable (2,146,639) (746,550) (297,824)
Prepaid expenses and other current assets (301,254) 3,349 (33,173)
Other assets (173,222) (154) (34,167)
Notes receivable from stockholders (25,461) (264,442) (41,826)
Accounts payable and accrued expenses 1,034,758 156,333 (19,692)
Other liabilities (49,734)
Accrued income taxes 262,097 183,912 442,536
--------------- -------------- ---------------
Net cash provided by operating activities 986,147 290,047 691,493
--------------- -------------- ---------------
Cash flow from investing activities:
Acquisition of property and equipment (2,052,638) (279,795) (242,154)
--------------- -------------- ---------------
Net cash used in investing activities (2,052,638) (279,795) (242,154)
--------------- -------------- ---------------
Cash flow from financing activities:
Cash overdraft (21,487)
Proceeds from (repayment of) notes payable to stockholder (210,789) 51,161
Proceeds from borrowings 2,117,132 100,000
Principal repayment of debt (58,333) (272,657)
Deferred offering costs (965,034)
Purchase of minority shareholder interest (95,000)
--------------- -------------- ---------------
Net cash provided by (used in) financing activities 1,057,098 (169,122) (242,983)
--------------- -------------- ---------------
Net increase (decrease) in cash (9,393) (158,870) 206,356
Cash, at beginning of the period 69,583 228,453 22,097
--------------- -------------- ---------------
Cash, at end of the period $ 60,190 $ 69,583 $ 228,453
=============== ============== ===============
Supplemental cash flow information:
Cash paid for:
Interest $ 40,027 $ 5,875 $ 16,296
Income taxes $ 1,531,705 $ 463,287 $ 31,562
Supplemental disclosure of non-cash transactions:
The Reorganization of the Company as of March 31, 1996
resulted in a partial change in accounting basis with an
increase in intangible assets and a corresponding
increase in stockholders' equity of
approximately $1,063,000 (Note 1)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
ASI Solutions Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation:
On March 26, 1996, ASI Solutions Incorporated (the "Company") was
incorporated in the State of Delaware. Effective March 31, 1996, the Company
issued 4,625,158 shares of Common Stock in exchange for substantially all of
the issued and outstanding shares of common stock of Proudfoot Reports
Incorporated ("PRI") and 95% of the Common Stock of Assessment Solutions
Incorporated ("Assessment Solutions"). During fiscal 1997, the remaining 5%
of the outstanding common stock of Assessment Solutions was redeemed. The
initial stockholders of the Company were also the principal stockholders of
PRI and Assessment Solutions, the two previously separate but commonly
controlled companies. After the reorganization, Assessment Solutions and PRI
are wholly-owned subsidiaries of the Company. C3 Solutions Incorporated
("C3") was formed on September 16, 1996 as a wholly-owned subsidiary of the
Company. The Company, Assessment Solutions, PRI and C3 are hereinafter
referred to collectively as the "Company."
Effective April 16, 1997, the Company sold 1,800,000 shares of common stock
to the public at a price of $6 per share in an initial public offering (the
"Offering"). Proceeds from the Offering, net of underwriters discount and
offering costs, were approximately $9,079,000. Effective on the Offering
date, the Company's Certificate of Incorporation (the "Certificate") was
restated to increase the number of authorized shares of Common Stock to 18
million shares. In addition, effective on the Offering date, the Board of
Directors of the Company were authorized to issue up to 2,000,000 shares of
Preferred Stock in one or more classes or series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation
preferences, and the number of shares constituting any series or the
designation of such series. However, pursuant to the Certificate, the
holders of Preferred Stock would not have cumulative voting rights with
respect to the election of directors. Any such Preferred Stock issued by the
Company may rank prior to the Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and
may be convertible into shares of Common Stock.
The exchange described above has been accounted for as a reorganization
since all entities involved were under common control. The financial
statements for all periods prior to March 31, 1996 have been presented on a
consolidated basis at the historical cost basis of the entities involved in
a manner similar to a pooling of interests (the "Predecessor"). All
intercompany accounts and transactions have been eliminated in
consolidation.
The financial statements as of March 31, 1996, the date of the
Reorganization, reflect the interests attributable to the one controlling
shareholder of both combined entities at their historical basis of
accounting. The remaining interests have been accounted for as a purchase of
minority interests and the excess of the purchase price over the related
historical cost of $1,063,000 has been allocated to intangible assets. As a
result of the Reorganization, the results of operations of the Company after
the Reorganization are not directly comparable to the financial statements
of the Predecessor.
20
<PAGE>
Notes to Consolidated Financial Statements, Continued
Assessment Solutions is a management consulting firm with primary emphasis on
research and the application of simulation technology to the assessment of
sales, service and management personnel. PRI provides pre-employment and
post-employment background checks. C3 provides monitoring services for
clients who engage in large-scale use of call centers for their customer
contact functions.
2. Significant Accounting Policies:
Use of 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 revenues and expenses during the reporting period.
The most significant estimates made are for the recoverability of accounts
receivable. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist of accounts receivable and cash deposits. Cash
deposits generally do not exceed insurable limits. Accounts receivable are
concentrated among a limited number of major companies. To reduce credit
risk, the Company performs credit evaluations of its customers but does not
generally require collateral. For the years ended March 31, 1997, 1996 and
1995 revenues from the Company's top five customers represented approximately
54%, 52%, and 62% of total revenues, respectively. Accounts receivable from
five customers represented approximately 59% and 65% of total accounts
receivable at March 31, 1997 and 1996, respectively.
Allowance for doubtful accounts were approximately $14,000, $24,000 and
$29,000 as of March 31, 1997, 1996 and 1995, respectively.
Property and Equipment
Furniture and equipment are stated at cost and depreciated over their
estimated useful lives of five years using the straight-line method.
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful life of the assets. Maintenance and repairs are charged to
expense as incurred; renewals and improvements which extend the life of
assets are capitalized. Gains or losses on the disposition of fixed assets
are included in income.
Intangible Assets
Intangible assets principally include customer lists and the excess of
purchase price over the fair value of identifiable net assets acquired
(goodwill). The intangible assets are amortized on a straight-line basis over
their estimated useful lives ranging from 10 to 40 years. Amortization
expense relating to intangible assets was $84,005 for the year ended March
31, 1997 and $13,481 for each of the years ended March 31, 1996 and 1995.
Accumulated amortization relating to intangible assets was $224,395 and
$140,390 as of March 31, 1997 and 1996, respectively.
21
<PAGE>
Notes to Consolidated Financial Statements, Continued
Long-lived Assets
If events or changes in circumstances indicate that the carrying amount of a
long-lived asset, including intangible assets, may not be recoverable, the
Company estimates the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future
cash flows (undiscounted) is less than the carrying amount of the long-lived
asset, an impairment loss is recognized. To date, no impairment losses have
been recognized.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity date of three months or less from the date of purchase to
be a cash equivalent.
Revenue
The Company recognizes revenue as earned upon completion of services.
Rent Expense
The Company recognizes rent expense for operating leases on a straight-line
basis over the term of the related lease.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense consists of the tax payable for the period and
the change during the period in deferred tax assets and liabilities. (See
Note 7.)
Net Income Per Share
Net income per share for all periods has been computed using the weighted
average number of common shares outstanding. Unaudited proforma net income
per share for all periods has been computed using the weighted average number
of common shares outstanding of 4,625,158 and the 1,800,000 shares issued in
connection with the Offering, including 42,246 of common stock equivalents.
22
<PAGE>
Notes to Consolidated Financial Statements, Continued
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting or Stock-Based Compensation"
("SFAS No. 123"), which prescribes a new method of accounting for stock-
based compensation that determines compensation expense based on fair value
measured at the grant date. SFAS No. 123 gives companies that grant stock
options or other equity instruments to employees, the option of either
adopting the new rules or continuing current accounting; however, disclosure
would be required of the pro forma amounts as if the new rules had been
adopted. SFAS No. 123 is effective for transactions entered into in fiscal
years that begin after December 15, 1995. The Company has elected to
continue with the current accounting method and disclose the proforma impact
in the notes to the consolidated financial statements (See Note 9).
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share ("SFAS No.
128"), which establishes standards for computing and presenting earnings per
share. SFAS No. 128 will be effective for financial statements issued for
periods ending after December 15, 1997. Earlier application is not
permitted.
Reclassifications
Certain items in the 1996 and 1995 consolidated financial statements have
been reclassified to conform with the 1997 presentation.
3. Related Party Transactions:
The Company has 5-year notes receivable bearing interest at 7% from three
officer-stockholders in the aggregate amount of $389,191 as of March 31,
1997. The notes provide for annual principal payments of $72,746. On May 21,
1997, the stockholders transferred 45,534 shares of the Company's common
stock owned by them to the Company in full satisfaction of these notes.
On March 31, 1996, a stockholder of Assessment Solutions exchanged 521,000
shares of common stock in PRI to Assessment Solutions in full settlement of
a note receivable from the stockholder in the amount of $250,000. In the
consolidated financial statements, the investment in PRI has been accounted
for as a reduction of additional paid-in capital. A director of the Company
is also a partner of the law firm that is the Company's general counsel.
Expenses incurred by the Company for legal services provided by this law
firm were approximately $400,000, $38,000, and $33,000 for the years ended
March 31, 1997, 1996 and 1995, respectively. In addition, options to
purchase 5,000 shares of common stock were issued to this director at a
price of $6.50.
23
<PAGE>
Notes to Consolidated Financial Statements, Continued
4. Property and Equipment:
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Furniture and equipment $ 3,203,082 $ 1,373,100
Leasehold improvements 265,641 110,393
------------ ------------
3,468,723 1,483,493
Less, accumulated depreciation
and amortization 1,248,922 962,769
------------ ------------
$ 2,219,801 $ 520,724
============ ============
</TABLE>
Depreciation and amortization expense relating to fixed assets was $337,091,
$161,095, and $141,101 for the years ended March 31, 1997, 1996 and 1995,
respectively. During 1997, the Company wrote-off leasehold improvements with
a cost basis of $64,456 and accumulated amortization of $50,938, resulting
in a loss of $13,518. This loss is included in depreciation and amortization
expense in the consolidated statement of income.
5. Notes Payable to Bank
The Company has lines of credit which mature in September 1997 and provide
up to $3,250,000 in financing. At March 31, 1997 and March 31, 1996,
$1,844,000 and $100,000, respectively, which are payable on demand and bear
interest at the bank's prime rate (8.5% at March 31, 1997) plus 1%, were
outstanding under these facilities. The Company also has a standby letter of
credit with a bank in the amount of $509,000 in connection with a lease for
office space which reduces the amount available under the lines of credit.
The unused amount under these lines of credit at March 31, 1997 is $897,000.
Simultaneous with the closing of the Offering, this debt was repaid.
--------------------------------------------------------------------
The Company also has a $1.9 million line of credit available for furniture
and equipment purchases to be utilized in connection with expansion of
existing and new facilities. As the purchased assets are placed in service
by the Company, the borrowings convert to five year term loans with interest
payable at a fixed rate of 9.65%. As of March 31, 1997, $373,132 is
outstanding under this facility.
Amounts due under this facility for the next five years are as follows:
<TABLE>
<CAPTION>
Fiscal year
<S> <C>
1998 $ 66,506
1999 73,218
2000 80,602
2001 88,734
2002 64,072
</TABLE>
All of the debt is collateralized by substantially all the assets of the
Company and is guaranteed by two principal stockholders.
24
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Lease Commitments
The Company leases facilities under various operating leases which expire on
various dates through 2006. The leases include escalations for operating
expenses and real estate taxes. Rent expense charged to operations was
$879,000, $584,000, and $483,000 for the years ended March 31, 1997, 1996
and 1995, respectively.
The Company relocated one of its corporate offices during fiscal 1995. The
Company received $217,000 from its former landlord to terminate its office
lease. This amount is recognized as other income in the 1995 consolidated
statement of income. Also included in the income from lease termination is
$76,322 relating to the reversal of accrued straight line lease adjustments
offset by a $17,120 loss on the write-off of leasehold improvements.
As of March 31, 1997, future minimum annual rental payments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Fiscal year
<S> <C>
1998 $ 1,347,000
1999 1,364,000
2000 1,346,000
2001 1,338,000
2002 1,281,000
Thereafter 4,131,000
</TABLE>
7. Income Taxes:
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ 1,295,771 $ 430,818 $ 285,142
State and local 508,095 258,580 187,051
Deferred 113,060 (7,943) (4,317)
----------- -----------------------
$ 1,916,926 $ 681,455 $ 467,876
=========== =======================
</TABLE>
The tax provision for the year ended March 31, 1997 also includes a $236,000
charge pertaining to a recently completed examination by the Internal
Revenue Service.
The difference between the statutory Federal income tax rate and the
effective income tax rate is reconciled as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Statutory Federal income tax rate provision $ 1,267,730 $ 480,700 $ 353,196
State and local taxes, net of Federal benefit 335,342 170,663 123,454
Non deductible expenses 52,000
Prior year income taxes 236,000
Other 25,854 30,092 (8,774)
------------ ---------- ----------
$ 1,916,926 $ 681,455 $ 467,876
============ ========== ==========
</TABLE>
25
<PAGE>
Notes to Consolidated Financial Statements, Continued
The components of deferred tax assets and liabilities as of March 31, 1997
and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current:
Bad debt reserve $ 5,910 $ 9,682
Other 3,001
------------- -------------
Net current asset 5,910 12,683
------------- -------------
Noncurrent:
Straight-lining rent payments 56,559 -
Fixed and intangible assets (134,862) -
------------- ------------
Net noncurrent liability (78,303) -
------------- -------------
Net deferred tax asset (liability) $ (72,393) $ 12,633
============= =============
</TABLE>
8. Retirement Plans:
PRI had a noncontributory defined contribution plan covering substantially
all employees. The Company contributed an amount equal to one percent of
participants' wages for those individuals who met eligibility requirements.
Contributions approximated $6,900 for the year ended March 31, 1995.
Effective November 30, 1995, the plan was terminated. All employee account
balances were distributed based on their balances as of such date.
The Company has a 401(k) profit sharing plan, covering substantially all
employees. Employees can contribute to a maximum of 15% of their earnings up
to IRS limitations. Contributions can be made by the Company on a
discretionary basis and vest over a five-year period. Contributions made by
the Company to the plan for the years ended March 31, 1997, 1996 and 1995
were not significant.
26
<PAGE>
Notes to Consolidated Financial Statements, Continued
9. Stock Plans:
Stock Option Plan
In August 1991, the shareholders of PRI approved the adoption of a Stock
Option Plan (the "Plan") pursuant to which a maximum 100,000 shares of Common
Stock were available to be issued for non-qualified options. At March 31,
1996, fully vested options to acquire 100,000 shares of Common Stock at an
average price of $.48 per share were issued and outstanding. No options
issued under the Plan had been exercised or expired through March 31, 1996.
In connection with the reorganization, the Plan was terminated and all option
holders exchanged their options for 51,692 options with exercise prices which
range from $0.35 to $1.22 per share from the newly formed Stock Option and
Grant Plan of the Company.
Stock Option and Grant Plan
The Company's Stock Option and Grant Plan (the "Option Plan') was adopted by
the Company's Board of Directors as of March 31, 1996 and approved by its
stockholders on January 16, 1997. Officers, directors, employees, consultants
and key persons of the Company will be eligible to participate in the Option
Plan. The Option Plan provides that options for an aggregate of 800,000
shares of Common Stock are available for award (at a price of no less than
the fair market value of the underlying stock at grant date) which generally
vest ratably over three years and expire ten years from the date of grant. On
January 24, 1997, the Company granted 316,841 options at an exercise price of
$6.50.
Stock Purchase Plan:
In January 1997, the Company created an Employee Stock Purchase Plan (the
"Stock Purchase Plan") which provides for eligible employees to purchase
shares of Common Stock, at a discount through regular period salary
reductions of up to 10% of their pre-tax gross compensation. A maximum of
250,000 shares of Common Stock may be issued under the Stock Purchase Plan.
Under applicable tax rules, an employee may purchase no more than $25,000 of
the fair market value worth of common stock in any calendar year and certain
other tax limitations may apply. The Stock Purchase Plan is intended to
qualify as an employee stock purchase plan as defined in Section 423 of the
Internal Revenue Service Code.
Directors' Stock Option Plan
In January 1997, the Company adopted a stock option and grant plan for non-
employee directors pursuant to which options to acquire a maximum aggregate
of 50,000 shares of Common Stock may be granted to non-employee directors.
The options issued vest ratably over three years, expire ten years from grant
date and cannot have exercise prices less than the fair market value of the
Common Stock on date of grant. On January 15, 1997, 25,000 options were
granted and are exercisable at $6.50 per share.
27
<PAGE>
Notes to Consolidated Financial Statements, Continued
Summary of Options
A summary of stock option transactions for the year ended March 31, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Outstanding at April 1:
Shares 51,692
Prices $.35 to $1.22
Options granted:
Shares 341,841 51,692
Price $6.50 $.35 to $1.22
Outstanding at March 31, 1997:
Shares 393,533 51,692
Prices $.35 to $6.50 $.35 to $1.22
Options exercisable at March 31, 1997 176,533 51,692
Options available for future grant at March 31, 1997 456,467
</TABLE>
For the years ended March 31, 1997 and 1996, no options were exercised or
expired.
As discussed in Note 1, the Company has applied the disclosure-only provision
for SFAS 123. Had compensation cost been determined based on the fair value
at the grant date consistent with the provisions of SFAS 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below for the years ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net income attributable to common
shareholders as reported $ 1,811,692 $ 732,369
============== ==============
Unaudited pro forma net income $ 1,740,357 $ 732,369
============== ==============
Net income per share as reported $ 0.39 $ 0.16
============== ==============
Unaudited pro forma net income per share $ 0.37 $ 0.16
============== ==============
</TABLE>
The weighted average fair value of each option has been estimated on the date
of grant using the Black-Scholes options pricing model with the following
weighted average assumptions used for grants in 1997 and 1996, respectively:
no dividend yield; expected volatility of 40%; risk-free interest rate
(ranging from 5.86% - 6.37%); and expected lives ranging from approximately 3
to 5 years. The weighted average fair value of options granted was $2.64 and
$.42 at March 31, 1997 and 1996, respectively.
28
<PAGE>
Notes to Consolidated Financial Statements, Continued
The following table summarizes information about stock options outstanding at
March 31, 1997:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Range of Remaining Average
Exercise Shares Contractual Shares Exercisable
Prices Outstanding Life Exercisable Price
<S> <C> <C> <C> <C>
$ 0.35 25,846 9 25,846 $ 0.35
1.22 25,846 9 25,846 1.22
6.50 341,841 9.8 139,910 6.5
---------------- ------------ ------------- ---------------
.35 to 6.50 393,533 9 191,602 5.75
</TABLE>
10. Stock Dividend:
The Company's Board of Directors declared an approximately 1.06 for 1 stock
split effective January 15, 1997. All references in the consolidated
financial statements to shares of Common Stock have been retroactively
adjusted to reflect this stock split.
