<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1997
REGISTRATION NO. 333-29233
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------
THE A CONSULTING TEAM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 7379 13-3169913
- ------------------------ -------- ------------
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
200 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10003
(212) 979-8228
(212) 979-8272 (FAX)
(Address and telephone number of Registrant's principal executive offices)
-------------------
SHMUEL BENTOV
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
THE A CONSULTING TEAM, INC.
200 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10003
(212) 979-8228
(212) 979-8272 (FAX)
(Name, address and telephone number of agent for service)
-------------------
Please send a copy of all communications to:
LAWRENCE B. FISHER, ESQ. M. HILL JEFFRIES, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP ALSTON & BIRD LLP
666 FIFTH AVENUE 1201 W. PEACHTREE STREET
NEW YORK, NEW YORK 10103 ATLANTA, GEORGIA 30309-3429
(212) 506-5000 (404) 881-7000
(212) 506-5151 (FAX) (404) 881-7777 (FAX)
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 6, 1997
1,800,000 SHARES
[LOGO] T A C T
---------------------------
THE A CONSULTING TEAM, INC.
COMMON STOCK
-----------
All of the 1,800,000 shares of Common Stock offered hereby are being sold by
The A Consulting Team, Inc. ("TACT" or the "Company").
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock. It is currently estimated that the initial public offering
price per share of Common Stock will be between $10.00 and $12.00. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price of the Common Stock. Application has been made
for listing of the Common Stock on the Nasdaq National Market under the symbol
"TACX."
After completion of the Offering, Shmuel BenTov, the founder, Chairman of the
Board, Chief Executive Officer and President of the Company, will beneficially
own approximately 66.4% of the Company's outstanding shares of Common Stock
(62.3% if the Underwriters' over-allotment option is exercised in full).
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
PROCEEDS
PRICE TO UNDERWRITING TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $ $ $
- --------------------------------------------------------------------------------
Total(3)....................................... $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses payable by the Company estimated to be $500,000.
(3) The Company and its sole shareholder (the "Selling Shareholder") have each
granted the Underwriters a 30-day option to purchase up to 135,000
additional shares of Common Stock (for a total of 270,000 shares of Common
Stock) solely to cover over-allotments, if any. See "Underwriting." If such
option is exercised in full, the total Price to Public, Underwriting
Discounts, Proceeds to Company and Proceeds to the Selling Shareholder will
be $ , $ , $ and $ , respectively. The Company will not receive
any of the proceeds from the sale of shares by the Selling Shareholder. See
"Underwriting."
-----------
The shares of Common Stock are offered severally by the Underwriters named
herein subject to prior sale when, as and if received and accepted by the
Underwriters, subject to their right to reject orders, in whole or in part, and
to certain other conditions. It is expected that delivery of the certificates
will be made against payment therefor at the office of The Robinson-Humphrey
Company, Inc., Atlanta, Georgia, on or about August , 1997.
THE ROBINSON-HUMPHREY COMPANY, INC. WHEAT FIRST BUTCHER SINGER
August , 1997
<PAGE>
[Inside Front Cover of Preliminary Prospectus:]
THE A CONSULTING TEAM, INC.
TACT CONSULTING SERVICES
TACT Consulting has organized its extensive service offerings into Technical
Practices having specialized expertise in particular information technologies.
TACT Consulting continuously identifies and develops additional technical
expertise in emerging technologies in anticipation of the evolving IT needs of
its clients.
[Graphic depicting a three-dimensional cube. On the front face of the cube are
listed the Company's twelve Technical Practices. Four of the Technical Practices
are projected out into columns which list the IT professional services which the
Company provides for the respective Technical Practice. On the side of the cube
are listed the three broad services offered by the Company: Strategic IT
Consulting, IT Solutions and IT Professional Services.]