11. Employment Agreements:
In January 1997, the Company entered into employment agreements with three
key executives that expire on the third anniversary of the date upon which
the Company notifies the executive of the Company's intention to terminate
(except in the case of termination due to cause) their employment. The
agreements provide for aggregate salaries of $750,000 per annum plus fringe
benefits and an annual bonus to be determined by the Board of Directors.
Each employment agreement includes a covenant not to compete with the
Company for a period of three years after employment ceases.
12. Fair Value of Financial Instruments:
Cash and cash equivalents, variable rate notes payable and notes receivable
from stockholders are reflected in the accompanying balance sheet at amounts
considered by management to reasonably approximate fair value. The Company
estimates the fair value of its notes receivable and payable using
discounted cash flow analyses based upon current interest rates of notes
with similar maturities.
29
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Bernard F. Reynolds.......... 55 Chairman of the Board and Chief Executive Officer
Eli Salig.................... 48 President and Chief Operating Officer, Director
Seymour Adler, Ph.D.......... 49 Executive Vice President, Director
Michael J. Mele.............. 43 Vice President and Chief Financial Officer
William B. Fucarino.......... 35 President, Proudfoot Reports Incorporated
David Tory................... 54 Director
Michael J. Boylan............ 50 Director
Ilan Kaufthal................ 49 Director
Carl Seldin Koerner, Esq..... 47 Secretary and Director
Dennis L. Stevens............ 45 Vice President, Marketing and Sales
Paul Squires, Ph.D........... 45 Vice President, Training and Development Services
</TABLE>
30
<PAGE>
Bernard F. Reynolds co-founded the Company in 1978. Prior to that time,
Mr. Reynolds held positions as a Senior Officer and Director Human Resources and
Training at Dean Witter Reynolds, Inc. and Bache and Company Incorporated. Mr.
Reynolds is a former Chairman of the Wall Street Human Resource Directors
Association, and has served on the Human Resources Management Committee of the
Securities Industry Association.
Eli Salig co-founded the Company in 1978. Previously Mr. Salig worked in
Human Resources and Training at Dean Witter Reynolds, Inc. and immediately prior
to founding the Company, Mr. Salig was a Vice President and a Director of
Corporate Personnel at Dean Witter Reynolds, Inc.
Seymour Adler, Ph.D. co-founded the Company in 1978. Prior to Dr.
Adler's present assignments he served as Vice President, Research and
Development at the Company. In addition to having served as a consultant to
industry throughout his professional career, Dr. Adler has been on the faculties
of the City University of New York, Purdue University, and Stevens Institute of
Technology. He is currently an adjunct Professor at New York University.
Michael J. Mele joined the Company in 1997 and currently serves as Vice
President and Chief Financial Officer. Prior to joining the Company, Mr. Mele
held senior financial positions with Linotype-Hell Company, Daimler Benz and
Mars, Inc.
William B. Fucarino served as Controller and Chief Financial Officer of
the Company from 1991 until 1997 when he was named President of Proudfoot
Reports, Incorporated, the Company's background investigation unit. Prior to
joining the Company, Mr. Fucarino was employed as a General Practice Manager
with Coopers & Lybrand.
David Tory joined the Company in 1996 as a Director. Currently, Mr. Tory
acts as an independent consultant to industry. From 1988 through 1995 Mr. Tory
was employed as President and Chief Executive Officer of The Open Software
Foundation, a non-profit consortium comprised of major computer hardware and
software companies and user organizations. From 1978 to 1988, Mr. Tory was
employed by Computer Associates, Inc. in Europe and the United States. Mr. Tory
is a member of the Board of Directors of Ross Systems Inc.
Michael J. Boylan joined the Company in 1996 as a Director. He is the
Vice Chairman-Publishing Operations of American Media, Inc., a leading publisher
in the field of personality journalism. Mr. Boylan is also currently employed as
President of MacFadden Publishing, Inc., a privately held New York based firm
which publishes a variety of trade and consumer titles.
Ilan Kaufthal joined the Company in 1996 as a Director. Mr. Kaufthal is
Managing Director and head of Mergers and Acquisitions for the Investment
Banking Department of Schroder Wertheim & Co., Inc. Mr. Kaufthal joined Schroder
Wertheim & Co., Inc. in February 1987 and is a member of its Executive
Committee. Prior to joining Schroder Wertheim & Co., Inc., Mr. Kaufthal was
employed by NL Industries Inc., where he served as its Senior Vice President and
Chief Financial Officer. Mr. Kaufthal is a member of the Boards of Directors of
Cambrex Corporation, United Retail Group, Inc., Rexene Corporation and Russ
Berrie and Company, Inc.
Carl Seldin Koerner, Esq. joined the Company in 1996 as a Director and
Secretary. Mr. Koerner is a partner in the law firm of Koerner Silberberg &
Weiner, LLP, counsel to the Company.
Dennis L. Stevens joined the Company in 1995. Prior to joining the
Company, Mr. Stevens served for two years as Managing Director, Marketing and
Communications in the Consulting Services division at Price Waterhouse L.L.P.
From 1980 to 1993 Mr. Stevens was a Vice President of Marketing at American
Express Travel Related Services Inc., with overall management responsibility for
product management, new product development, advertising and research.
31
<PAGE>
Paul Squires, Ph.D. joined the Company in 1996. Prior to joining the
Company, from 1979 to 1996 Dr. Squires held senior positions at AT&T Corporate
Human Resources with primary responsibility for selection, testing and employee
development. In 1995, Dr. Squires was Director of Lucent Technologies
Microelectronics International University, responsible for developing a single
World-wide training organization which provided support to 18,000 employees.
Dr. Squires has served as an adjunct professor at Stevens Institute of
Technology since 1986.
32
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
provided by the Company during fiscal 1997, 1996 and 1995 to the Company's Chief
Executive Officer and the four other most highly paid executive officers of the
Company during fiscal 1997 (collectively, the "Named Executives"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------- -------------
Awards
------
Securities
Underlying
Name and Principal Position Year Salary($)(1) Bonus($) Options (#)
- --------------------------- ---- ------------ ------- ----------
<S> <C> <C> <C> <C>
Bernard F. Reynolds.............. 1997 237,169 135,000 0
Chairman of the Board 1996 237,169 30,000 0
and Chief Executive Officer
Eli Salig........................ 1997 237,169 0 0
President and Chief Operating 1996 237,169 20,000 0
Officer
Seymour Adler, Ph.D.............. 1997 240,000 0 124,841
Executive Vice President 1996 223,332 25,000 0
William B. Fucarino.............. 1997 120,785 0 20,000
Vice President and Chief 1996 87,500 30,000 25,846(2)
Financial Officer
Dennis Stevens................... 1997 171,879 45,830 10,000
Vice President and Director 1996 106,250 0 0
of Marketing and Sales
</TABLE>
- -----------------------------
(1) Annual salary for the year commencing April 1, 1997 and ending March 31,
1998 will be $260,000, $250,000 and $240,000 for Messrs. Reynolds, Salig
and Adler, respectively.
(2) Represents options received in connection with the Reorganization. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" under Item 7 of Part II hereof.
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to stock
options granted during fiscal 1997 to the Named Executives. No stock
appreciation rights ("SARs") have been granted.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value
------------------------------------------------------------------- at Assumed Annual Rates
Number of Percent of Total of Stock Price Appreciation
Shares of Common Options Granted to for Option Term(1)
Stock Underlying Employees in Exercise Price Expiration -------------------------
Options Granted (#) Fiscal Year Per Share ($/Sh) Date 5% 10%
------------------- ---------------- --------------- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Bernard F. Reynolds........ -- -- -- -- -- --
Eli Salig.................. -- -- -- -- -- --
Seymour Adler, Ph.D........ 124,841 39.4% $6.50(2) 1/15/07 510,327 1,293,269
William B. Fucarino........ 20,000 6.3% $6.50(2) 1/15/07 81,756 207,187
Dennis Stevens............. 10,000 3.2% $6.50(2) 1/15/07 40,878 103,593
</TABLE>
- ----------------------
(1) This column shows the hypothetical gains or "option spreads" of the
options granted based on assumed annual compound stock appreciation rates
of 5% and 10% over the full 10-year term of the options. The 5% and 10%
assumed rates of appreciation are mandated by the rules
33
<PAGE>
of the Securities and Exchange Commission (the "SEC") and do not represent
the Company's estimate or projection of future Common Stock prices.
(2) The options were granted prior to the Offering which occurred on April 16,
1997. The price of Common Stock purchased pursuant to the Offering was
$6.00 per share.
Aggregated Options Exercisable and Unexercisable
at Fiscal Year End and Fiscal Year End Option Values
The following table summarizes the number and value of options held by each
of the Named Executives at fiscal year end 1997. No options were exercised
during fiscal year 1997 and no SARs have been granted by the Company.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options at Fiscal Options at Fiscal
Year-End (#) Year-End ($) (1)
----------------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bernard F. Reynolds............ -- -- -- --
Eli Salig...................... -- -- -- --
Seymour Adler, Ph.D............ 124,841 -- 0 --
William B. Fucarino............ 25,846 20,000 123,544 0
Dennis Stevens................. -- 10,000 -- 0
</TABLE>
- -------------------
(1) Prior to the Offering, the Common Stock of the Company was not publicly
traded. The Company has assumed for purposes of this table that the fair
market value of Common Stock on March 31, 1997 was equal to the Offering
price of $6.00 per share.
Director Compensation
Directors are reimbursed for certain expenses incurred by them in connection
with attendance at meetings of the Board and committees thereof. Other than with
respect to reimbursement of expenses, directors, who are also employees or
officers of the Company, do not receive cash compensation for services as a
director.
Directors' Stock Option Plan
The 1996 Directors' Stock Option Plan (the "Directors Plan") was adopted by
the Company's Board of Directors and approved by its stockholders on January 15,
1997. Under the Directors' Plan, options to acquire an aggregate of 50,000
shares of Common Stock may be granted. Each member of the Board of Directors who
is not an employee of the Company or a subsidiary thereof shall automatically be
granted an option to acquire 5,000 shares of Common Stock on the first day such
individual serves as a director. In addition, each director who is appointed
chairperson of a committee of the Board of Directors shall receive an option to
purchase 2,500 shares of Common Stock upon his appointment to such committee.
Such options will vest ratably over three years, provided that any option so
granted will become immediately exercisable in full upon the termination of
service of the director because of disability or death. Options issued under the
Directors' Plan will expire ten years from the date upon which such option is
granted.
Employment Agreements
The Company has executive employment agreements with Bernard F. Reynolds,
Eli Salig and Seymour Adler, each an "Executive." The annual base salaries of
Messrs. Reynolds, Salig and Adler under their employment agreements are
$260,000, $250,000 and $240,000, respectively. Each Executive is entitled to
fringe
34
<PAGE>
benefits and an annual bonus to be determined by the Board of Directors. Each
Executive can be terminated for cause (as defined in the employment agreements)
with all future compensation ceasing. If the Executive is terminated without
cause, dies during the term, or is unable to competently and continuously
perform the duties assigned to him because of ill health or other disability (as
defined in the employment agreements), the Executive or the Executive's estate
or beneficiaries shall be entitled to full compensation for three years
following the date thereof. If the Executive resigns, his compensation ceases as
of the date of his resignation. During the period of employment and for a period
of three years thereafter, the Executives are prohibited from competing with the
Company. In order for a restrictive covenant to be enforceable under applicable
state law, the covenant must be limited in terms of scope and duration. While
the Company believes that the covenants in the employment contracts are
enforceable, there can be no assurance that a court will declare them to be
enforceable under particular circumstances.
Compensation Committee Interlocks
The Compensation Committee consisted of Messrs. Boylan, Kaufthal and Koerner
in fiscal 1997. This committee reviews and approves the compensation system for
the Company. In addition to serving on the Compensation Committee, Mr. Koerner
is also a managing partner of the law firm of Koerner Silberberg & Weiner, LLP
which has served as counsel to the Company. For additional information regarding
this relationship please refer to Item 13.
35
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to the best knowledge and belief of the
Company, certain information regarding the beneficial ownership of the Company's
Common Stock by (i) each person who is known by the Company to beneficially own
more than five percent of the Company's Common Stock, (ii) each of the Company's
directors, (iii) each Named Executive and (iv) the Company's directors and
executive officers as a group. Except as otherwise noted, the information in the
following table is provided as of June 17, 1997.
<TABLE>
<CAPTION>
Shares of
Common
Stock Percentage of
Beneficially Outstanding
Name of Beneficial Owner Owned(1) Common Stock
- ------------------------ --------------- --------------
<S> <C> <C>
Bernard F. Reynolds (2).................. 2,584,412 40.5%
Eli Salig................................ 1,176,824 18.5%
Seymour Adler, Ph.D.(3).................. 340,319 5.3%
William B. Fucarino (4).................. 27,346 *
David Tory............................... 10,000 *
Michael J. Boylan........................ 10,000 *
Ilan Kaufthal............................ -- --
Carl Seldin Koerner, Esq................. 500 *
Dennis Stevens........................... -- --
All directors and executive officers as
a group (10 persons).................... 4,151,901 65.1%
</TABLE>
- ------------
* Less than 1%
(1) Unless otherwise noted in the footnotes to this table, the individuals
listed have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Includes shares currently owned by Mr. Reynolds which may become part
of a trust for which Mr. Reynolds will be trustee.
(3) Includes 124,841 shares subject to currently exercisable stock options.
(4) Includes 25,846 shares subject to currently exercisable stock options.
36
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Officer Loans
During fiscal 1996, the Company loaned $233,519, $112,617 and $17,597 to
Messrs. Reynolds, Salig and Adler, respectively. The loans were evidenced by 5-
year notes bearing interest at the rate of 7% repaid per annum and requiring
equal annual principal payments over the term of the notes. On May 21, 1997,
Messrs. Reynolds, Salig and Adler transferred 45,534 shares of the Company's
Common Stock owned by them to the Company in full satisfaction of these notes.
The fair market value of the Common Stock transferred was equal to the principal
plus accrued interest outstanding, based upon a closing price for the Company's
Common Stock of $8.625 per share as reported on the Nasdaq National Market at
the end of trading on May 21, 1997.
Release of Guarantees
Messrs. Reynolds and Salig personally guaranteed the Company's indebtedness
under its bank credit facility which matures in September 1997. The Company
repaid this indebtedness in full with the proceeds of the Offering and has a
commitment to replace its existing bank credit facility with a new facility that
provides up to $10.0 million in availability. The Company's lender has agreed to
release the personal guarantees of Mr. Reynolds and Salig in conjunction with
the commencement of the new credit facility.
Registration Rights Agreement
The Company entered into a Registration Rights Agreement with Bernard F.
Reynolds, Eli Salig and Seymour Adler, dated as of January 15, 1997 (the
"Registration Rights Agreement"). The Registration Rights Agreement provides
that Messrs. Reynolds, Salig and Adler are entitled to demand and incidental
registration rights.
Interest of Counsel
Carl Seldin Koerner, a director and secretary of the Company, is a managing
partner of the law firm of Koerner Silberberg & Weiner, LLP. Such firm has been
general counsel to the Company since 1989 and acted as counsel to the Company in
connection with the Offering. In fiscal 1997, the Company paid legal fees of
$400,000 to Koerner, Silberberg & Weiner, LLP. The Company believes that the
fees paid are comparable to those fees that would have been paid to an unrelated
third party law firm. Pursuant to the Directors' Plan on January 15, 1997, Mr.
Koerner was granted an option to purchase 5,000 shares of Common Stock. The
option is exercisable at $6.50 per share and vests ratably over three years.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Financial Statements and Supplementary Data
-------------------------------------------
See Index to Consolidated Financial Statements under Item 8 in Part II
hereof.
(2) Exhibits
--------
See (c) below.
37
<PAGE>
(b) Reports on Form 8-K.
-------------------
The Company did not file any reports on Form 8-K during the last quarter of
the period covered by this report.
(c) Exhibits
--------
Exhibit
Number Description
------ -----------
3.1 First Restated Certificate of Incorporation of the Company
3.2 By-laws of the Company
*4.1 Specimen of Common Stock Certificate
10.1 Warrant Agreement by and between the Company and H.C.
Wainwright & Co., Inc.
*10.2 Registration Rights Agreement between the Company, Bernard F.
Reynolds, Eli Salig and Seymour Adler, Ph.D.
10.3 Stock Option and Grant Plan of the Company
10.4 Director's Stock Option Plan of the Company
10.5 Employee Stock Purchase Plan of the Company
*10.6 Employment Agreement between the Company and Bernard F. Reynolds
*10.7 Employment Agreement between the Company and Eli Salig
*10.8 Employment Agreement between the Company and Seymour Adler, Ph.D.
*10.9 Sublease dated July 2, 1996 between Assessment Solutions and Nikon
Inc. regarding the space at 1300 Walt Whitman Road, Melville,
New York
*10.10 Lease dated January 27, 1984 between Assessment Solutions and 780
Third Avenue Associates regarding the space at 780 Third Avenue,
New York, New York, and the Third Amendment to the lease dated
August 7, 1996 by and among Assessment Solutions, Proudfoot and
780 Third Avenue Associates
*10.11 Sublease dated October 6, 1994 between Proudfoot and Nikon, Inc.
regarding the space at 1300 Walt Whitman Road, Melville, New York,
and the Amendment to the sublease, dated July 2, 1996
*10.12 Lease dated January 25, 1996 between Assessment Solutions and
Pruneyard Associates regarding the space at 1999 South Bascom
Avenue, Campbell, California
*10.13 Commitment letter dated March 3, 1997 between the Company and
Fleet Bank, N.A.
*+10.14 Agreement by and between Assessment Solutions and Telesector
Resources Group, Inc. ("NYNEX")
*21.1 List of Subsidiaries of the Company
27.1 Financial Data Schedule
- ------------------------
* Incorporated by reference to the relevant exhibit to the Company's
Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on January 24, 1997, as amended, Registration No.
333-20401.
+ Confidential treatment was granted as to a portion of this document by
order of the SEC on April 9, 1997.
38
<PAGE>
Note: In November of 1996, Assessment Systems, Inc. changed its name to
Assessment Solutions. Consequently, all references herein to Assessment
Solutions are intended to also refer to Assessment Systems, Inc.
39
<PAGE>
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.
ASI SOLUTIONS INCORPORATED
By: /s/ Eli Salig
---------------------------------------
Eli Salig
President and Chief Operating Officer
Dated: June 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bernard F. Reynolds Chairman of the Board and Chief June 24, 1997
- ----------------------- Executive Officer (Principal ----------------
Bernard F. Reynolds Executive Officer)
/s/ Eli Salig President and Chief Operating June 24, 1997
- ----------------------- Officer (Principal Executive ----------------
Eli Salig Officer) and Director
/s/ Seymour Adler Executive Vice President and June 24, 1997
- ----------------------- Director ----------------
Seymour Adler
/s/ Michael J. Mele Vice President and Chief Financial June 24, 1997
- ----------------------- Officer (Principal Financial and ----------------
Michael J. Mele Accounting Officer)
/s/ David Tory Director June 24, 1997
- ----------------------- ----------------
David Tory
/s/ Michael J. Boylan Director June 24, 1997
- ----------------------- ----------------
Michael J. Boylan
/s/ Ilan Kaufthal Director June 24, 1997
- ----------------------- ----------------
Ilan Kaufthal
/s/ Carl Seldin Koerner Secretary and Director June 24, 1997
- ----------------------- ----------------
Carl Seldin Koerner
</TABLE>
40
<PAGE>
Exhibit 3.1
FIRST RESTATED CERTIFICATE OF INCORPORATION
OF
ASI SOLUTIONS INCORPORATED
ASI Solutions Incorporated, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is ASI SOLUTIONS INCORPORATED. The
Corporation's original Certificate of Incorporation was filed with the Secretary
of State on March 22, 1996.
2. This First Restated Certificate of Incorporation restates, integrates
and further amends the original Certificate of Incorporation of the Corporation
by amending and restating in its entirety such original Certificate of
Incorporation.
3. The text of the Certificate of Incorporation, is further amended and
restated hereby to read as herein set forth in full as:
FIRST: The name of the Corporation is:
ASI SOLUTIONS INCORPORATED
SECOND: The address of the registered office of the Corporation in the
State of Delaware and the name of the registered agent at such address are as
follows: National Corporate Research, Ltd., 9 East Loockerman Street, Dover,
Delaware, county of Kent.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware (the "DGCL").
FOURTH:
4.1 Capitalization.
--------------
(a) The aggregate number of shares that the Corporation shall
have the authority to issue is 20,000,000 shares of capital stock
of which: (i) 18,000,000 shares shall be of a class of voting
common stock, par value $.01 per share (the "Common Stock"); and
(ii) 2,000,000 shares shall be of a class of Preferred Stock, par
value $.01 per share (the "Preferred Stock"), for which the Board
of Directors (the "Board") is authorized hereby, subject to the
limitations prescribed by law and the provisions of this Article,
to provide for the issuance of shares of Preferred Stock in
series, and by filing a certificate pursuant to the DGCL to
establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series of Preferred Stock
and the qualifications, limitations or restrictions thereof. The
authority of the Board with respect to each series of Preferred
1
<PAGE>
Stock, not heretofore designated, shall include, but not be limited
to, determination of the following:
(aa) the number of shares constituting that series (which may be
increased or decreased by the Board) and the distinctive designation of
that series (provided that the aggregate number of shares constituting all
series of Preferred Stock shall not exceed 2,000,000);
(bb) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of
that series;
(cc) whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting
rights;
(dd) whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board shall
determine;
(ee) whether or not the shares of that series shall be redeemable,
and if so, the terms and conditions of such redemption, including the date
or dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(ff) whether that series shall have sinking fund for redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(gg) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(hh) any other relative rights, powers, preferences, qualifications,
limitations or restrictions relating to such series which may be authorized
under the DGCL.
A merger or consolidation of the Corporation with or into any other
corporation, a share exchange involving the Corporation, or a sale, lease,
exchange or transfer of all or any part of the assets of the Corporation
shall not result in the liquidation of the Corporation, and the
distribution of its assets to its stockholders shall not be deemed to be a
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation for purposes of this Section.
4.2 Right to Vote.
-------------
(1) Each holder of record of shares of Common Stock shall be
entitled to one vote for each share of Common Stock standing in
the holder's name on the stock register of the Corporation.
(2) Cumulative voting shall not be allowed in the election of
directors or for any other purpose.
2
<PAGE>
(3) Each holder of Preferred Stock will have such voting rights as
declared by the Board of Directors.
FIFTH: Election of Directors need not be by written ballot.
SIXTH: Stockholders may take such action by written consent as shall be
permitted by the section 228 of the DGCL provided, however, that if at any
time a class of stock of the Corporation becomes registered pursuant to the
Securities Exchange Act of 1934, as amended, and the rules and regulations
of The Securities and Exchange Commission and such stock is being traded on
a nationally recognized exchange, any action to be taken at any annual or
special meeting of stockholders must be taken at a meeting.
SEVENTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the DGCL (including,
without limitation, paragraph (7) of subsection (B) of Section 102
thereof), as the same may be amended and supplemented from time to time.
The personal liability of directors for monetary damages for breach of
fiduciary duty, including breaches involving negligence and gross
negligence in business combinations, unless the director has breached his
or her duty of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowing violation of law, paid a dividend or approved a stock
repurchase in violation of the DGCL or obtained an improper personal
benefit.
EIGHTH: The Corporation shall, to the fullest extent permitted by the
DGCL (including, without limitation, Section 145 thereof), as the same may
be amended and supplemented from time to time, indemnify any and all
persons whom it shall have power to indemnify under the DGCL. The
indemnification provided for herein shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled whether
as a matter of law, under any By-law of the Corporation, by agreement, by
vote of stockholders or disinterested directors of the Corporation or
otherwise.
NINTH: The Board of the Corporation is authorized to adopt, amend, or
repeal any or all of the By-Laws of the Corporation, including By-law
amendments increasing or reducing the authorized number of Directors.
TENTH: A special meeting of the stockholders of the Corporation requires
approval of the Chairman of the Board or at least 51% of the members of the
Board of Directors.
ELEVENTH: Nominations of persons for election to the Board of Directors of
the Corporation at a meeting of the Stockholders may be made (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting
who provides timely notice in writing to the Secretary of the Corporation.
To be timely, a stockholders notice must be delivered to, or mailed and
received by the Secretary of the Corporation at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days
prior to the meeting.
TWELFTH: Except as otherwise provided by law, at any annual or special
meeting of the Stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. Such business must have been
brought before the meeting at the direction of the Chairman of the meeting
or specified in
3
<PAGE>
written notice given by or on behalf of a stockholder of record on the
record date for such meeting.
THIRTEENTH: The Corporation reserves the right to amend or repeal any
provisions contained in this Certificate of Incorporation. This
Certificate of Incorporation may be amended or any provisions repealed
by a majority of the Board of Directors; provided, however, that
amendment, modification or repeal of any of the provisions of Articles
Seventh and Eighth herein must be approved by a majority of the Board
of Directors and thereafter approved by the holders of two-thirds of
the total votes eligible to be cast by holders of voting stock.
4. This first Restated Certificate of Incorporation was duly adopted by
the Board of Directors of the Corporation and by the holders of a majority of
the outstanding stock of the Corporation entitled to vote thereon in accordance
with Sections 141(f), 228 and 245 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Bernard F. Reynolds, its Chairman and Chief Executive Officer, and
attested by Carl Seldin Koerner, its Secretary, as of this 17th day of March,
1997.
ASI SOLUTIONS INCORPORATED
By: /s/ Eli Salig
----------------------------------
Eli Salig
President
ATTEST:
By: /s/ Carl Seldin Koerner
-------------------------------
Carl Seldin Koerner
Secretary
4
<PAGE>
Exhibit 3.2
BY-LAWS
OF
ASI SOLUTIONS INCORPORATED
ARTICLE I
Offices
-------
The registered office of ASI Solutions Incorporated (the "Corporation")
shall be in the City of Dover, County of Kent, State of Delaware. The
Corporation also may have offices at such other places, within or without the
State of Delaware, as the Board of Directors (the "Board") determines from time
to time or the business of the Corporation requires. Until such time as the
Board otherwise determines, the Corporation shall also have an office in the
City, County and State of New York.
ARTICLE II
Meetings of Stockholders
------------------------
Section 1. Place of Meetings. Except as otherwise provided in these By-
-----------------
Laws, all meetings of the stockholders shall be held on such dates and at such
times and places, within or without the State of Delaware, as shall be
determined by the Board and as shall be stated in the notice of the meeting or
in waivers of notice thereof. If the place of any meeting is not so fixed, it
shall be held at the registered office of the Corporation in the State of
Delaware.
Section 2. Annual Meetings. The annual meeting of stockholders for the
----------------
election of directors and the transaction of such other proper business as may
be brought before the meeting shall be held on such date after the close of the
Corporation's fiscal year, and at such time, as the Board may from time to time
determine.
Section 3. Special Meetings. Special meetings of stockholders, for any
-----------------
purpose or purposes, may be called by the Chairman of the Board or by the
Chairman of the Board upon the request of at least 50% of the members of the
Board.
1
<PAGE>
Section 4. Notice of Meetings. Except as otherwise required by law,
-------------------
whenever the stockholders are required or permitted to take any action at a
meeting, written notice thereof shall be given, stating the place, date and time
of the meeting and, unless it is the annual meeting, by or at whose direction it
is being issued. The notice also shall designate the place where the
stockholders' list is available for examination, unless the list is kept at the
place where the meeting is to be held. Notice of a special meeting also shall
state the purpose or purposes for which the meeting is called. A copy of the
notice of any meeting shall be delivered personally or shall be mailed, not less
than ten (10) or more than sixty (60) days before the date of the meeting, to
each stockholder of record entitled to vote at the meeting. If mailed, the
notice shall be given when deposited in the United States mail, postage prepaid,
and shall be directed to each stockholder at his or her address as it appears on
the record of stockholders of the Corporation, or to such other address which
such stockholder may have filed by written request with the Secretary of the
Corporation. Notice of any meeting of stockholders shall be deemed waived by
any stockholder who attends the meeting, except when the stockholder attends the
meeting for the express purpose of objecting at the beginning thereof to the
transaction of any business because the meeting is not lawfully called or
convened, or by any stockholder who submits, either before or after the meeting,
a signed waiver of notice. Unless the Board, after the adjournment of a
meeting, shall fix a new record date for the adjourned meeting or unless the
adjournment is for more than thirty (30) days, notice of an adjourned meeting
need not be given if the place, date and time to which the meeting shall be
adjourned are announced at the meeting at which the adjournment is taken.
Section 5. Quorum. Except as otherwise provided by law or, by the
-------
Certificate of Incorporation of the Corporation, at all meetings of
stockholders, the holders of a majority of the outstanding shares of the
Corporation entitled to vote at the meeting shall be present in person or
represented by proxy in order to constitute a quorum for the transaction of
business.
Section 6. Voting. Except as otherwise provided by law or by the
-------
Certificate of Incorporation of the Corporation, at all meetings of the
stockholders, every stockholder of record having the right to vote thereat
shall be entitled to one vote for every share of stock standing in his or her
name as of the record date and entitling him or her to so vote. A stockholder
may vote in person or by proxy. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, any corporate action to be
taken by a vote of the stockholders, other than the election of directors, shall
be authorized by not less than a majority of the votes cast at a meeting by the
stockholders present in person or by proxy and entitled to vote thereon.
Directors shall be elected as provided in Section 3 of Article III of these By-
Laws. Written ballots shall not be required for voting on any matter unless
ordered by the Secretary of the meeting.
Section 7. Proxies. Every proxy shall be executed in writing by the
-------
stockholder or by his or her attorney-in-fact, or otherwise as provided in the
General Corporation Law of the State of Delaware (the "General Corporation
Law").
2
<PAGE>
Section 8. List of Stockholders. At least ten (10) days before every
---------------------
meeting of stockholders, a list of the stockholders (including their addresses)
entitled to vote at the meeting and their record holdings as of the record date
shall be open for examination by any stockholder, for any purpose germane to the
meeting, during ordinary business hours, at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held,
The list also shall be kept at and throughout the meeting, and may be inspected
by any stockholder who is present.
Section 9. Conduct of Meetings. At each meeting of the stockholders, the
-------------------
Chairman of the Board or, in his or her absence, a director chosen by a majority
of the directors then in office shall act as chairman of the meeting. The
Secretary or, in his or her absence, any person appointed by the chairman of the
meeting shall act as secretary of the meeting and shall keep the minutes
thereof. Except as otherwise provided by law, at any annual or special meeting
of stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. Such business must have either been: (A)
brought before the meeting at the direction of the chairman of the meeting; or
(B) specified in a written notice given by or on behalf of a stockholder of
record on the record date for such meeting entitled to vote thereat or a duly
authorized proxy for such stockholder; provided, that the following actions, as
--------
described below, are taken. A notice must be delivered personally to, or mailed
to and received at, the principal executive office of the Corporation, addressed
to the attention of the Secretary, not less than sixty (60) days nor more than
ninety (90) days prior to the meeting; provided, however, that in the event that
-------- -------
less than seventy (70) days' notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual or special
meeting was mailed or such public disclosure was made, whichever first occurs.
Such notice shall set forth: (i) a description of each such item of business
proposed to be brought before the meeting and the reasons for conducting such
business at such meeting; (ii) the name and address of the person proposing to
bring such business before the meeting; (iii) the class and number of shares
held of record, held beneficially and represented by proxy by such person as of
the record date for the meeting (if such date has then been made publicly
available) and as of the date of such notice; and (iv) any material interest of
the stockholder in such item of business. No business shall be brought before
any meeting of stockholders of the Corporation otherwise than as provided in
this Section 9. The chairman of the meeting may, if the facts warrant, determine
that a stockholder proposal was not made in accordance with the foregoing
procedure, and if he or she should so determine, he or she shall so declare to
the meeting and the defective proposal shall be disregarded.
Section 10. Written Consent to Action in Lieu of a Meeting. Stockholders
----------------------------------------------
may take such action by written consent as shall be permitted by section 228 of
the General Corporation Law provided, however, that if at any time a class of
stock of the Corporation becomes registered pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the rules and regulations of
The Securities and Exchange Commission and such stock is being traded on a
nationally recognized exchange, any action to be taken at any annual or special
meeting of
3
<PAGE>
stockholders must be taken at a meeting.
ARTICLE III
Board
-----
Section 1. Number of Board Members. The business, property and affairs of
------------------------
the Corporation shall be managed under the direction of the Board, which shall
consist of three directors. Directors need not be stockholders of the
Corporation. The number of directors may be reduced or increased from time to
time by action of a majority of the entire Board, but no decrease may shorten
the term of an incumbent director. When used in these By-Laws, the phrase
"entire Board" means the total number of directors which the Corporation would
have if there were no vacancies.
Section 2. Nomination. Only persons who are nominated in accordance with
----------
the procedures set forth in these By-Laws shall be eligible to serve as
directors of the Corporation. Nominations of persons for election to the Board
of the Corporation may be made at a meeting of stockholders (a) by or at the
direction of the Board or (b) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section 2, who shall be entitled to vote for the election of directors at the
meeting and who complies with the notice procedures set forth in this Section 2.
Such nominations, other than those made by or at the direction of the Board,
shall be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the meeting;
provided, however, that in the event that less than seventy (70) days' notice or
- -------- -------
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice the date of meeting or such public disclosure was made. Such
stockholder's notice shall set forth (x) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act; and (y) as to the stockholder
giving the notice (A) the name and address, as they appear on the Corporation's
books, of such stockholder and (B) the class and number of shares of the
Corporation which are beneficially owned by such stockholder. At the request of
the Board, any person nominated by the Board for election as a director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the procedures
4
<PAGE>
prescribed by the By-Laws, and if he or she should so determine, he or she shall
so declare to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section 2, a stockholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this
Section.
Section 3. Election and Term. Except as otherwise provided by law, by the
-----------------
Certificate of Incorporation of the Corporation or by these By-Laws, the
directors shall be elected at the annual meeting of the stockholders and the
persons receiving a plurality of the votes cast shall be so elected. Subject to
a director's earlier death, resignation or removal as provided in Sections 4 and
5 of this Article III, each director shall hold office until his or her
successor shall have been duly elected and shall have qualified.
Section 4. Removal. A director may be removed at any time, only for
-------
cause, and only by the vote of the holders of two thirds of the outstanding
shares of the Corporation entitled to vote at an election of directors.
Section 5. Resignations. Any director may resign at any time by giving
------------
written notice of his or her resignation to the Corporation. A resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein immediately upon its receipt,
and, unless otherwise specified therein, the acceptance of a resignation shall
not be necessary to make it effective.
Section 6. Vacancies. Except as otherwise provided by the Certificate of
---------
Incorporation of the Corporation, any vacancy in the Board arising from an
increase in the number of directors or otherwise shall be filled only by the
vote of a majority of the directors then in office. Subject to his or her
earlier death, removal or resignation as provided in Sections 4 and 5 of this
Article III, each director so elected shall hold office until his successor
shall have been duly elected and shall have qualified.
Section 7. Place of Meetings. Except as otherwise provided in these By-
-----------------
Laws, all meetings of the Board shall be held at such places, within or without
the State of Delaware, as the Board determines from time to time.
Section 8. Annual Meeting. The annual meeting of the Board shall be held
--------------
either (a) without notice immediately after the annual meeting of stockholders
and in the same place, or (b) as soon as practicable after the annual meeting of
stockholders on such date and at such time and place as the Board determines.
Section 9. Regular Meetings. Regular meetings of the Board shall be held
----------------
on such dates and at such places and times as the Board determines. Notice of
regular meetings need not be given, except as otherwise required by law.
5
<PAGE>
Section 10. Special Meetings. Special meetings of the Board may be called
----------------
by the Chairman of the Board and shall be called by the Chairman of the Board or
the Secretary upon the written request of not less than a majority of directors.
The request shall state the date, time, place and purpose or purposes of the
proposed meeting.
Section 11. Notice of Meetings. Notice of each special meeting of the
------------------
Board (and of each annual meeting held pursuant to subdivision (b) of Section 8
of this Article III) shall be given, not later than 24 hours before the meeting
is scheduled to commence, by the Chairman of the Board or the secretary and
shall state the place, date and time of the meeting. Notice of each meeting may
be delivered to a director by hand or given to a director orally (whether by
telephone or in person) or mailed or telecopied to a director at his or her
residence or usual place of business, provided, however, that if notice of less
than 72 hours is given it may not be mailed. If mailed, the notice shall be
deemed to have been given when deposited in the United States mail, postage
prepaid, and if telecopied, the notice shall be deemed to have been given when
oral confirmation of receipt is given. Notice of any meeting need not be given
to any director who shall submit, either before or after the meeting, a signed
waiver of notice or who shall attend the meeting, except if such director shall
attend for the express purpose of objecting at the beginning thereof to the
transaction of any business because the meeting is not lawfully called or
convened. Notice of any adjourned meeting, including the place, date and time of
the new meeting, shall be given to all directors not present at the time of the
adjournment, as well as to the other directors unless the place, date and time
of the new meeting is announced at the adjourned meeting.
Section 12. Quorum. Except as otherwise provided by law or these By-Laws,
------
at all meetings of the Board a majority of the entire Board shall constitute a
quorum for the transaction of business, and the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board. A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another place, date and time.
Section 13. Conduct of Meetings. At each meeting of the Board, the
-------------------
secretary of the Board or, in his or her absence, a director chosen by a
majority of the directors present shall act as secretary of the meeting. The
secretary or, in his or her absence, any person appointed by the secretary of
the meeting shall act as secretary of the meeting and keep the minutes thereof.
The order of business at all meetings of the Board shall be as determined by the
secretary of the meeting.
Section 14. Committees of the Board. The Board, by resolution adopted by
-----------------------
a majority of the entire Board, may designate an audit committee, compensation
committee, executive committee and other committees, each consisting of one (1)
or more directors. Each committee (including the members thereof) shall serve
at the pleasure of the Board and shall keep minutes of its meetings and report
the same to the Board. The Board may designate one or more directors as
alternate members of any committee. Alternate members may replace any absent or
disqualified member or members at any meeting of a committee. Except as limited
by law, each
6
<PAGE>
committee, to the extent provided in the resolution establishing it, shall have
and may exercise all the powers and authority of the Board with respect to all
matters.