Client/Server
Infrastructure Design & Implementation
Application Development & Maintenance
Database Design, Implementation & Maintenance
Performance Monitoring/Tuning & Capacity Planning
System Implementations and Migration
Outsourcing
Project Management
Internet/Intranet
Infrastructure Design & Implementation
Website Design, Development & Maintenance
Web Application, Development & Maintenance
Performance Monitoring/Tuning & Capacity Planning
System Implementations & Migration
Outsourcing
Project Management
Legacy Systems
Application Development & Maintenance
Database Design, Implementation & Maintenance
Performance Monitoring/Tuning & Capacity Planning
Outsourcing of Database Administration Function
Conversions
Project Management
Windows NT
TCP/IP Architecture, Design & Implementation
Network Configuration & Administration
Performance Monitoring/Tuning & Capacity Planning
Enterprise-Wide Windows NT/95
Year 2000 & Conversions
Impact Analysis
Conversion Planning & Management
Pilot Study Identification
Code Remediation/ Conversion
Implementation
Rollout
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION MAINTAINED BY THE
UNDERWRITERS IN THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated or the
context otherwise requires: (i) the "Company" refers to The A Consulting Team,
Inc. ("TACT"), (ii) all information in this Prospectus has been adjusted to
reflect the distribution (the "Distribution") described under "Prior S
Corporation Status" and a 355,000-for-1 split of the shares of common stock,
$0.01 par value per share (the "Common Stock"), effected prior to the effective
date hereof in the form of a stock dividend, and (iii) all information in this
Prospectus assumes that the Underwriters' over-allotment option will not be
exercised.
THE COMPANY
The A Consulting Team, Inc. provides enterprise-wide information technology
("IT") consulting, software and training services and solutions primarily to
Fortune 1000 companies in a wide range of industries. The Company generally
serves as an outside resource to a client's internal IT staff, providing a
broad range of consulting services including strategic IT consulting, IT
solutions and IT professional services to improve the client's productivity,
competitive position and performance. Strategic IT consulting includes
technology infrastructure advisory services and systems architecture design. IT
solutions include planning, designing and implementing enterprise-wide
information systems, such as workgroup solutions (Microsoft Exchange and Lotus
Notes(R)); client/server; internet/intranet and EDI; database management
services; application design, development and implementation; networking;
imaging and workflow; and systems integration. IT professional services include
systems support, maintenance and contract programming. TACT's ability to
provide comprehensive services and solutions across diverse technology
platforms allows its clients to maintain and enhance their current systems
while embracing new technologies. Clients of the Company include Alamo Rent-A-
Car Inc., Allied Signal, Inc., BMW of North America, Inc., Chase Manhattan
Bank, ChaseMellon Shareholder Services, Citibank, N.A., Dreyfus Corporation,
First Chicago Trust Company, General Electric Company, Goldman Sachs & Co., The
Guardian Life Insurance Company of America, Humana Inc., International Business
Machines Corporation, Metropolitan Life Insurance Co., Merrill Lynch Pierce
Fenner & Smith Incorporated, National Broadcasting Co., Inc., New York Life
Insurance Company, Norfolk Southern Corporation, Pacific Telecom, Inc., Pfizer
Inc., Prudential Insurance Company, St. John's University and Summit Bancorp.
For the six months ended June 30, 1997, no client accounted for more than 10%
of revenues, except for one client which accounted for 26% of revenues. The
Company's customers are primarily located in the New York/New Jersey
metropolitan area.
The IT consulting industry has experienced accelerating growth in recent
years due to rapid technological advances which have strained businesses'
internal resources. These advances include more powerful and less expensive
computer technology and the transition from predominantly centralized mainframe
computer systems to open and distributed computing environments. Additionally,
information technology is becoming more critical to successful business
operations. IT services are no longer a peripheral component of most
organizations but instead are integral to many key business processes. At the
same time, managing information technology, especially distributed
architectures, has become more complex and expensive. Accordingly,
organizations are increasingly turning to external IT services organizations to
develop, support and enhance their internal IT systems. By outsourcing IT
services, companies are able to (i) focus on their core business, (ii) access
specialized technical skills, (iii) implement IT solutions more rapidly, (iv)
benefit from flexible staffing, providing a variable cost solution to a fixed
cost issue and (v) reduce the cost of recruiting, training, and adjusting the
number of employees as IT requirements change. Based on industry sources, IT
outsourcing in the United States is estimated to increase from approximately
$50 billion in 1995 to approximately $100 billion in 2000, representing a
compound annual growth rate of approximately 15%. The Company has achieved a
compound annual revenue growth rate of 47.6% for the three-year period ended
December 31, 1996.