Section 15. Operation of Committees. A majority of all of the members of
-----------------------
a committee shall constitute a quorum for the transaction of business, and the
vote of a majority of all the members of a committee present at a meeting at
which a quorum is present shall be the act of the committee. Each committee
shall adopt whatever other rules of procedure it determines for the conduct of
its activities.
Section 16. Written Consent to Action in Lieu of a Meeting. Any action
----------------------------------------------
required or permitted to be taken at any meeting of the Board or of any
committee may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 17. Meetings Held Other Than in Person. Members of the Board or
----------------------------------
any committee may participate in a meeting of the Board or committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and such participation shall constitute presence in
person at the meeting.
ARTICLE IV
Officers
--------
Section 1. Executive Officers Etc.. The executive officers of the
-----------------------
Corporation shall be a Chairman of the Board, a President, a Secretary and a
Treasurer. The Board also may elect or appoint one or more Vice Presidents (any
of whom may be designated as Executive Vice Presidents, Senior Vice Presidents
or otherwise), and any other officers it deems necessary or desirable for the
conduct of the business of the Corporation, each of whom shall have such powers
and duties as the Board determines.
Section 2. Duties.
------
(a) The Chairman of the Board. The Chairman of the Board who shall
-------------------------
be a member of the Board, shall be the chief executive officer of the
Corporation. The Chairman of the Board of Directors shall preside at all
meetings of the stockholders and the Board.
(b) The President. The President shall perform, in the absence or
-------------
disability of the Chairman of the Board, the duties and exercise the powers of
the Chairman of the Board and shall have such other powers and duties as the
Board or the Chairman of the Board assigns to him or to her.
(c) The Vice President. The Vice President or, if there shall be
------------------
more than
7
<PAGE>
one, the Vice Presidents, if any, in the order of their seniority or in any
other order determined by the Board, shall perform, in the absence or disability
of the President, the duties and exercise the powers of the President and shall
have such other powers and duties as the Board or the President assigns to him
or to her or to them.
(d) The Secretary. Except as otherwise provided in these By-Laws
-------------
or as directed by the Board, the Secretary shall attend all meetings of the
stockholders and the Board; shall record the minutes of all proceedings in books
to be kept for that purpose; shall give notice of all meetings of the
stockholders. and special meetings of the Board; and shall keep in safe custody
the seal of the Corporation and, when authorized by the Board, shall affix the
same to any corporate instrument. The Secretary shall have such other powers
and duties as the Board or the Chairman of the Board assigns to him or her.
(e) The Treasurer. Subject to the control of the Board, the
-------------
Treasurer shall have the care and custody of the corporate funds and the books
relating thereto; shall perform all other duties incident to the office of
treasurer; and shall have such other powers and duties as the Board or Chairman
of the Board assigns to him or her.
Section 3. Election; Removal. Subject to his or her earlier death,
-----------------
resignation or removal, as hereinafter provided, each officer shall hold his or
her office until his or her successor shall have been duly elected and shall
have qualified. Any officer may be removed at any time with or without cause by
the Board.
Section 4. Resignations. Any officer may resign at any time by giving
------------
written notice of his resignation to the Corporation. A resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 5. Vacancies. If an office becomes vacant for any reason, the
---------
Board or the stockholders may fill the vacancy, and each officer so elected
shall serve for the remainder of his or her predecessor's term and until his
successor shall have been elected or appointed and shall have qualified.
ARTICLE V
Provisions Relating to Stock Certificates and Stockholders
----------------------------------------------------------
Section 1. Certificates. Certificates for the Corporation's capital
------------
stock shall be in such form as required by law and as approved by the Board.
Each certificate shall be signed in the name of the Corporation by the
Secretary, or the Chairman of the Board or President or any Vice President and
by the Secretary, the Treasurer or any Assistant Secretary or any Assistant
Treasurer and shall bear the seal of the Corporation or a facsimile thereof. If
any certificate is
8
<PAGE>
countersigned by a transfer agent or registered by a registrar, other than the
Corporation or its employees, the signature of any officer of the Corporation
may be a facsimile signature. In case any officer, transfer agent or registrar
who shall have signed or whose facsimile signature as placed on any certificate
shall have ceased to be such officer, transfer agent or registrar before the
certificate shall be issued, it may nevertheless be issued by the Corporation
with the same effect as if he or she were such officer, transfer agent or
registrar at the date of the issue.
Section 2. Lost Certificates, etc. The Corporation may issue a new
----------------------
certificate for shares in place of any certificate theretofore issued by it,
alleged to have been lost, mutilated, stolen or destroyed, and the Board may
require the owner of the lost, mutilated, stolen or destroyed certificate, or
his or her legal representatives, to make an affidavit of that fact and to give
the Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation on account of the alleged loss,
mutilation, theft or destruction of the certificate or the issuance of a new
Certificate.
Section 3. Transfers of Shares. Transfers of shares shall be registered
--------------------
on the books of the Corporation maintained for that purpose after due
presentation of the stock certificates therefor appropriately endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
Section 4. Record Date. For the purpose of determining the stockholders
-----------
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or the allotment of any
rights, or for the purpose of any other action, the Board may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board, and which record date shall not be more
than sixty (60) nor less than ten (10) days before the date of any such meeting
and shall not be more than sixty (60) days prior to any other action.
ARTICLE VI
Indemnification
---------------
Section 1. Indemnification. The Corporation shall, to the fullest extent
---------------
permitted by the General Corporation Law (including, without limitation, Section
145 thereof) or other provisions of the laws of Delaware relating to
indemnification of directors, officers, employees and agents, as the same may be
amended and supplemented from time to time, indemnify any and all such persons
whom it shall have power to indemnify under the General Corporation Law or such
other provisions of law.
Section 2. Statutory Indemnification. Without limiting the generality of
-------------------------
Section 1 of this Article VI, to the fullest extent permitted, and subject to
the conditions imposed, by law, and pursuant to Section 145 of the General
Corporation Law unless otherwise determined by the
9
<PAGE>
Board of Directors:
(i) the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against reasonable expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
(ii) the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against reasonable expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, except as
otherwise provided by law.
Section 3. Indemnification by Resolution of Stockholders or Directors
----------------------------------------------------------
of Agreement. To the fullest extent permitted by law, indemnification may be
- ------------
granted, and expenses may be advanced, to the persons described in Section 145
of the General Corporation Law or other provisions of the laws of Delaware
relating to indemnification and advancement of expenses, as from time to time
may be in effect, by (i) a resolution of stockholders, (ii) a resolution of
the Board, or (iii) an agreement providing for such indemnification and
advancement of expenses; provided that no indemnification may be made to or on
behalf of any person if a judgment or other final adjudication adverse to the
person establishes that such person's acts were committed in bad faith or were
the result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that such person personally gained in fact a financial
profit or other advantage to which such person was not legally entitled.
Section 4. General. It is the intent of this Article VI to require the
-------
Corporation to indemnify the persons referred to herein for judgments, fines,
penalties, amounts paid in settlement and expenses (including attorneys' fees),
and to advance expenses to such persons, in each and every circumstance in which
such indemnification and such advancement of expenses could lawfully be
permitted by express provision of By-Laws, and the indemnification and expense
advancement provided by this Article VI shall not be limited by the absence of
an
10
<PAGE>
express recital of such circumstances. The indemnification and advancement of
expenses provided by, or granted pursuant to, these By-Laws shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled, whether as a matter of law, under any
provision of the Certificate of Incorporation of the Corporation or these By-
Laws, by agreement, by vote of stockholders or disinterested directors of the
Corporation or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Section 5. Indemnification Benefits. Indemnification pursuant to these
------------------------
By-Laws shall inure to the benefit of the heirs executors, administrators and
personal representatives of those entitled to indemnification.
ARTICLE VII
General Provisions
Section 1. Dividends Etc. To the extent permitted by law, the Board
-------------
shall have full power and discretion, subject to the provisions of the
Certificate of Incorporation of the Corporation and the terms of any other
corporate document or instrument binding upon the Corporation, to determine
what, if any, dividends or distributions shall be declared and paid or made.
Section 2. Seal. The Corporation's seal shall be in such form as is
----
required by law and as shall be approved by the Board.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
-----------
determined by the Board.
Section 4. Voting Shares in Other Corporations. Unless otherwise
-----------------------------------
directed by the Board, shares in other corporations which are held by the
Corporation shall be represented and voted only by the Chairman of the Board or
by a proxy or proxies appointed by him or her.
ARTICLE VIII
Amendment
---------
By-Laws may be made, altered or repealed by the Board, subject to the right
of stockholders to alter or repeal any By-Laws made by the Board.
11
<PAGE>
Exhibit 10.1
ASI SOLUTIONS INCORPORATED
and
H.C. WAINWRIGHT & CO., INC.
WARRANT AGREEMENT
Dated as of April 15, 1997
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of April 15, 1997 by and among ASI SOLUTIONS
INCORPORATED, a Delaware corporation (the "Company"), and H.C. WAINWRIGHT & CO.,
INC. ("Wainwright" or the "Representative").
WHEREAS, the Company and the Representative have entered into an
Underwriting Agreement of even date herewith (the "Underwriting Agreement"); and
WHEREAS, the Company proposes to issue to the Representative warrants as
hereinafter described (the "Warrants") to purchase up to an aggregate of 180,000
shares, subject to adjustment as hereinafter provided (the "Shares"), of the
Company's common stock, par value $.0l per share (the "Common Stock").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth and for other good and valuable consideration, the parties
hereto agree as follows:
1. Issuance of Warrants; Form of Warrant. As more fully set forth below,
-------------------------------------
the Company will issue, sell and deliver the Warrants to the Representative or
its bona fide officers or partners, as named by the Representative in accordance
---- ----
with Section 6(p) of the Underwriting Agreement, for an aggregate price of $180,
concurrently with the closing (the "Closing") under the Underwriting Agreement
relating to the public offering, pursuant to a registration statement on Form S-
1 (File No. 333-20401) (the "Registration Statement"), of 1,800,000 shares of
Common Stock (plus an option to purchase up to an additional 270,000 shares of
Common Stock to cover over-allotments) (the "Offering"). The form of the
Warrants shall be substantially as set forth on Exhibit A attached hereto. The
---------
Warrants shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman of the Board, President or Vice
President of the Company, under its corporate seal, affixed or in facsimile,
attested by the manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of the Company.
2. The Warrants shall be numbered and shall be registered in a Warrant
register as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant register (the "Warrant Holder")
as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person, and shall not be liable for any registration of
transfer of Warrants which are registered or are to be registered in the name of
or at the direction of a fiduciary or the nominee of a fiduciary unless made
with the actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration of transfer, or with such knowledge of
such facts that its participation therein amounts to bad faith. The Warrants
shall be registered initially in the name of "H.C. Wainwright & Co., Inc." in
such denominations as the Representative may request in writing to the Company;
provided however, that prior to the Closing, the Representative may designate
- -------- -------
that its Warrants be
<PAGE>
issued in varying amounts directly to its bona fide officers or partners and not
---- ----
to it directly in accordance with Section 6(p) of the Underwriting Agreement.
Such designation will only be made by the Representative if it determines such
issuances would not violate the rules and interpretations of the Board of
Governors of the National Association of Securities Dealers, Inc. (the "NASD")
relating to the review of corporate financing arrangements, and subject to
applicable federal and state securities law.
3. Transfer of Warrants. The Warrants may not be transferred, assigned,
--------------------
pledged, hypothecated, sold, made subject to a security interest, or otherwise
transferred, in part or in whole, prior to the first anniversary of the
effective date of the Registration Statement (the "Effective Date"), except to
the bona fide officers or partners of the Representative, and subject to
---- ----
applicable federal and state securities law, and only on the books of the
Company upon delivery thereof duly endorsed by the Warrant Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal representative,
duly authenticated evidence of their authority shall be produced and may be
required to be deposited with the Company in its discretion. Upon any
registration of transfer, the Company shall deliver a new Warrant or new
Warrants to the persons entitled thereto. A Warrant may be exchanged at the
option of the Warrant Holder thereof for another Warrant, or other Warrants, of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock upon surrender to the
Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause a Warrant to be transferred on its
books to any person unless the Warrant Holder thereof shall furnish to the
Company evidence of compliance with the Securities Act of 1933, as amended (the
"Act"), and applicable state securities law, in accordance with the provisions
of Section 10 of this Agreement.
4. Term of Warrants; Exercise of Warrants. Each Warrant entitles the
--------------------------------------
Warrant Holder thereof to purchase one Share at a purchase price of $9.00 per
Share (the "Exercise Price") at any time from the first anniversary of the
Effective Date (except as otherwise set forth herein) until 5:00 p.m., Boston
time (the "Close of Business"), on the day immediately preceding the fifth
anniversary of the Effective Date (the "Expiration Date"). The Exercise Price
and the number of Shares issuable upon exercise of each Warrant are subject to
adjustment upon the occurrence of certain events, pursuant to the provisions of
Section 8 of this Agreement. Subject to the provisions of this Agreement, each
Warrant Holder shall have the right, which may be exercised as set forth in such
Warrant, to purchase from the Company (and the Company shall issue and sell to
such Warrant Holder) the number of fully paid and nonassessable Shares specified
in such Warrant Holder's Warrant, upon surrender to the Company, or its duly
authorized agent, of such Warrant, with an election to purchase attached thereto
in the form of Exhibit B to this Agreement duly completed and signed, with (if
---------
requested by the Company within two business days of surrender of the Warrant
with the
2
<PAGE>
election to purchase) signatures guaranteed by a member firm of a national
securities exchange, a commercial bank (not a savings bank or savings and loan
association) or trust company located in the United States or a member of the
NASD, and upon payment to the Company of the Exercise Price, as adjusted in
accordance with the provisions of Section 8 of this Agreement, for the number of
Shares in respect of which such Warrant is then exercised. Notwithstanding the
method of exercise set forth in any Warrant (or anything to the contrary
herein), in the event that the Warrant Holder thereof has not exercised such
Warrant prior to the Close of Business on the Expiration Date and the current
market price per share of Common Stock at the Close of Business on the
Expiration Date (as determined substantially in accordance with Section 8(d),
but using the closing prices or quotations, as the case may be, on such
Expiration Date rather than a 30-day average) is greater than the Exercise
Price, then the Warrant Holder thereof shall be deemed to have exercised such
Warrant in full immediately prior to the Close of Business on the Expiration
Date (an "Automatic Exercise"). Payment of the Exercise Price may be made in
cash or by check payable to the order of the Company in the amount obtained by
multiplying the number of Shares for which such Warrant is then being exercised
by the Exercise Price then in effect (such amount, the "Exercise Payment"),
except that the Warrant Holder may, at its option, elect to pay the Exercise
Payment by delivering to the Company the number of shares of Common Stock
determined by dividing the Exercise Payment by the current market price (as
defined in paragraph (d) of Section 8) of a share of Common Stock on the date of
exercise or by cancelling a portion of such Warrant that is equal to the number
of shares determined by dividing the Exercise Payment by the current market
price (as defined in paragraph (d) of Section 8) of a share of Common Stock as
of the date of exercise. In the event of an Automatic Exercise of any Warrant,
the Warrant Holder thereof shall be deemed to have chosen to cancel the portion
of its Warrant that is equal to the number of shares determined by dividing the
Exercise Payment by the current market price (as defined in paragraph (d) of
Section 8) of a share of Common Stock as of the Close of Business on the
Expiration Date. Except as set forth in Section 8, no adjustment shall be made
for any dividends on any Shares issuable upon exercise of a Warrant. Upon each
surrender of Warrants and payment of the Exercise Payment as aforesaid, or upon
the occurrence of an Automatic Exercise, the Company shall issue and cause to be
delivered with all reasonable dispatch (but in any event within three (3)
business days) to or upon the written order of the Warrant Holder and (subject
to receipt of evidence of compliance with the Act and applicable state
securities laws in accordance with the provisions of Section 10 of this
Agreement) in such name or names as such Warrant Holder may designate, a
certificate or certificates for the number of full Shares so purchased upon the
exercise of such Warrant, together with cash, as provided in Section 9 of this
Agreement, in respect of any fractional Shares otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been
issued, and any person so designated to be named therein shall be deemed to have
become a holder of record of such Shares, as of the date of the surrender of
such Warrant and payment of the Exercise Payment as aforesaid, or as of the date
of the Automatic Exercise; provided, however, that if, at the date of surrender
-------- -------
of such Warrant and payment of such Exercise Payment, the transfer books for the
Common Stock or other class of stock purchasable upon the exercise of such
Warrant shall be closed, the certificates for the Shares shall be issuable as
3
<PAGE>
of the date on which such books shall next be opened (whether before, on or
after the Expiration Date), and until such date the Company shall be under no
duty to deliver any certificate for such Shares; provided further, however, that
-------- ------- -------
the transfer books of record, unless otherwise required by law, shall not be
closed at any one time for a period longer than four (4) days. The rights of
purchase represented by a Warrant shall be exercisable, at the election of the
Warrant Holder thereof, either in full or from time to time in part and, in the
event that any Warrant is exercised in respect of less than all of the Shares
purchasable on such exercise at any time prior to the Expiration Date, a new
Warrant or new Warrants will be issued for the remaining number of Shares
specified in the Warrant or Warrants so surrendered.
5. Payment of Taxes. The Company will pay all documentary stamp taxes, if
----------------
any, attributable to the issuance of Shares upon the exercise of a Warrant;
provided, however, that the Company shall not be required to pay any tax or
- -------- -------
taxes which may be payable in respect of any transfer involved in the issuance
or delivery of any certificates for Shares in a name other than that of the
Warrant Holder who exercised the Warrant in respect of which such Shares are
issued.
6. Mutilated or Missing Warrants. In case any Warrant shall be mutilated,
-----------------------------
lost, stolen or destroyed, the Company shall issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft
or destruction of such Warrant or an indemnity, also reasonably satisfactory to
the Company.
7. Reservation of Shares, etc. There have been reserved, and the Company
--------------------------
shall at all times keep reserved, out of the authorized and unissued Common
Stock, an aggregate number of shares of Common Stock sufficient to provide for
the exercise of the rights of purchase represented by the outstanding Warrants.
In addition, upon any adjustment to the number and kind of securities
purchasable upon exercise of the Warrants, the Company shall reserve, and shall
at all times thereafter keep reserved, out of the authorized and unissued Common
Stock or such other kind of securities, an aggregate number of shares of Common
Stock or shares, units or otherwise of such other kind of securities sufficient
to provide for the exercise of the rights to purchase represented by the
outstanding Warrants. After the Effective Date, the transfer agent for the
Common Stock (the "Transfer Agent"), and every subsequent Transfer Agent, if
any, for Shares issuable upon the exercise of any of the rights of purchase
represented by the Warrants, will be irrevocably authorized and directed at all
times until the Expiration Date to reserve such aggregate number of authorized
and unissued shares of Common Stock as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent and
with every subsequent Transfer Agent for any Shares issuable upon the exercise
of the rights of purchase represented by the Warrants. The Company will supply
any such Transfer Agent with duly executed stock certificates for such purpose
and will itself provide or otherwise make available any cash which may be
4
<PAGE>
distributable as provided in Section 9 of this Agreement. Any Warrant
surrendered in the exercise of the rights thereby evidenced shall be cancelled,
and until delivery to the person surrendering such Warrant of stock certificates
representing the Shares to be issued to such person as a result of such
exercise, such cancelled Warrant shall constitute sufficient evidence of the
number of Shares that have been issued upon the exercise of such Warrant. No
shares of Common Stock shall be subject to reservation in respect of any
unexercised Warrant subsequent to the Expiration Date.
8. Adjustments of Exercise Price and Number of Shares. The Exercise Price
--------------------------------------------------
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
(a) In case the Company shall (i) declare a dividend on its Common
Stock in shares of Common Stock or make a distribution in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
other than any such reclassification to which paragraph (j) of this Section 8
applies, the number of Shares purchasable upon exercise of each Warrant
immediately prior thereto shall be adjusted so that the Warrant Holder thereof
shall be entitled to receive the kind and number of shares of Common Stock or
other securities of the Company which he would have owned or have been entitled
to receive after the happening of any of the events described above had such
Warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this paragraph
(a) shall become effective immediately after the effective date of such event,
retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights, options or warrants to all
holders of its Common Stock, entitling them to subscribe for or to purchase
shares of Common Stock or securities convertible into or exchangeable for Common
Stock (other than "poison pill" rights referred to in paragraph (l) of this
Section 8) at a price per share (or having a conversion price per share) that is
lower on the record date for the determination of stockholders entitled to
receive such rights, options or warrants than the then current market price per
share of Common Stock (as defined in paragraph (d) below), the number of Shares
thereafter purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Shares theretofore purchasable upon exercise of such
Warrant by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the record date for the
determination of stockholders entitled to receive such rights, options or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are initially convertible), and of which the denominator shall be the number of
shares of Common Stock outstanding at the close of business on the record date
for the determination of stockholders entitled to receive such rights, options
or warrants plus the number of shares which the aggregate offering price
5
<PAGE>
of the total number of shares of Common Stock so offered (or the aggregate
initial conversion price of the convertible securities so offered) would
purchase at the then current market price per share of Common Stock. Such
adjustment shall be made whenever such rights, options or warrants are issued,
and shall become effective retroactively to the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
(c) In case the Company shall distribute to all holders of its Common Stock
shares of stock (other than Common Stock) or evidences of its indebtedness or
assets (excluding cash dividends out of retained earnings and dividends or
distributions referred to in paragraph (a) of this Section 8) or rights, options
or warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred to in
paragraph (b) above and paragraph (l) below), then in each case the number of
Shares thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Shares theretofore purchasable upon the
exercise of such Warrant by a fraction, of which the numerator shall be the
current market price per share of Common Stock (as defined in paragraph (d)
below) on the record date mentioned below in this paragraph (c), and of which
the denominator shall be the current market price per share of Common Stock on
such record date, less the then fair value (as determined by the Board of
Directors of the Company, whose determination shall be conclusive) of the
portion of the shares of stock or assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution, retroactive to the record date for
the determination of stockholders entitled to receive such distribution.
(d) For the purpose of any computation under paragraphs (b) and (c) of this
Section 8 or under Section 4 or Section 9, the current market price per share of
Common Stock at any date shall be deemed to be the average of the daily closing
prices per share for the 30 consecutive trading days commencing 45 trading days
before the date of such computation. The closing price for each day shall be the
last reported sale price regular way or, in case no such reported sale takes
place on such day, the average of the closing bid and asked prices regular way
for such day, in either case on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, but is traded in the over-the-counter market, the closing sale price
of the Common Stock or, in case no sale is publicly reported, the average of the
closing bid and asked quotations for the Common Stock on the Nasdaq National
Market System ("NASDAQ") or any comparable system, or if the Common Stock is not
listed on NASDAQ or a comparable system, the closing sale price of the Common
Stock or, in case no sale is publicly reported, the average of the closing bid
and asked prices as furnished by two members of the NASD selected from time to
time by the Company for that purpose.
6
<PAGE>
(e) No adjustment in the number of Shares purchasable upon exercise of each
Warrant shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of Shares purchasable upon
the exercise of each Warrant; provided, however, that any adjustments which by
-------- -------
reason of this paragraph (e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
shall be made to the nearest one thousandth of a share.
(f) Whenever the number of Shares purchasable upon the exercise of each
Warrant is adjusted, as herein provided, the Exercise Price shall be adjusted by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Shares purchasable upon
the exercise of each Warrant immediately prior to such adjustment, and of which
the denominator shall be the number of Shares so purchasable immediately
thereafter.
(g) For the purpose of this Section 8, the term "shares of Common Stock"
shall mean (i) the class of stock designated as the Common Stock of the Company
at the date of this Agreement or (ii) any other class of stock resulting from
successive changes or reclassification of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value. In the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, any Warrant Holder shall become entitled to
purchase any shares of capital stock of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of each Warrant and the Exercise Price thereof shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Shares contained in this Section 8, and
the provisions of Sections 4, 5, 7, 9 and 12, with respect to the Shares, shall
apply on like terms to any such other shares.
(h) The Company may, at its option, at any time during the term of a
Warrant, reduce, either temporarily or permanently, the then current Exercise
Price to any amount deemed appropriate by the Board of Directors of the Company;
provided, however, that any such reduction may be temporary only to the extent
- -------- -------
that Warrant Holders receive written notice from the Company stating the term of
such temporary reduction; and further provided, that following the expiration of
------- --------
such temporary reduction, the Exercise Price may not be raised to an amount in
excess of the Exercise Price in effect immediately prior to such temporary
reduction.
(i) Whenever the number of Shares purchasable upon the exercise of each
Warrant or the Exercise Price of such Shares is adjusted, as herein provided,
the Company shall promptly mail by first class mail, postage prepaid, to each
Warrant Holder notice of such adjustment or adjustments. The Company may retain
a firm of independent public accountants (who may be the regular accountants
employed by the Company) to make any computation required by this Section 8 and
shall cause such accountants to prepare a certificate setting forth the number
of Shares purchasable upon the exercise of each Warrant and the Exercise Price
7
<PAGE>
thereof after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which such
adjustment was made. Such certificate shall be conclusive evidence of the
correctness of such adjustment, and each Warrant Holder shall have the right to
inspect such certificate during reasonable business hours.
(j) In case of any consolidation of the Company with or merger of the
Company with and into another corporation or other entity or any consolidation
with or merger of any other corporation or other entity with and into the
Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of Shares and in which the Company is the
surviving corporation) or in case of any sale or conveyance to another
corporation or other person or entity of the property of the Company as an
entirety or substantially as an entirety, (i) notwithstanding the provisions of
Section 4 hereof, each Warrant Holder shall have the right to exercise any
Warrant then held immediately prior to such consolidation, merger, sale or
conveyance upon payment of the Exercise Price then in effect and (ii) with
respect to any Warrants which are not exercised as provided in clause (i) above,
the Company or such successor or purchasing corporation or person or entity (or
an affiliate of such successor or purchasing corporation or person or entity),
as the case may be, agrees that each Warrant Holder shall have the right after
the happening of any such consolidation, merger, sale or conveyance (except for
a consolidation, merger, sale or conveyance in which the consideration received
by the Company's stockholders consists solely of cash) upon payment of the
Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of shares and other securities and
property which he would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale or conveyance had such Warrant
been exercised immediately prior to such action and the securities issued upon
such exercise been held since the date of such exercise; provided, however, that
-------- -------
in the event any such transaction as described above shall be effected for a
consideration per share of Common Stock consisting only of cash in an amount
less than the Exercise Price at the time (as adjusted pursuant hereto)
multiplied by two, each Warrant Holder shall have the right to receive, as of
the effective time of such transaction and in cancellation of his Warrant, the
fair value of such Warrant as of the time immediately prior to such transaction
(without taking such transaction into account) as determined in good faith by
the Board of Directors of the Company. The provisions of this paragraph (j)
shall similarly apply to successive consolidations, mergers, sales or
conveyances.
(k) Notwithstanding any adjustment in the Exercise Price or the number or
kind of shares purchasable upon the exercise of a Warrant pursuant to this
Agreement, a certificate for a Warrant issued prior or subsequent to such
adjustment may continue to express the same price and number and kind of shares
as are initially issuable pursuant to this Agreement.
(l) Notwithstanding the foregoing, in the event that the Company shall
distribute "poison pill" rights pursuant to a "poison pill" stockholder rights
plan (the
8
<PAGE>
"Rights"), the Company shall, in lieu of making any adjustment pursuant to
Section 8(b) or Section 8(c) hereof, make proper provision so that each Warrant
Holder who exercises a Warrant after the record date for such distribution and
prior to the expiration or redemption of the Rights shall be entitled to receive
upon such exercise, in addition to the Shares issuable upon such exercise, a
number of Rights to be determined as follows: (i) if such exercise occurs on or
prior to the date for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the "Distribution Date"), the same number
of Rights to which a holder of a number of shares of Common Stock equal to the
number of Shares issuable upon such exercise at the time of such exercise in
accordance with the terms and provisions of and applicable to the Rights; and
(ii) if such exercise occurs after the Distribution Date, the same number of
Rights to which a holder of the number of Shares into which the Warrant so
exercised was exercisable immediately prior to the Distribution Date would have
been entitled on the Distribution Date in accordance with the terms and
provisions of and applicable to the Rights.
9. Fractional Interests. The Company shall not be required to issue
--------------------
fractions of Shares on the exercise of a Warrant. If more than one Warrant
shall be presented for exercise in full at the same time by the same Warrant
Holder, the number of Shares which shall be issuable upon the exercise thereof
shall be computed on the basis of the aggregate number of Shares purchasable on
exercise of the Warrants so presented. If any fraction of a Share would, except
for the provisions of this Section 9, be issuable on the exercise of any Warrant
(or specified portions thereof), the Company shall purchase such fraction from
the Warrant Holder for an amount in cash equal to the same fraction of the
current market price per share of Common Stock (determined as provided in
paragraph (d) of Section 8) on the date of exercise.
10. Restrictions on Disposition. The issuance of the Warrants has been
---------------------------
registered under the Act pursuant to the Registration Statement. The
Representative represents and warrants to the Company that it understands that
neither the Warrants nor the Shares may be transferred except pursuant to (i) an
effective registration statement under the Act or (ii) any available rule or
exemption from registration under the Act permitting such disposition.
11. Certificates to Bear Legends. Each Warrant shall be subject to a
----------------------------
stop-transfer order and the certificate or certificates therefor shall bear the
following legend:
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER THE WARRANTS REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR (ii) ANY AVAILABLE RULE OR EXEMPTION
9
<PAGE>
FROM REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES.
The Shares or other securities issued upon exercise of a Warrant shall be
subject to a stop-transfer order and the certificate or certificates evidencing
any such Shares or securities shall bear a legend in substantially the following
form:
THE SHARES OR SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES LAWS AND THE SHARES OR OTHER SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR
(ii) ANY AVAILABLE RULE OR EXEMPTION FROM REGISTRATION UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES.
12. Registration Rights.
-------------------
(a) Demand Registration Rights. The Company covenants and agrees with
--------------------------
the Representative and any other or subsequent Warrant Holder(s) or registered
holder(s) of Shares or registered holder(s) of other securities for which the
Warrants become exercisable (for purposes of this Section 12, collectively, the
"Warrant Holders" and each a "Warrant Holder") that, upon written request (a
"Registration Request") of the then Warrant Holder(s) of at least a majority of
the securities issued and issuable pursuant to the Warrants, made at any time
within the period commencing on the first anniversary of the Effective Date and
ending at the Close of Business on the Expiration Date, the Company will file
with all deliberate speed and, in any event, within 45 days after receipt of
such Registration Request, at its sole expense, no more than once, and at the
Warrant Holders' expense, no more than once, a registration statement or a
Regulation A offering statement (as requested by the Warrant Holders and if
permitted under the Securities Act) registering or qualifying the Shares or
other securities for which the Warrants become exercisable for sale. Within 15
days after receiving any such notice, the Company shall give notice to the other
Warrant Holders advising that the Company is proceeding with such registration
statement or Regulation A offering statement and offering to include therein the
Shares or other securities for which the Warrants become exercisable of such
Warrant Holders. The Company shall not be obligated to any such other Warrant
Holder unless such other Warrant Holder shall accept such offer by notice in
writing to the Company within 10 days after receipt of such notice from the
Company. No other securities of the Company shall be entitled to participate in
such registration or qualification. The Company will use its best efforts,
through its officers, directors, auditors and counsel in all matters necessary
or advisable, to file and cause to become effective such registration
10
<PAGE>
statement or Regulation A offering statement (if permitted under the Securities
Act) as promptly as practicable and for a period of two years thereafter to
reflect in the registration statement or Regulation A offering statement (if
permitted under the Securities Act) financial statements which are prepared in
accordance with Section 10(a)(3) of the Securities Act and any facts or events
arising that, individually or in the aggregate, represent a fundamental or
material change in the information set forth in the registration statement or
Regulation A offering statement to enable any Warrant Holder to exercise
Warrants and to sell Shares or other securities for which the Warrants become
exercisable, during such two-year period. If any registration pursuant to this
paragraph (a) is an underwritten offering, the Company will select an
underwriter (or managing underwriter if such offering should be syndicated)
approved by the Warrant Holders of a majority of the Warrants or Shares or other
securities for which the Warrants become exercisable to be included in such
registration. Notwithstanding the foregoing, the Company may postpone the filing
of such registration statement or offering statement for a reasonable period of
time after receipt of the original written Registration Request (not exceeding
90 days) if, in the good faith opinion of the Company's Board of Directors,
effecting the registration would adversely affect a material or other comparable
transaction or would require the Company to make public disclosure of
information the public disclosure of which would have a material adverse effect
upon the Company.
(b) Piggyback Registration Rights. The Company covenants and agrees
-----------------------------
with the Representative and any other or subsequent Warrant Holder(s) that if,
at any time within the period commencing on the first anniversary of the
Effective Date and ending at the Close of Business on the day immediately
preceding the seventh anniversary of the Effective Date, it proposes to register
any class of security under the Act in a primary registration on behalf of the
Company or in a secondary registration on behalf of holders of such securities
and the registration form to be used may be used for registration of the Shares
or other securities for which the Warrants become exercisable, the Company will
give prompt written notice (which, in the case of a registration pursuant to the
exercise of demand registration rights other than those provided in Section
12(a) of this Agreement, shall be within 10 business days after the Company's
receipt of notice of such exercise and, in any event, shall be at least 45 days
prior to such filing) to each Warrant Holder (regardless of whether the Warrant
Holder shall have theretofore availed himself or herself of the right provided
in Section 12(a)) at the addresses appearing on the records of the Company of
its intention to effect a registration. The Company will offer to include in
such registration such number of Shares or other securities for which the
Warrants are exercisable with respect to which the Company has received written
requests for inclusion therein within 10 days after receipt of notice from the
Company; provided, that if such registration is to be underwritten, the Company
--------
shall not be required to include the Shares or other securities for which the
Warrants become exercisable in such registration to the extent the managing
underwriter(s) determines in good faith that such inclusion would materially
adversely affect the offering being made by such registration. All
registrations requested pursuant to this Section 12(b) are referred to herein as
"Piggyback
11
<PAGE>
Registrations." This paragraph is not applicable to a registration statement
filed by the Company on Forms S-4 or S-8 or any successor forms.
(c) Action to be Taken by the Company. In connection with the
---------------------------------
registration of the Shares or other securities for which the Warrants become
exercisable in accordance with paragraphs (a) or (b) above, the Company agrees
to:
(i) bear the expense of any registration or qualification
under paragraph (a), on one occasion, or under paragraph (b), on any number
of occasions, including but not limited to legal, accounting and printing
fees; provided, however, that in no event shall the Company be obligated to
-------- -------
pay (A) any fees and disbursements of any counsel for the Warrant
Holder(s), or (B) any underwriters' discount or commission in respect to
such Shares or other securities for which the Warrants become exercisable,
payment of which shall, in each case, be the sole responsibility of the
respective Warrant Holder(s) thereof;
(ii) use its best efforts to register or qualify the Shares or
other securities for which the Warrants become exercisable for offer or
sale under state securities or blue sky laws of such jurisdictions as the
Warrant Holders shall reasonably request and do any and all other acts and
things which may be necessary or advisable to enable the Warrant Holders to
consummate the proposed sale, transfer or other disposition of such
securities in any jurisdiction;
(iii) furnish to each holder copies of any registration
statement for the Shares or other securities for which the Warrants become
exercisable, any prospectus included in any such registration statement and
all amendments and supplements to such documents, in each case as soon as
available and in such quantities as such Warrant Holder may from time to
time reasonably request; and
(iv) if registration is to be pursuant to an underwritten
offering, enter into a cross-indemnity agreement in customary form, with
each underwriter, if any, and each Warrant Holder of securities included in
such registration statement.
13. Notices to Warrant Holders; Dissolution; Exercise Rights.
--------------------------------------------------------
(a) Nothing contained in this Agreement or in any Warrant shall be
construed as conferring upon any Warrant Holder the right to vote or to receive
dividends or to consent or to receive notice as a stockholder in respect of the
meetings of stockholders or the election of directors of the Company or any
other matter, or any rights whatsoever as a stockholder of the Company;
provided, however, that in the event that a meeting of stockholders shall be
- -------- -------
called to consider and take action on a proposal for the voluntary dissolution
of the Company or a consolidation, merger or sale of all or substantially all of
its property, assets, business and goodwill as an entirety, then, in that event,
the Company shall
12
<PAGE>
cause a notice thereof to be sent by first-class mail, postage prepaid, at least
20 business days prior to the date fixed as a record date or the date of closing
the transfer books in relation to such meeting, to each Warrant Holder at such
Warrant Holder's address appearing on the Warrant register. If such notice
shall have been so given and if such a voluntary dissolution shall be authorized
at such meeting or any adjournment thereof, then (i) notwithstanding the
provisions of Section 4 hereof, each Warrant Holder shall have the right, at the
election of the Warrant Holder, (A) to exercise any Warrant then held
immediately prior to such voluntary dissolution upon payment of the Exercise
Price then in effect or (B) to receive, as of the effective date of the
dissolution, the fair value of such Warrant as of the time immediately prior to
the authorization of the dissolution (without taking the dissolution into
account) as determined by the Board of Directors of the Company and (ii) from
and after the date on which such voluntary dissolution shall have been duly
authorized by the stockholders, the purchase rights represented by such Warrant
and all other rights with respect thereto shall cease and terminate.
(b) In the event the Company intends to make any distribution on its
Common Stock (or other securities which may be purchasable in lieu thereof upon
the exercise of a Warrant), including, without limitation, any such distribution
to be made in connection with a consolidation or merger in which the Company is
the continuing corporation, or to issue subscription rights or warrants to
holders of its Common Stock, the Company shall cause a notice of its intention
to make such distribution to be sent by first-class mail, postage prepaid, at
least 10 business days prior to the date fixed as a record date or the date of
closing the transfer books in relation to such distribution, to each registered
Warrant Holder at such Warrant Holder's address appearing on the Warrant
register.