3
<PAGE>
By focusing on its technical expertise, high level of service and business-
oriented IT solutions, the Company has attempted to build a reputation as a
quality provider of IT services and solutions. In order to become a one stop
solution provider for its client's IT needs, the Company has developed an
extensive array of service offerings which are organized into specific
Technical Practices in particular information technologies. The Company's
current Technical Practices and other specialized areas of expertise include
Client/Server, Internet/Intranet, Legacy Systems, Networking and System
Management, Windows NT, Year 2000 and Conversions, Imaging and Workflow,
Quality Assurance and Testing, Messaging, Security, Data Warehousing and Lotus
Notes/Microsoft Exchange. The Company has organized its services into Technical
Practices in an effort to solve quickly and efficiently the diverse IT needs of
its clients. Further, the Company continuously identifies and develops
additional technical expertise in emerging technologies in anticipation of the
evolving IT needs of its clients. The Company also markets software add-on
tools that enhance Windows NT administration, database environments and
mainframe and non-mainframe connectivity. In addition, the Company offers a
wide selection of technical and end-user training courses in client/server,
internet/intranet, legacy, and networking technologies for both clients and
consultants. The Company has been successful in the past in generating
consulting business from existing software and training clients.
TACT markets and delivers its IT solutions through TACT Solution Teams
comprised of professionals who possess project management skills, technical
expertise and experience in a client's industry. These skills enable a Solution
Team to identify and address more effectively a particular client's technical
needs in relation to its business objectives. TACT's focus on providing highly
qualified IT professionals allows the Company to identify additional areas of
the client's business which could benefit from the Company's IT solutions,
thereby facilitating the cross- marketing of multiple Company services. A
Solution Team is typically deployed from one of the Company's two Solution
Branches in New York and New Jersey. Management's experience has been that the
local presence established by a Solution Branch improves the Company's ability
to attract local clients, as well as its ability to attract, develop, motivate
and retain locally-based IT professionals. The Company presently intends to
open a Solution Branch in Connecticut by the end of 1997 and additional
Solution Branches in select markets nationwide in the future. Management has
developed the TACT Solution Teams, as well as TACT's local Solution Branch
structure, in an effort to advance the Company's objective of establishing and
maintaining long-term relationships with its clients. Eleven of the Company's
top twenty clients measured by revenue for the six months ended June 30, 1997
had been clients for over three years.
The Company's objective is to become a leading provider of IT services to
Fortune 1000 companies and other organizations with diverse IT needs in select
markets nationwide. In order to achieve this objective, the Company intends to
pursue the following strategies: (i) cross-sell additional IT services to
existing clients, (ii) expand the client base, (iii) expand the range of
Technical Practices, (iv) open additional Solution Branches, (v) increase sales
and marketing of software products and training services and (vi) attract,
develop, motivate and retain quality IT professionals.
The address of TACT's principal executive office is 200 Park Avenue South,
New York, New York 10003. The telephone number of such office is (212) 979-
8228. The Company maintains a website at http://www.tact.com. Information
contained on the Company's website is not a part of this Prospectus and must
not be relied upon in evaluating the Company, its business or an investment in
the Common Stock offered hereby.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company..... 1,800,000 shares
Common Stock to be Outstanding after the
Offering............................... 5,350,000 shares (1)
Use of Proceeds by the Company.......... For payment of the Distribution;
repayment of certain indebtedness;
and working capital and general
corporate purposes, including the
opening of additional Solution
Branches, the expansion of Technical
Practices, the recruitment of
personnel and other services. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol.. TACX
</TABLE>
- --------
(1) Excludes 600,000 additional shares issuable pursuant to the Company's Stock
Option and Award Plan, of which 450,000 shares are subject to currently
outstanding options. See "Management--Stock Option Plan" and "Shares
Eligible For Future Sale."