14. Notices. Any notice pursuant to this Agreement to be given or made by
-------
any Warrant Holder to the Company shall be sufficiently given or made as of the
third business day following mailing if sent by first-class mail, postage
prepaid, or as of the day after mailing if sent by a nationally recognized
overnight courier, addressed as follows (or to such other address as the Company
may designate by notice given in accordance with this Section 14 to the Warrant
Holder(s)):
ASI Solutions Incorporated
780 Third Avenue
New York, NY 10017
Attn: President
Notices or demands authorized by this Agreement to be given or made by the
Company to any Warrant Holder shall be sufficiently given or made (except as
otherwise provided in this Agreement) as of the third business day following
mailing if sent by first-class mail, postage prepaid, or as of the day after
mailing if sent by a nationally recognized overnight courier, addressed to such
Warrant Holder at the address of such Warrant Holder as shown on the
13
<PAGE>
Warrant register, Common Stock register or the register for such other security
for which the Warrants become exercisable.
15. Covenant as to Certain Transactions. The Company shall not consummate
-----------------------------------
any consolidation, merger, sale or conveyance (as described in Section 8(j)
hereof) unless prior thereto (a) the successor or purchasing corporation (or an
affiliate of such successor or purchasing corporation), as the case may be,
shall have a sufficient aggregate number of authorized shares and other
securities which have not been issued or reserved for issuance to permit the
exercise in full of the Warrants in accordance with Section 8(j) hereof and (b)
the Company and such successor or purchasing corporation or affiliate shall have
executed and delivered to each Warrant Holder a supplemental agreement
confirming that the requirements of Section 8(j) hereof shall be promptly
performed in accordance with their terms and that such consolidation, merger,
sale or conveyance shall not result in a default by the Company, such successor
or purchasing corporation or such affiliate under this Agreement (as the same
shall have been assumed by such successor or purchasing corporation or such
affiliate) and further providing that such successor or purchasing corporation
or such affiliate shall assume all obligations of the Company hereunder and
agree to be bound hereby. In the event of and after the happening of any such
consolidation, merger, sale or conveyance, the term "the Company," as used
herein, shall be deemed to refer to such successor or purchasing corporation or
such affiliate, as the case may be.
16. Governing Law. This Agreement and each Warrant issued hereunder shall
-------------
be governed by and construed in accordance with the substantive laws of the
State of Delaware without giving effect to the principles of conflicts of law
thereof.
17. Counterparts. The Agreement may be executed in any number of
------------
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute one and the same instrument.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
ASI SOLUTIONS INCORPORATED
By: /s/ Bernard F. Reynolds
------------------------------------------
Name: Bernard F. Reynolds
Title: CEO
H.C. WAINWRIGHT & CO., INC.
By: /s/ Stephen D. Barrett
------------------------------------------
Name: Stephen D. Barrett
Title: President
15
<PAGE>
EXHIBIT A
---------
(Form of Warrant Certificate)
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE OFFERED OR SOLD EXCEPT PURSUANT
TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (ii) ANY AVAILABLE
RULE OR EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION
OF SECURITIES.
No. Warrants
--------- ------
VOID AFTER 5:00 P.M. BOSTON TIME
ON _____________, 2002
ASI SOLUTIONS INCORPORATED
Warrant Certificate
THIS CERTIFIES THAT, for value received, _________________, or registered
assigns, is the owner of the number of Warrants set forth above, each of which
entitles the owner thereof to purchase at any time from _______________, 1998
(except as otherwise set forth in the Warrant Agreement referred to below),
until 5:00 p.m., Boston time on __________, 2002 (the "Expiration Date"), one
fully paid and nonassessable share of the common stock, par value $.0l per share
(the "Common Stock"), of ASI SOLUTIONS INCORPORATED, a Delaware corporation (the
"Company"), at the purchase price of $_________ per share (the "Exercise
Price"), upon presentation and surrender of this Warrant Certificate with the
Form of Election to Purchase duly executed. The number of Warrants evidenced by
this Warrant Certificate (and the number of shares of Common Stock which may be
purchased upon exercise hereof) set forth above, and the Exercise Price per
share set forth above, are the number and Exercise Price as of the date of
original issuance of the Warrants, based on the shares of Common Stock of the
Company as constituted at such date. As provided in the Warrant Agreement
referred to below, the Exercise Price and the number or kind of securities which
may be purchased upon the exercise of the Warrants evidenced by this Warrant
Certificate are, upon the happening of certain events, subject to modification
and adjustment.
16
<PAGE>
This Warrant Certificate is subject to, and entitled to the benefits of,
all of the terms, provisions and conditions of an agreement dated as of April
15, 1997 (the "Warrant Agreement") by and among the Company and H.C. Wainwright
& Co., Inc., which Warrant Agreement is hereby incorporated herein by reference
and made a part hereof and to which Warrant Agreement reference is hereby made
for a full description of the rights, limitations of rights, duties and
immunities hereunder of the Company and the holder of the Warrant Certificate.
Copies of the Warrant Agreement are on file at the principal office of the
Company.
This Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of the Company, may be exchanged for another
Warrant Certificate or Warrant Certificates of like tenor and date evidencing
Warrants entitling the holder to purchase a like aggregate number of shares of
Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates so surrendered entitled such holder to purchase. If this Warrant
Certificate shall be exercised in part, the holder hereof shall be entitled to
receive upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof, a cash payment
will be made by the Company, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained in the Warrant Agreement or herein be construed to confer
upon the holder hereof, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or, except as provided
in the Warrant Agreement, to receive notice of meetings or to receive dividends
or subscription rights or otherwise, until the Warrant or Warrants evidenced by
this Warrant Certificate shall have been exercised and the shares of Common
Stock or other securities shall have become deliverable as provided in the
Warrant Agreement.
If this Warrant shall be surrendered for exercise within any period during
which the transfer books for the Company's Common Stock or other securities
purchasable upon the exercise of this Warrant are closed for any purpose, the
Company shall not be required to make delivery of certificates for the shares of
Common Stock or other securities purchasable upon such exercise until the date
of the reopening of said transfer books, subject to the terms of the Warrant
Agreement.
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IN WITNESS WHEREOF, ASI SOLUTIONS INCORPORATED has caused the signature of
its President and Secretary to be printed hereon and its corporate seal to be
printed hereon.
Dated:
ASI SOLUTIONS INCORPORATED
By:
-----------------------------------
President
Attest:
- --------------------------------
Secretary
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FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificates.)
FOR VALUE RECEIVED, ____________________________________________
hereby sells, assigns and transfers unto _____________________________________,
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________________________
____________________ to transfer the within Warrant Certificate on the books
of the within-named Company, with full power of substitution.
Dated:
-----------------------, -----
-------------------------------------
Signature
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond in all
respects to the name as written upon the face of this Warrant Certificate,
without alteration, enlargement or any change whatsoever.
Accepted:
- ---------------------------
Assignee:
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EXHIBIT B
---------
FORM OF
ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant Certificate).
TO ASI SOLUTIONS INCORPORATED:
The undersigned hereby irrevocably elects to exercise __________
Warrants represented by this Warrant Certificate to purchase the shares of
Common Stock issuable upon the exercise of such Warrants and requests that
certificates for such shares be issued in the name of:
Please insert social security or other
identifying number
- -------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
Please insert social security or other
identifying number
- ------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated:_______________, 19__
------------------------------------------
Signature
Signature Guaranteed:
20
<PAGE>
NOTICE
The signature on the foregoing election to purchase must correspond in
all respects to the name as written upon the face of this Warrant Certificate,
without alteration, enlargement or any change whatsoever.
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Exhibit 10.3
ASI SOLUTIONS INCORPORATED
1996 STOCK OPTION AND GRANT PLAN
1. PURPOSE
This Stock Option and Grant Plan (the "Plan") is intended as a performance
incentive for officers, employees, consultants and other key persons of ASI
Solutions Incorporated ("ASI") and its subsidiaries (unless otherwise indicated
herein, ASI Solutions Incorporated and its subsidiaries are hereinafter referred
to as the "Company") to enable the persons to whom options are granted (the
"Optionees") or to whom shares of common stock are granted (the "Grantees") to
acquire or increase a proprietary interest in the success of the Company. The
Company intends that this purpose will be effected by the granting of "incentive
stock options" ("Incentive Options") as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), nonqualified stock options
("Nonqualified Options") and outright grants of common stock under the Plan.
The term "subsidiary" when used in the Plan shall mean any subsidiary of ASI
within the meaning of Section 424(f) of the Code.
2. OPTIONS TO BE GRANTED AND ADMINISTRATION
(a) Options granted under the Plan may be either Incentive Options or
Nonqualified Options, and shall be designated as such at the time of grant. To
the extent that any option intended to be an Incentive Option shall fail to
qualify as an "incentive stock option" under the Code, such option shall be
deemed to be a Nonqualified Option.
(b) The Plan shall be administered by the Board of Directors of the
Company (the "Board of Directors") or by a committee (the "Compensation
Committee") of not less than three directors of the Company appointed by the
Board of Directors all of whom are (1) not employees of the Company and "non
employee directors" within the meaning of Rule 16b-3(b) (3) (i) promulgated
under the Securities Exchange Act of 1934, as amended (the "Act"), and (2)
"outside directors" within the meaning of Section 162(m) of the Code.
(c) Subject to the terms and conditions of the Plan, the Compensation
Committee shall have the power:
(i) To determine from time to time the options or stock to be granted
to eligible persons under the Plan (hereinafter referred to as the "Optionees"),
to prescribe the terms and
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provisions (which need not be identical) of options granted under the Plan to
such persons and to approve the grant of options, as the case may be;
(ii) To construe and interpret the Plan and grants thereunder and to
establish, amend, and revoke rules and regulations for administration of the
Plan. In this connection, the Compensation Committee may correct any defect or
supply any omission, or reconcile any inconsistency in the Plan, in any option
agreement, or in any related agreements, in the manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective;
(iii) to accelerate the exercisability or vesting of all or any
portion of any option;
(iv) subject to the provisions of Section 5(a), to extend the period
in which options may be exercised;
(v) generally, to exercise such powers and to perform such acts as
are deemed necessary or expedient to promote the best interests of the Company
with respect to the Plan.
All decisions and determinations by the Compensation Committee in the exercise
of its powers shall be final and binding upon the Company and the Optionees.
3. STOCK
(a) The stock granted under the Plan, or subject to the options granted
under the Plan, shall be shares of the Company's authorized but unissued common
stock, par value $.01 per share (the "Common Stock"). The total number of
shares that may be issued under the Plan shall not exceed an aggregate of
800,000 shares of Common Stock. Such numbers shall be subject to adjustment as
provided in Section 7 hereof.
(b) Whenever any outstanding option under the Plan expires, is canceled or
is otherwise terminated (other than by exercise), the shares of Common Stock
allocable to the unexercised portion of such option may again be the subject of
options of Common Stock under the Plan.
4. ELIGIBILITY
(a) Incentive Options may be granted only to officers or other employees
of the Company, including members of the Board of Directors who are also
employees of the Company. Nonqualified Options may be granted to officers or
other employees of the Company, members of the Board of Directors who are also
employees of the Company, and consultants and other key persons who provide
services to the Company (regardless of whether they are also employees). Grants
of
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Common Stock may be made to any officer, director, employee, consultant or other
key person of the Company.
(b) No Optionee shall be eligible to receive any Incentive Option under
the Plan if, at the date of grant, such Optionee beneficially owns stock
representing in excess of 10% of the voting power of all outstanding capital
stock of the Company or any "parent corporation" within the meaning of Section
424(e) of the Code or any subsidiary (a "Ten Percent Stockholder") unless (i)
the purchase price for the Common Stock subject to such option is at least 110%
of the fair market value of such stock at the time of the grant and (ii) the
option by its terms is not exercisable more than five years from the date of
grant thereof.
(c) Notwithstanding any other provision of the Plan, to the extent that
the aggregate fair market value of the stock with respect to which Incentive
Options are exercisable for the first time by any individual during any calendar
year (under all plans of the Company and its parent) exceeds $100,000, the
options attributable to the excess over $100,000 shall be treated as
Nonqualified Options under the Plan. Such annual limitation shall be applied by
taking Incentive Options into account in the order in which they were granted.
5. TERMS OF THE OPTION AGREEMENTS
Subject to the terms and conditions of the Plan, each option agreement
shall contain such provisions as the Compensation Committee shall from time to
time deem appropriate. Option agreements need not be identical, but each option
agreement by appropriate language shall include the substance of all of the
following provisions:
(a) Expiration; Termination of Employment. Notwithstanding any other
provision of the Plan or of any option agreement, each option shall expire on
the date specified in the option agreement, which date in the case of any
Incentive Option shall not be later than the tenth anniversary of the date on
which the option was granted; provided, however, that if such Incentive Option
is held by a Ten Percent Stockholder, the expiration date of such Incentive
Option shall not be later than five years from the date of grant thereof. If an
Optionee's employment or service as a director with the Company terminates for
any reason, the Compensation Committee may in its discretion provide, at any
time, that any outstanding option granted to such Optionee under the Plan shall
be exercisable, subject to the expiration date of such option, for such period
following termination of employment as may be specified by the Compensation
Committee, which period for purposes of Incentive Options shall not exceed three
months where such termination is not due to death or disability (within the
meaning of Section 22(e) (3) of the Code) or one year where such termination is
due to death or disability. If an Optionee's employment or service as a
director with the Company terminates due to the Optionee's willful actions
against the interests of the Company, the option may be terminated upon written
notice to the Optionee; in such a case, the option will cease to be exercisable
immediately upon the Optionee's receipt of such written notice.
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<PAGE>
(b) Minimum Shares Exercisable. The minimum number of shares with respect
to which an option may be exercised at any one time shall be five hundred (500)
shares, or such lesser number as is subject to exercise under the option at the
time, provided that no fractional shares may be issued.
(c) Exercise. Each option shall be exercisable in such installments
(which need not be equal) and at such times as may be designated by the
Compensation Committee. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after becoming
exercisable, but not later than the date the option expires.
(d) Purchase Price. The purchase price per share of Common Stock subject
to each option shall be determined by the Compensation Committee; provided,
however, that the purchase price per share of Common Stock subject to each
Incentive Option shall be not less than the fair market value of the Common
Stock on the date such Incentive Option is granted. For the purposes of the
Plan, the fair market value of the Common Stock shall be determined in good
faith by the Compensation Committee; provided, however, that (i) if the Common
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") Small-Cap Market on the date the option is
granted, the fair market value shall not be less than the average of the highest
bid and lowest asked prices of the Common Stock on NASDAQ reported for such date
or, if no prices were reported for such date, for the last date preceding such
date on which prices were reported, (ii) if the Common Stock is admitted to
trading on a national securities exchange or the NASDAQ National Market System
on the date the option is granted, the fair market value shall not be less than
the closing price reported for the Common Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last date
preceding such date for which a sale was reported, and (iii) the fair market
value of the Common Stock on the effective date of the registration statement
for the Company's initial public offering shall be the initial offering price.
(e) Rights of Optionees. No Optionee shall be deemed for any purpose to
be the owner of any shares of Common Stock subject to any option unless and
until (i) the option shall have been exercised pursuant to the terms thereof,
(ii) all requirements under applicable law and regulations shall have been
complied with to the satisfaction of the Company, (iii) the Company shall have
issued and delivered the shares to the Optionee, and (iv) the Optionee's name
shall have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such shares of Common Stock.
(f) Transfer. No option granted hereunder shall be transferable by the
Optionee other than by will or by the laws of descent and distribution, and such
option may be exercised during the Optionee's lifetime only by the Optionee, or
his or her guardian or legal representative.
4
<PAGE>
6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Any option granted under the Plan may be exercised by the Optionee in
whole or, subject to Sections 5(b) and 5(c) hereof, in part by delivering to the
Company on any business day a written notice specifying the number of shares of
Common Stock the Optionee then desires to purchase (the "Notice"). As a
condition precedent of the exercise of any option, the Optionee shall pay or
make arrangements for the payment of all taxes to be withheld, in accordance
with Section 9 of the Plan.
(b) Payment for the shares of Common Stock purchased pursuant to the
exercise of an option shall be made either: (i) in cash, or by certified or
bank check or other payment acceptable to the Company, equal to the option
exercise price for the number of shares specified in the Notice (the "Total
Option Price"); (ii) if authorized by the applicable option agreement and if
permitted by law, by delivery of shares of Common Stock that the Optionee has
beneficially owned for more than six months and which the Optionee may freely
transfer having a fair market value, determined by reference to the provisions
of Section 5(d) hereof, equal to or less than the Total Option Price, plus cash
in an amount equal to the excess, if any, of the Total Option Price over the
fair market value of such shares of Common Stock; or (iii) by the Optionee
delivering the Notice to the Company together with irrevocable instructions to a
broker to promptly deliver the Total Option Price to the Company in cash or by
other method of payment acceptable to the Company; provided, however, that the
Optionee and the broker shall comply with such procedures and enter into such
agreements of indemnity or other agreements as the Company shall prescribe as a
condition of payment under this clause (iii).
(c) The delivery of certificates representing shares of Common Stock to be
purchased pursuant to the exercise of an option will be contingent upon the
Company's receipt of the Total Option Price and of any written representations
from the Optionee required by the Compensation Committee, and the fulfillment of
any other requirements contained in the option agreement or applicable
provisions of law.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
(a) If the shares of the Company's Common Stock as a whole are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, combination of shares, exchange of shares, change in
corporate structure or the like, an appropriate and proportionate adjustment
shall be made in the number and kind of shares subject to the Plan, and in the
number, kind, and per share exercise price of shares subject to unexercised
options or portions thereof granted prior to any such change. In the event of
any such adjustment in an outstanding option, the Optionee thereafter shall have
the right to purchase the number of shares under such option at the per share
price, as so adjusted, which the
5
<PAGE>
Optionee could purchase at the total purchase price applicable to the option
immediately prior to such adjustment.
(b) Adjustments under this Section 7 shall be determined by the
Compensation Committee and such determinations shall be conclusive. The
Compensation Committee shall have the discretion and power in any such event to
determine and to make effective provision for acceleration of the time or times
at which any option or portion thereof shall become exercisable. No fractional
shares of Common Stock shall be issued under the Plan on account of any
adjustment specified above.
8. EFFECT OF CERTAIN TRANSACTIONS
In the case of (i) the dissolution or liquidation of the Company, (ii) a
reorganization, merger, consolidation or other business combination in which the
Company is acquired by another entity (other than a holding company formed by
the Company) or in which the Company is not the surviving entity, or (iii) the
sale of all or substantially all of the assets of the Company to another entity,
the Plan and the options issued hereunder shall terminate upon the effectiveness
of any such transaction or event, unless provision is made in connection with
such transaction for the assumption of options theretofore granted, or the
substitution for such option of new options of the successor entity or parent
thereof, with appropriate adjustment as to the number and kind of shares and the
per share exercise prices, as provided in Section 7. In the event of such
termination, all outstanding options whether or not then currently exercisable
for shares of Common Stock shall be exercisable for at least fifteen (15) days
prior to the date of such termination whether or not otherwise exercisable
during such period.
9. TAX WITHHOLDING
(a) Each Optionee shall, no later than the exercise date of any option,
pay to the Company, or make arrangements satisfactory to the Compensation
Committee regarding payment of any federal, state, or local taxes of any kind
required by law to be withheld with respect to such income. The Company shall,
to the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Optionee.
(b) To the extent permitted by the Compensation Committee, an Optionee may
elect to have his tax withholding obligation satisfied, in whole or in part, by
(i) authorizing the Company to withhold from shares of Common Stock to be
issued pursuant to any option number of shares with an aggregate fair market
value (determined by reference to the provisions of Section 5(d) hereof), that
would satisfy the withholding amount due, or (ii) transferring to the Company
shares of Common Stock owned by the Optionee with an aggregate fair market value
(determined by reference to the provisions of Section 5(d) hereof) that would
satisfy the withholding amount due.
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10. NON-TRANSFERABILITY OF OPTION RIGHTS
No option shall be transferable except by will or the laws of descent and
distribution. During the lifetime of any Optionee, the option shall be
exercisable only by such Optionee.
11. NO OBLIGATION TO EXERCISE OPTION
Granting of an option shall impose no obligation on the recipient to
exercise such option.
12. USE OF PROCEEDS
The proceeds received from the sale of stock pursuant to the Plan shall be
used for general corporate purposes.
13. RIGHTS AS A STOCKHOLDER
An Optionee shall have no rights as a stockholder with respect to any stock
covered by his or her option until such Optionee shall have become the holder of
record of such stock, and shall not be entitled to any dividends or
distributions or other rights in respect of such stock for which the record date
is prior to the date on which he or she shall have become the holder of record
thereof.
Notwithstanding anything herein to the contrary, the Compensation
Committee, in its sole discretion, may restrict the transferability of all or
any number of shares of stock issued under the Plan upon the exercise of an
option by legending the stock certificate as it deems appropriate.
14. EMPLOYMENT RIGHTS
Nothing in the Plan or in any option granted hereunder shall confer on any
Optionee any right to continue in the employ of the Company, or to interfere in
any way with the right of the Company to terminate the Optionee's employment at
any time.
15. COMPLIANCE WITH THE LAW
The Company is relieved from any liability for the nonissuance or non-
transfer, or any delay in issuance or transfer, of any shares of stock subject
to options under the Plan which results from the inability of the Company to
obtain, or from any delay in obtaining, from any regulatory body having
jurisdiction, all requisite authority to issue or transfer shares of stock of
the Company, if counsel for the Company deems such authority necessary for the
lawful issuance or transfer of any
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such shares. Appropriate legends may be placed on the stock certificates
evidencing shares issued upon exercise of options to reflect such transfer
restrictions.
Each option granted under the Plan is subject to the requirement that if at
any time the Compensation Committee determines, in its discretion, that the
listing, registration or qualification of shares of stock issuable upon exercise
of options is required by any securities exchange or under any state or Federal
law, or that the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the grant of
options or the issuance of shares of stock, no options or shares of stock shall
be issued, in whole or in part, unless such listing, registration,
qualification, consent or approval has been effected or obtained free of any
conditions or with such conditions as are acceptable to the Compensation
Committee.
16. CANCELLATION OF OPTIONS
The Compensation Committee, in its discretion, may, with the consent of an
Optionee, cancel any outstanding option held by such Optionee hereunder.
17. AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan or amend the Plan at any
time, and from time to time, subject to any required regulatory approval and the
limitation that, except as provided in Sections 7 and 8 thereof, no amendment
shall be effective unless approved by the stockholders of the Company in
accordance with applicable law and regulations at an annual or special meeting
held within twelve months before or after the date of adoption of such
amendment, where such amendment will:
(a) increase the number of shares of Common Stock as to which options may
be granted under the Plan;
(b) change in substance Section 4 hereof relating to eligibility to
participate in the Plan;
(c) change the minimum option exercise price; or
(d) otherwise materially increase the benefits accruing to individuals
under the Plan.
In addition to the foregoing, other Plan amendments shall be subject to
approval by the Company stockholders if and to the extent determined by the
Compensation Committee to be required by the Act to ensure that options or
grants granted under the Plan are exempt under Rule 16b-3 promulgated under the
Act, or that Incentive Stock Options granted under the Plan are qualified under
Section 422 of the Code.
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Except as provided in Sections 7 and 8 hereof, rights and obligations under
any option granted before any amendment of the Plan shall not be altered or
impaired by such amendment, except with the consent of the Optionee.
18. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including
without limitation, the granting of stock or stock options otherwise than under
the Plan, and such arrangements may be either applicable generally or only in
specific cases.
19. GOVERNING LAW
The Plan shall be governed by Delaware law, except to the extent that such
law is preempted by federal law.
20. EFFECTIVE DATE AND EXPIRATION DATE OF PLAN;
STOCKHOLDER APPROVAL
This Plan shall become effective upon the date that it is approved by the
Board of Directors of the Company; provided, however, that the Plan shall be
subject to the approval of the Company's stockholders in accordance with
applicable laws and regulations at an annual or special meeting held within
twelve months of such effective date. No options granted under the Plan prior
to such stockholder approval may be exercised until such approval has been
obtained. No options may be granted under the Plan after the tenth anniversary
of the effective date of the Plan.
21. MISCELLANEOUS
(a) If the Compensation Committee shall find that any person to whom any
amount is payable under the Plan is unable to care for his affairs because of
illness or accident, or is a minor, or has died, then any payment due to such
person or his estate (unless a prior claim therefor has been made by a duly
appointed legal representative) may, if the Compensation Committee so directs
the Company, be paid to his spouse, child, or other relative, an institution
maintaining or having custody of such person, or any other person deemed by the
Compensation Committee to be a proper recipient on behalf of such person
otherwise entitled to payment. Any such payment shall be a complete discharge
of the liability of the Compensation Committee and the Company therefor.
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(b) No member of the Compensation Committee shall be personally liable by
reason of any contract or other instrument executed by such member or on his
behalf in his capacity as a member of the Compensation Committee nor for any
mistake of judgment made in good faith, and the Company shall indemnify and hold
harmless each member of the Compensation Committee and each other employee,
officer or director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated,
against any cost or expense (including counsel fees) or liability (including any
sum paid in settlement of a claim) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or bad
faith; provided, however, that approval of the Company's Board of Directors
shall be required for the payment of any amount in settlement of a claim against
any such person. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Company's Certificate of Incorporation or By-Laws, as a matter of law,
or otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
(c) No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made or otherwise
to segregate any assets, nor shall the Company maintain separate bank accounts,
books, records or other evidence of the existence of a segregated or separately
maintained or administered fund for such purposes. Optionees shall have no
rights under the Plan other than as unsecured general creditors of the Company,
except that insofar as they may have become entitled to payment of additional
compensation by performance of services, they shall have the same rights as
other employees under general law.
(d) Each member of the Compensation Committee and each member of the
Company's Board of Directors shall be fully justified in relying, in acting or
failing to act, and shall not be liable for having so relied, acted or failed to
act in good faith, upon any report made by the independent public accountant of
the Company and upon any other information furnished in connection with the Plan
by any person or persons other than such member.
(e) Except as otherwise specifically provided in the relevant plan
document, no payment under the Plan shall be taken into account in determining
any benefits under any pension, retirement, profit-sharing, group insurance or
other benefit plan of the Company.
(f) The expenses of administering the Plan shall be borne by the Company.
* * *
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Exhibit 10.4
ASI SOLUTIONS INCORPORATED
1996 DIRECTORS STOCK OPTION PLAN
1. PURPOSE
This Stock Option Plan (the "Plan") is intended as a performance incentive
for non-employee directors of ASI Solutions Incorporated ("ASI") and its
subsidiaries (unless otherwise indicated herein, ASI Solutions Incorporated and
its subsidiaries are hereinafter referred to as the "Company") to enable the
persons to whom options are granted (the "Optionees") to acquire or increase a
proprietary interest in the success of the Company. The Company intends that
this purpose will be effected by the granting of "incentive stock options"
("Incentive Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") and nonqualified stock options ("Nonqualified
Options"). The term "subsidiary" when used in the Plan shall mean any
subsidiary of ASI within the meaning of Section 424(f) of the Code.
2. OPTIONS TO BE GRANTED AND ADMINISTRATION
(a) Options granted under the Plan may be either Incentive Options or
Nonqualified Options, and shall be designated as such at the time of grant. To
the extent that any option intended to be an Incentive Option shall fail to
qualify as an "incentive stock option" under the Code, such option shall be
deemed to be a Nonqualified Option.
(b) The Plan shall be administered by the Board of Directors of the
Company (the "Board of Directors") or by a committee (the "Compensation
Committee") of not less than three directors of the Company appointed by the
Board of Directors two of whom are (1) not employees of the Company and "non
employee directors" within the meaning of Rule 16b-3(b) (3) (i) promulgated
under the Securities Exchange Act of 1934, as amended (the "Act"), and (2)
"outside directors" within the meaning of Section 162(m) of the Code.
(c) Subject to the terms and conditions of the Plan, the Compensation
Committee shall have the power:
(i) To determine from time to time the options or stock to be
granted to eligible persons under the Plan (hereinafter referred to as the
"Optionees"), to prescribe the terms and provisions (which need not be
identical) of options granted under the Plan to such persons and to approve the
grant of options, as the case may be;
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(ii) To construe and interpret the Plan and grants thereunder and
to establish, amend, and revoke rules and regulations for administration of the
Plan. In this connection, the Compensation Committee may correct any defect or
supply any omission, or reconcile any inconsistency in the Plan, in any option
agreement, or in any related agreements, in the manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective;
(iii) to accelerate the exercisability or vesting of all or any
portion of any option;
(iv) subject to the provisions of Section 5(a), to extend the
period in which options may be exercised;
(v) generally, to exercise such powers and to perform such acts
as are deemed necessary or expedient to promote the best interests of the
Company with respect to the Plan.
All decisions and determinations by the Compensation Committee in the exercise
of its powers shall be final and binding upon the Company and the Optionees.
3. STOCK
(a) The stock granted under the Plan, or subject to the options granted
under the Plan, shall be shares of the Company's authorized but unissued common
stock, par value $.01 per share (the "Common Stock"). The total number of
shares that may be issued under the Plan shall not exceed an aggregate of 50,000
shares of Common Stock. Such numbers shall be subject to adjustment as provided
in Section 7 hereof.
(b) Whenever any outstanding option under the Plan expires, is canceled or
is otherwise terminated (other than by exercise), the shares of Common Stock
allocable to the unexercised portion of such option may again be the subject of
options of Common Stock under the Plan.
4. ELIGIBILITY AND ENTITLEMENT
(a) Incentive Options and Nonqualified Options may be granted only to non-
employee directors of the Company.
(b) No Optionee shall be eligible to receive any Incentive Option under
the Plan if, at the date of grant, such Optionee beneficially owns stock
representing in excess of 10% of the voting power of all outstanding capital
stock of the Company or any "parent corporation" within the meaning of Section
424(e) of the Code or any subsidiary (a "Ten Percent Stockholder") unless (i)
the purchase price for the Common Stock subject to such option is at least 110%
of the fair market value of such stock at the time of the grant and (ii) the
option by its terms is not exercisable more
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<PAGE>
than five years from the date of grant thereof.
(c) Notwithstanding any other provision of the Plan, to the extent that
the aggregate fair market value of the stock with respect to which Incentive
Options are exercisable for the first time by any individual during any calendar
year (under all plans of the Company and its parent) exceeds $100,000, the
options attributable to the excess over $100,000 shall be treated as
Nonqualified Options under the Plan. Such annual limitation shall be applied by
taking Incentive Options into account in the order in which they were granted.
(d) Each individual who first joins the Board of Directors as a non-
employee director shall automatically be granted a Non-Qualified Option to
acquire 5,000 shares of Common Stock on the first day such individual serves as
a non-employee director and an additional 2,500 shares of Common Stock for each
committee of the Board of Directors which such director is appointed to chair.
The exercise price per share for the Common Stock covered by an option granted
hereunder shall be as determined by the Compensation Committee.
On the first anniversary of the grant date, each option granted under this
Section 4(d) shall be 33% vested in the total shares to which the options
relate; on the second anniversary of the grant date each option granted under
this Section 4(d) shall be 66% vested in the total shares to which the options
relate; on the third anniversary of the grant date each option granted under
this Section 4(d) shall be 100% vested in the total shares to which the options
relate provided that the Optionee shall have continued to serve as a director
until such date; and provided, further, that any option so granted shall become
immediately exercisable in full upon the termination of service of the non-
employee director because of disability or death. No option issued under this
Section 4(d) shall be exercisable after the expiration of ten years from the
date upon which such option is granted. For purposes of this Section 4(d),
"disability" means an individual's inability to perform his normal required
services for the Company for a period of six consecutive months by reason of the
individual's mental or physical disability, as determined by the Compensation
Committee in good faith in its sole discretion.
5. TERMS OF THE OPTION AGREEMENTS
Subject to the terms and conditions of the Plan, each option agreement
shall contain such provisions as the Compensation Committee shall from time to
time deem appropriate. Option agreements need not be identical, but each option
agreement by appropriate language shall include the substance of all of the
following provisions:
(a) Expiration; Termination of Employment. Notwithstanding any other
provision of the Plan or of any option agreement, each option shall expire on
the date specified in the option agreement, which date in the case of any
Incentive Option shall not be later than the tenth anniversary of the date on
which the option was granted; provided, however, that if such Incentive Option
is held by a Ten Percent Stockholder, the expiration date of such Incentive
Option shall not
3
<PAGE>
be later than five years from the date of grant thereof. If an Optionee's
service as a director with the Company terminates for any reason, the
Compensation Committee may in its discretion provide, at any time, that any
outstanding option granted to such Optionee under the Plan shall be exercisable,
subject to the expiration date of such option, for such period following
termination of service as may be specified by the Compensation Committee, which
period for purposes of Incentive Options shall not exceed three months where
such termination is not due to death or disability (within the meaning of
Section 22(e) (3) of the Code) or one year where such termination is due to
death or disability. If an Optionee's service as a director with the Company
terminates due to the Optionee's willful actions against the interests of the
Company, the option may be terminated upon written notice to the Optionee; in
such a case, the option will cease to be exercisable immediately upon the
Optionee's receipt of such written notice.
(b) Minimum Shares Exercisable. The minimum number of shares with respect
to which an option may be exercised at any one time shall be five hundred (500)
shares, or such lesser number as is subject to exercise under the option at the
time, provided that no fractional shares may be issued.
(c) Exercise. Each option shall be exercisable in such installments
(which need not be equal) and at such times as may be designated by the
Compensation Committee. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after becoming
exercisable, but not later than the date the option expires.
(d) Purchase Price. The purchase price per share of Common Stock subject
to each option shall be determined by the Compensation Committee; provided,
however, that the purchase price per share of Common Stock subject to each
Incentive Option shall be not less than the fair market value of the Common
Stock on the date such Incentive Option is granted. For the purposes of the
Plan, the fair market value of the Common Stock shall be determined in good
faith by the Compensation Committee; provided, however, that (i) if the Common
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") Small-Cap Market on the date the option is
granted, the fair market value shall not be less than the average of the highest
bid and lowest asked prices of the Common Stock on NASDAQ reported for such date
or, if no prices were reported for such date, for the last date preceding such
date on which prices were reported, (ii) if the Common Stock is admitted to
trading on a national securities exchange or the NASDAQ National Market System
on the date the option is granted, the fair market value shall not be less than
the closing price reported for the Common Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last date
preceding such date for which a sale was reported, and (iii) the fair market
value of the Common Stock on the effective date of the registration statement
for the Company's initial public offering shall be the initial offering price.
(e) Rights of Optionees. No Optionee shall be deemed for any purpose to
be the owner of any shares of Common Stock subject to any option unless and
until (i) the option shall have been exercised pursuant to the terms thereof,
(ii) all requirements under applicable law and regulations shall have been
complied with to the satisfaction of the Company, (iii) the Company shall have
4
<PAGE>
issued and delivered the shares to the Optionee, and (iv) the Optionee's name
shall have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such shares of Common Stock.
(f) Transfer. No option granted hereunder shall be transferable by the
Optionee other than by will or by the laws of descent and distribution, and such
option may be exercised during the Optionee's lifetime only by the Optionee, or
his or her guardian or legal representative.
6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Any option granted under the Plan may be exercised by the Optionee in
whole or, subject to Sections 5(b) and 5(c) hereof, in part by delivering to the
Company on any business day a written notice specifying the number of shares of
Common Stock the Optionee then desires to purchase (the "Notice"). As a
condition precedent of the exercise of any option, the Optionee shall pay or
make arrangements for the payment of all taxes to be withheld, in accordance
with Section 9 of the Plan.
(b) Payment for the shares of Common Stock purchased pursuant to the
exercise of an option shall be made either: (i) in cash, or by certified or
bank check or other payment acceptable to the Company, equal to the option
exercise price for the number of shares specified in the Notice (the "Total
Option Price"); (ii) if authorized by the applicable option agreement and if
permitted by law, by delivery of shares of Common Stock that the Optionee has
beneficially owned for more than six months and which the Optionee may freely
transfer having a fair market value, determined by reference to the provisions
of Section 5(d) hereof, equal to or less than the Total Option Price, plus cash
in an amount equal to the excess, if any, of the Total Option Price over the
fair market value of such shares of Common Stock; or (iii) by the Optionee
delivering the Notice to the Company together with irrevocable instructions to a
broker to promptly deliver the Total Option Price to the Company in cash or by
other method of payment acceptable to the Company; provided, however, that the
Optionee and the broker shall comply with such procedures and enter into such
agreements of indemnity or other agreements as the Company shall prescribe as a
condition of payment under this clause (iii).
(c) The delivery of certificates representing shares of Common Stock to be
purchased pursuant to the exercise of an option will be contingent upon the
Company's receipt of the Total Option Price and of any written representations
from the Optionee required by the Compensation Committee, and the fulfillment of
any other requirements contained in the option agreement or applicable
provisions of law.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
(a) If the shares of the Company's Common Stock as a whole are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company,
5
<PAGE>
whether through merger, consolidation, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, combination
of shares, exchange of shares, change in corporate structure or the like, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares subject to the Plan, and in the number, kind, and per share exercise
price of shares subject to unexercised options or portions thereof granted prior
to any such change. In the event of any such adjustment in an outstanding
option, the Optionee thereafter shall have the right to purchase the number of
shares under such option at the per share price, as so adjusted, which the
Optionee could purchase at the total purchase price applicable to the option
immediately prior to such adjustment.
(b) Adjustments under this Section 7 shall be determined by the
Compensation Committee and such determinations shall be conclusive. The
Compensation Committee shall have the discretion and power in any such event to
determine and to make effective provision for acceleration of the time or times
at which any option or portion thereof shall become exercisable. No fractional
shares of Common Stock shall be issued under the Plan on account of any
adjustment specified above.