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
----------------------- --------------
1994 1995 1996 1996 1997
------ ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting services...................... $9,463 $14,430 $18,981 $8,637 $15,378
Software licensing....................... 1,321 1,383 1,776 1,107 785
Training services........................ 98 210 238 149 110
------ ------- ------- ------ -------
Total revenues......................... 10,882 16,023 20,995 9,893 16,273
Cost of revenues......................... 8,016 11,041 14,521 6,806 11,217
------ ------- ------- ------ -------
Gross profit........................... 2,866 4,982 6,474 3,087 5,056
Executive compensation(2)................ 607 1,615 1,623 812 150
Income (loss) from operations............ (7) 92 102 317 1,678
Net income............................... 2 190 8 255 1,454
UNAUDITED PRO FORMA DATA(3):
Pro forma income from operations......... $ 1,325 $ 1,641
Pro forma net income..................... 692 852
Pro forma net income per share........... $ .18 $ .23
Weighted average shares outstanding...... 3,746 3,746
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
---------------------
PRO FORMA,
ACTUAL AS ADJUSTED(4)
------ --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $1,742 $17,644
Total assets.............................................. 7,236 20,401
Long-term debt............................................ 38 38
Shareholder's equity...................................... 2,265 18,121
</TABLE>
- --------
(1) See Note 1 of Notes to Financial Statements.
(2) Executive compensation represents compensation paid to Mr. BenTov during
the periods presented. Effective upon consummation of the Offering, Mr.
BenTov will enter into a two year employment agreement providing for an
annual salary of $250,000, providing that he will receive no cash bonus for
1997 and providing for an annual bonus not to exceed one percent of the
Company's total revenues for 1998 subject to approval by the non-employee
directors of the Company's Executive Compensation Committee and further
subject to the Company meeting certain financial performance criteria. Mr.
BenTov and the Company have agreed during the two year term of his
employment agreement not to (i) increase Mr. BenTov's compensation
(including salary and bonus) or (ii) otherwise amend the terms of Mr.
BenTov's employment agreement. See "Management--Employment Agreements" and
"--Executive Officer Bonus Plan".
(3) The pro forma statements of operations data are presented to reflect (i)
reduced executive compensation expense (excluding any bonus which is
contingent upon the Company meeting certain financial performance criteria)
effective upon consummation of the Offering relating to Mr. BenTov,
partially offset by increased salary expense related to the Company's
hiring of a Chief Financial Officer and (ii) provision for federal and
state income taxes as if the Company had been subject to federal and state
income taxation as a C Corporation during each of the periods presented. On
the closing date of the Offering, the Company will make the Distribution to
Mr. BenTov estimated to be approximately $2,000,000 as of June 30, 1997.
See "Prior S Corporation Status", "Management--Executive Officer Bonus
Plan" and Note 11 of Notes to Financial Statements.
(4) As adjusted to reflect (i) the sale of the 1,800,000 shares of Common Stock
offered hereby and the initial application of the estimated net proceeds
therefrom, assuming a public offering price of $11.00 per share, after
deducting underwriting discounts and estimated offering expenses payable by
the Company, (ii) the recording of a deferred tax liability of $58,000
resulting from the change from an S Corporation to a C Corporation and
(iii) the payment of the Distribution representing the estimated earned and
previously undistributed taxable S Corporation income through the date
prior to the closing date of the Offering (the "Termination Date") that
will result in the reduction of shareholders' equity to $207,000 prior to
the Company's receipt of the net proceeds of the Offering. See "Prior S
Corporation Status" and Note 11 of Notes to Financial Statements.
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the
Company and its business before purchasing the securities offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
Management of Growth. The Company currently is experiencing rapid growth
that has strained, and could continue to strain, the Company's managerial and
other resources. The Company intends to actively pursue a strategy of
continued growth and will seek to expand the range of its services and
penetrate new geographic markets. More specifically, the Company intends to
open one additional Solution Branch in Connecticut by the end of 1997 and
additional Solution Branches in the future. The Company has very limited
experience in opening Solution Branches. To accomplish this branch expansion,
the Company will be required to make additional capital expenditures,
including leasing additional facilities. The availability of consultants as
employees or independent contractors will also become an important factor in
the Company's expansion plans. In addition, the Company will be required to
identify suitable new geographic markets with sufficient demand for the
Company's services; to hire and retain skilled management, marketing, customer
service and other personnel; and to successfully manage growth, including
monitoring operations, controlling costs and maintaining effective quality and
service controls. There can be no assurance that the Company will be able to
do so effectively or that allocation of capital or human resources will not
adversely impact the Company as a whole. If the Company's management is unable
to manage growth or new employees are unable to achieve anticipated
performance levels, the Company's business, results of operations and
financial condition could be materially and adversely affected. As part of its
growth strategy, the Company may consider acquisitions of complementary
businesses and, although the Company does not presently have any plans,
arrangements or agreements with respect to any potential acquisitions, there
can be no assurance that if the Company consummates an acquisition, it will be
able to successfully integrate any acquired businesses into the Company's
operations. There also can be no assurance that future acquisitions will not
have an adverse effect upon the Company's results of operations and earnings
per share, particularly in the fiscal quarters immediately following
consummation of such transactions while the operations of the acquired
business are being integrated into the Company's operations. See "Use of
Proceeds" and "Business."