8. EFFECT OF CERTAIN TRANSACTIONS
In the case of (i) the dissolution or liquidation of the Company, (ii) a
reorganization, merger, consolidation or other business combination in which the
Company is acquired by another entity (other than a holding company formed by
the Company) or in which the Company is not the surviving entity, or (iii) the
sale of all or substantially all of the assets of the Company to another entity,
the Plan and the options issued hereunder shall terminate upon the effectiveness
of any such transaction or event, unless provision is made in connection with
such transaction for the assumption of options theretofore granted, or the
substitution for such option of new options of the successor entity or parent
thereof, with appropriate adjustment as to the number and kind of shares and the
per share exercise prices, as provided in Section 7. In the event of such
termination, all outstanding options whether or not then currently exercisable
for shares of Common Stock shall be exercisable for at least fifteen (15) days
prior to the date of such termination whether or not otherwise exercisable
during such period.
9. TAX WITHHOLDING
(a) Each Optionee shall, no later than the exercise date of any option,
pay to the Company, or make arrangements satisfactory to the Compensation
Committee regarding payment of any federal, state, or local taxes of any kind
required by law to be withheld with respect to such income. The Company shall,
to the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Optionee.
(b) To the extent permitted by the Compensation Committee, an Optionee may
elect to have his tax withholding obligation satisfied, in whole or in part, by
(i) authorizing the Company to
6
<PAGE>
withhold from shares of Common Stock to be issued pursuant to any option number
of shares with an aggregate fair market value (determined by reference to the
provisions of Section 5(d) hereof), that would satisfy the withholding amount
due, or (ii) transferring to the Company shares of Common Stock owned by the
Optionee with an aggregate fair market value (determined by reference to the
provisions of Section 5(d) hereof) that would satisfy the withholding amount
due.
10. NON-TRANSFERABILITY OF OPTION RIGHTS
No option shall be transferable except by will or the laws of descent and
distribution. During the lifetime of any Optionee, the option shall be
exercisable only by such Optionee.
11. NO OBLIGATION TO EXERCISE OPTION
Granting of an option shall impose no obligation on the recipient to
exercise such option.
12. USE OF PROCEEDS
The proceeds received from the sale of stock pursuant to the Plan shall be
used for general corporate purposes.
13. RIGHTS AS A STOCKHOLDER
An Optionee shall have no rights as a stockholder with respect to any stock
covered by his or her option until such Optionee shall have become the holder of
record of such stock, and shall not be entitled to any dividends or
distributions or other rights in respect of such stock for which the record date
is prior to the date on which he or she shall have become the holder of record
thereof.
Notwithstanding anything herein to the contrary, the Compensation
Committee, in its sole discretion, may restrict the transferability of all or
any number of shares of stock issued under the Plan upon the exercise of an
option by legending the stock certificate as it deems appropriate.
14. EMPLOYMENT RIGHTS
Nothing in the Plan or in any option granted hereunder shall confer on any
Optionee any right to continue in the employ of the Company, or to interfere in
any way with the right of the Company to terminate the Optionee's employment at
any time.
7
<PAGE>
15. COMPLIANCE WITH THE LAW
The Company is relieved from any liability for the nonissuance or non-
transfer, or any delay in issuance or transfer, of any shares of stock subject
to options under the Plan which results from the inability of the Company to
obtain, or from any delay in obtaining, from any regulatory body having
jurisdiction, all requisite authority to issue or transfer shares of stock of
the Company, if counsel for the Company deems such authority necessary for the
lawful issuance or transfer of any such shares. Appropriate legends may be
placed on the stock certificates evidencing shares issued upon exercise of
options to reflect such transfer restrictions.
Each option granted under the Plan is subject to the requirement that if at
any time the Compensation Committee determines, in its discretion, that the
listing, registration or qualification of shares of stock issuable upon exercise
of options is required by any securities exchange or under any state or Federal
law, or that the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the grant of
options or the issuance of shares of stock, no options or shares of stock shall
be issued, in whole or in part, unless such listing, registration,
qualification, consent or approval has been effected or obtained free of any
conditions or with such conditions as are acceptable to the Compensation
Committee.
16. CANCELLATION OF OPTIONS
The Compensation Committee, in its discretion, may, with the consent of an
Optionee, cancel any outstanding option held by such Optionee hereunder.
17. AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan or amend the Plan at any
time, and from time to time, subject to any required regulatory approval and the
limitation that, except as provided in Sections 7 and 8 thereof, no amendment
shall be effective unless approved by the stockholders of the Company in
accordance with applicable law and regulations at an annual or special meeting
held within twelve months before or after the date of adoption of such
amendment, where such amendment will:
(a) increase the number of shares of Common Stock as to which options may
be granted under the Plan;
(b) change in substance Section 4 hereof relating to eligibility to
participate in the Plan;
(c) change the minimum option exercise price; or
(d) otherwise materially increase the benefits accruing to individuals
under the Plan.
8
<PAGE>
In addition to the foregoing, other Plan amendments shall be subject to
approval by the Company stockholders if and to the extent determined by the
Compensation Committee to be required by the Act to ensure that options or
grants granted under the Plan are exempt under Rule 16b-3 promulgated under the
Act, or that Incentive Stock Options granted under the Plan are qualified under
Section 422 of the Code.
Except as provided in Sections 7 and 8 hereof, rights and obligations under
any option granted before any amendment of the Plan shall not be altered or
impaired by such amendment, except with the consent of the Optionee.
18. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including
without limitation, the granting of stock or stock options otherwise than under
the Plan, and such arrangements may be either applicable generally or only in
specific cases.
19. GOVERNING LAW
The Plan shall be governed by Delaware law, except to the extent that such
law is preempted by federal law.
20. EFFECTIVE DATE AND EXPIRATION DATE OF PLAN;
STOCKHOLDER APPROVAL
This Plan shall become effective upon the date that it is approved by the
Board of Directors of the Company; provided, however, that the Plan shall be
subject to the approval of the Company's stockholders in accordance with
applicable laws and regulations at an annual or special meeting held within
twelve months of such effective date. No options granted under the Plan prior
to such stockholder approval may be exercised until such approval has been
obtained. No options may be granted under the Plan after the tenth anniversary
of the effective date of the Plan.
21. MISCELLANEOUS
(a) If the Compensation Committee shall find that any person to whom any
amount is payable under the Plan is unable to care for his affairs because of
illness or accident, or is a minor, or has died, then any payment due to such
person or his estate (unless a prior claim therefor has been made by a duly
appointed legal representative) may, if the Compensation Committee so directs
the
9
<PAGE>
Company, be paid to his spouse, child, or other relative, an institution
maintaining or having custody of such person, or any other person deemed by the
Compensation Committee to be a proper recipient on behalf of such person
otherwise entitled to payment. Any such payment shall be a complete discharge
of the liability of the Compensation Committee and the Company therefor.
(b) No member of the Compensation Committee shall be personally liable by
reason of any contract or other instrument executed by such member or on his
behalf in his capacity as a member of the Compensation Committee nor for any
mistake of judgment made in good faith, and the Company shall indemnify and hold
harmless each member of the Compensation Committee and each other employee,
officer or director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated,
against any cost or expense (including counsel fees) or liability (including any
sum paid in settlement of a claim) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or bad
faith; provided, however, that approval of the Company's Board of Directors
shall be required for the payment of any amount in settlement of a claim against
any such person. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Company's Certificate of Incorporation or By-Laws, as a matter of law,
or otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
(c) No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made or otherwise
to segregate any assets, nor shall the Company maintain separate bank accounts,
books, records or other evidence of the existence of a segregated or separately
maintained or administered fund for such purposes. Optionees shall have no
rights under the Plan other than as unsecured general creditors of the Company,
except that insofar as they may have become entitled to payment of additional
compensation by performance of services, they shall have the same rights as
other employees under general law.
(d) Each member of the Compensation Committee and each member of the
Company's Board of Directors shall be fully justified in relying, in acting or
failing to act, and shall not be liable for having so relied, acted or failed to
act in good faith, upon any report made by the independent public accountant of
the Company and upon any other information furnished in connection with the Plan
by any person or persons other than such member.
(e) Except as otherwise specifically provided in the relevant plan
document, no payment under the Plan shall be taken into account in determining
any benefits under any pension, retirement, profit-sharing, group insurance or
other benefit plan of the Company.
(f) The expenses of administering the Plan shall be borne by the Company.
* * *
10
<PAGE>
11
<PAGE>
Exhibit 10.5
ASI SOLUTIONS INCORPORATED
1996 EMPLOYEE STOCK PURCHASE PLAN
The purpose of the ASI Solutions Incorporated 1996 Employee Stock
Purchase Plan (the "Plan") is to provide eligible employees of ASI Solutions
Incorporated (the "Company") and certain of its subsidiaries with opportunities
to purchase shares of the Company's common stock, $.01 par value (the "Common
Stock"). Two hundred fifty thousand (250,000) shares of Common Stock in the
aggregate have been approved for this purpose. The Plan is intended to
constitute an "employee stock purchase plan" within the meaning of Section
423(b) of the Internal Revenue Code of 1986, as amended (the "Code"), and shall
be interpreted in accordance with that intent.
1. Administration. The Plan will be administered by the Company's Board
---------------
of Directors (the "Board") or by a committee appointed by the Board for such
purpose (the "Committee"). The Board or the Committee has authority to make
rules and regulations for the administration of the Plan, and its
interpretations and decisions with regard thereto shall be final and conclusive.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
hereunder.
2. Offerings. The Company will make one or more offerings to eligible
----------
employees to purchase Common Stock under the Plan ("Offerings"). The initial
Offering will begin on the date of the Initial Public Offering and will end on
September 30, 1997 (the "Initial Offering"). Thereafter, an Offering will begin
on the first business day occurring on or after each October 1 and April 1 and
will end on the last business day occurring on or before the following March 31
and September 30, respectively. The Board or the Committee may, in its
discretion, select a different offering period for any offering, provided that
the duration of the offering is not longer than one year.
3. Eligibility. All employees of the Company (including employees who are
------------
also directors of the Company) and all employees of each Designated Subsidiary
(as defined in Section 11) are eligible to participate in any one or more of the
Offerings under the Plan, provided that as of the first day of the applicable
Offering (the "Offering Date") they are customarily employed by the Company or a
Designated Subsidiary for more than twenty (20) hours a week and have completed
at least six (6) months of employment.
4. Participation. An employee eligible on any Offering Date may
--------------
participate in such Offering by submitting an enrollment form to his appropriate
payroll location at least ten (10) business days before the Offering Date (or by
such other deadline as shall be established for the Offering). The form will
(a) state the percentage to be deducted from his Compensation (as defined in
Section 11) per pay period, (b) authorize the purchase of Common Stock for him
in each Offering in accordance with terms of the Plan and (c) specify the exact
name or names in
<PAGE>
which shares of Common Stock purchased for him are to be issued pursuant to
Section 10. An employee who does not enroll in accordance with these procedures
will be deemed to have waived his right to participate. Unless an employee
files a new enrollment form or withdraws from the Plan, his deductions and
purchases will continue at the same percentage of compensation for future
Offerings, provided he remains eligible. Notwithstanding the foregoing,
participation in the Plan will neither be permitted nor be denied contrary to
the requirements of the Code.
5. Employee Contributions. Each eligible employee may authorize payroll
------------------------
deductions at a minimum of one percent (1%) up to a maximum of ten percent (10%)
of his Compensation for each pay period. The Company will maintain book
accounts showing the amount of the payroll deductions made by each
participating employee for each Offering. No interest will accrue or be paid on
payroll deductions.
6. Deductions Changes. An employee may not increase or decrease his
-------------------
payroll deduction during any Offering, but may increase or decrease his payroll
deduction with respect to the next Offering (subject to the limitations of
Section 5) by filing a new enrollment form at least ten (10) business days
before the next Offering Date (or by such other deadline as shall be established
for the Offering).
7. Withdrawal. An employee may withdraw from participation in the Plan by
-----------
delivering a written notice of withdrawal to his appropriate payroll location.
The employee's withdrawal will be effective as of the next business day.
Following an employee's withdrawal, the Company will promptly refund to him his
entire account balance under the Plan (after payment for any Common Stock
purchased before the effective date of withdrawal). Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Offering, but may enroll in a subsequent Offering in accordance with
Section 4.
8. Grant of Options. On each Offering Date, the Company will grant to
-----------------
each eligible employee who is then a participant in the Plan an option
("Option") to purchase on the last day of such Offering (the "Exercise Date"),
at the Option Price hereinafter provided for, whole shares of Common Stock
reserved for the purposes of the Plan up to a maximum determined by dividing ten
percent (10%) of such employee's projected Compensation for the period of the
Offering by eighty five percent (85%) of the Fair Market Value of the Common
Stock (as defined in Section 11) on the Offering Date. The purchase price for
each share purchased under such Option (the "Option Price") will be 85% of the
Fair Market Value of the Common Stock on the Offering Date or the Exercise Date,
whichever is less.
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes of the proceeding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
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<PAGE>
determining the stock ownership of an employee, and all stock which the employee
has a contractual right to purchase shall be treated as stock owned by the
employee. In addition, no employee may be granted an Option which permits his
rights to purchase stock under the Plan, and any other employee stock purchase
plan of the Company and its Parents and Subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such stock (determined on the option
grant date or dates) for each calendar year in which the Option is outstanding
at any time. The purpose of the limitation in the preceding sentence is to
comply with Section 423(b)(8) of the Code.
9. Exercise of Option and Purchase of Shares. Each employee who continues
------------------------------------------
to be a participant in the Plan on the Exercise Date shall be deemed to have
exercised his Option on such date and shall acquire from the Company such number
of whole shares of Common Stock reserved for the purpose of the Plan as his
accumulated payroll deductions on such date will purchase at the Option Price,
subject to any other limitations contained in the Plan. Any balance remaining
in an employee's account at the end of an Offering will be refunded to the
employee promptly; provided that any balance remaining in an employee's account
at the end of an Offering solely by reason of the inability to purchase a
fractional share will be carried forward to the next Offering.
10. Issuance of Certificates. Certificates representing shares of Common
-------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship or in the name of a broker authorized by the
employee to be his, or their, nominee for such purpose.
11. Definitions
-----------
The term "Compensation" means the amount of total cash compensation, prior
to salary reduction pursuant to either Section 125 or 401(k) of the code,
including base pay, commissions, overtime, and incentive and bonus awards, but
excluding allowances and reimbursements for expenses such as relocation
allowances or travel expenses, income or gains or the exercise of Company stock
options, and similar items.
The term "Designated Subsidiary" means any present or future
Subsidiary (as defined below) that is designated from time to time by the Board
or the Committee to participate in the Plan. subsidiaries may be so designated
either before or after the Plan is approved by the stockholders.
The term "Fair Market Value of the Common Stock" means the last
reported sale price of the Common Stock on the Nasdaq National Market ("NASDAQ")
on a given day or, if no sales of Common Stock were made on that day, the last
reported sale price of the Common Stock on the next preceding day on which sales
were made.
The term "Parent" means a "parent corporation" with respect to the Company,
as
3
<PAGE>
defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect
to the Company, as defined in Section 424(f) of the Code.
12. Rights on Retirement, Death, or Other Termination of Employment. If a
----------------------------------------------------------------
participating employee's employment terminates for any reason before the
Exercise Date for any Offering, no payroll deduction will be taken from any pay
due and owing to the employee and the balance in his account will be paid to him
or, in the case of his death, to his designated beneficiary as if he had
withdrawn from the Plan under Section 7. An employee will be deemed to have
terminated employment, for this purpose, if the corporation that employs him,
having been a Designated Subsidiary, ceases to be a Subsidiary, or if the
employee is transferred to any corporation other than the Company or a
Designated Subsidiary.
13. Optionees Not Stockholders. Neither the granting of an Option to an
---------------------------
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under the Plan
until such shares have been purchased by and issued to him.
14. Rights Not Transferable. Rights under the Plan are not transferable
------------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
15. Application of Funds. All funds received or held by the Company
---------------------
under the Plan may be combined with other corporate fund and may be used for any
corporate purpose.
16. Adjustment in Case of Changes Affecting Common Stock. In the event of
-----------------------------------------------------
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for the Plan, and the
share limitation set forth in Section 8, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock,
such adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
17. Amendment of the Plan. The Board or the Committee may at any time,
----------------------
and from time to time, amend the Plan in any respect, except that without the
approval, within twelve (12) months of such Board or Committee action, by the
holders of a majority of the shares of stock of the Company present or
represented and entitled to vote at a meeting of stockholders, no amendment
shall be made (a) increasing the number of shares approved for the Plan or (b)
redefining the class of corporations whose employees are eligible to receive
options under the Plan.
18. Insufficient Shares. If the total number of shares of Common Stock
--------------------
that would
4
<PAGE>
otherwise be purchased on any Exercise Date plus the number of shares purchased
under previous Offerings under the Plan exceeds the maximum number of shares
issuable under the Plan, the shares then available shall be apportioned among
participants in proportion to the amount of payroll deductions accumulated on
behalf of each participant that would otherwise be used to purchase Common Stock
on such Exercise Date.
19. Termination of the Plan. The Plan may be terminated at any time by
------------------------
the Board or the Committee. Upon termination of the Plan, all amounts in the
accounts of participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and
-------------------------
deliver Common Stock under the Plan is subject to listing on NASDAQ (or other
national exchange) and obtaining all governmental approvals required in
connection with the authorization, issuance, or sale of such stock.
The Plan shall be governed by Delaware law except to the extent that
such law is preempted by federal law.
The Plan is intended to comply with the provisions of Rule 16b-3
promulgated 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. To ensure compliance with such Rule, the Board or the
Committee may limit the right of covered employees to withdraw from the Plan or
to resume participation following withdrawal.
21. Issuance of Shares. Shares may be issued upon exercise of an Option
-------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. Tax Withholding. Participation in the Plan is subject to any required
----------------
tax withholding on income of the participant in connection with the Plan. Each
employee agrees, by entering the Plan, that the Company and its Subsidiaries
shall have the right to deduct any such taxes from any payment of any kind
otherwise due to the employee, including shares issuable under the Plan.
23. Notification upon Sale of Shares. Each employee agrees, by entering
---------------------------------
the Plan, to give the Company prompt notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take
--------------------------------------------
effect on the first day of the Company's initial public offering, subject to
approval by the holders of a majority of the shares of stock of the Company
Present or represented and entitled to vote at a meeting of stockholders, which
approval must occur within twelve (12) months of the adoption of the Plan
5
<PAGE>
by the Board.
6
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 60,190 69,583
<SECURITIES> 0 0
<RECEIVABLES> 4,198,886 2,053,045
<ALLOWANCES> (14,000) (24,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,983,632 2,226,258
<PP&E> 3,593,723 1,483,493
<DEPRECIATION> (1,373,922) (962,769)
<TOTAL-ASSETS> 8,595,238 4,242,605
<CURRENT-LIABILITIES> 4,831,229 1,695,885
<BONDS> 0 0
0 0
0 0
<COMMON> 46,252 46,252
<OTHER-SE> 3,196,634 2,349,976
<TOTAL-LIABILITY-AND-EQUITY> 8,595,238 4,242,605
<SALES> 18,818,839 10,558,113
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<CGS> 8,705,528 5,206,854
<TOTAL-COSTS> 15,091,564 9,146,516
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,343 2,227
<INCOME-PRETAX> 3,728,618 1,413,824
<INCOME-TAX> 1,916,926 681,455
<INCOME-CONTINUING> 1,811,692 732,369
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,811,692 732,369
<EPS-PRIMARY> .28 .11
<EPS-DILUTED> 0 0
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