Attraction and Retention of Project Managers and Technical Specialists. The
Company's business involves the delivery of professional services. Therefore,
its success will depend in large part upon its ability to attract and retain
highly skilled project managers and technical specialists. Qualified project
managers and technical specialists are in particularly great demand and are
likely to remain a limited resource for the foreseeable future. There can be
no assurance that the Company will be able to attract and retain sufficient
numbers of highly skilled project managers and technical specialists. The loss
of some or all of the Company's project managers and technical specialists
could have a material adverse impact on the Company, including its ability to
secure and complete engagements. No project managers or technical specialists
have entered into employment agreements with the Company for any specific
term. Although the Company utilizes the services of a significant number of
independent contractors to act as consultants, the Company believes it can
obtain the services of a sufficient number of independent contractors to
fulfill its needs as new projects commence. These independent contractors are
not employees of the Company, however, and there can be no assurance that the
services of these independent contractors will continue to be available to the
Company on terms acceptable to the Company. See "Business--TACT Recruiting"
and "--Human Resources" and "Management--Executive Compensation."
Client Revenue and Geographic Concentrations. The Company derives a
significant portion of its revenues from a relatively limited number of
clients primarily located in the New York/New Jersey metropolitan area of the
United States. Revenues from the Company's ten most significant clients
accounted for approximately 60%, 60% and 69% of its revenues for the years
ended December 31, 1995 and 1996 and the six months ended
7
<PAGE>
June 30, 1997, respectively. A significant client of the Company accounted for
4%, 8% and 26% of revenues for the years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997, respectively. A second significant client
of the Company accounted for 14%, 12% and 8% of revenues for the years ended
December 31, 1995 and 1996 and the six months ended June 30, 1997,
respectively. A third significant client of the Company accounted for 5%, 8%
and 6% of revenues for the years ended December 31, 1995 and 1996 and the six
months ended June 30, 1997, respectively. In any given year, the Company's ten
most significant customers may vary based upon specific projects for those
clients during that year. There can be no assurance that TACT's significant
clients will continue to engage the Company for additional projects or do so
at the same revenue levels. Clients engage the Company on an assignment-by-
assignment basis, and a client can generally terminate an assignment at any
time without penalty. The loss of any significant customer could have a
material adverse effect on the Company's business, results of operations and
financial condition. The failure of the Company to develop relationships with
new customers could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, except for revenue
derived from software sales, substantially all of the Company's revenues for
the year ended December 31, 1996 and for the six months ended June 30, 1997,
respectively, were attributable to clients located in the New York/New Jersey
metropolitan area of the United States. Adverse economic conditions affecting
this region could have an adverse effect on the financial condition of the
Company's clients located there, which in turn could adversely impact the
Company's business and future growth. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Clients and Representative Solutions."
Project Risks. Many of the Company's engagements involve projects that are
critical to the operations of its clients' businesses and provide benefits
that may be difficult to quantify. The Company's failure or inability to meet
a client's expectations in the performance of its services could result in a
material adverse change to the client's operations and therefore could give
rise to claims against the Company or damage the Company's reputation,
adversely affecting its business, results of operations and financial
condition.
Rapid Technological Change; Dependence on New Solutions. The Company's
success will depend in part on its ability to develop IT solutions that keep
pace with continuing changes in IT, evolving industry standards, changing
client preferences and a continuing shift to outsourced solutions by clients.
There can be no assurance that the Company will be successful in adequately
addressing the outsourcing market or other IT developments on a timely basis
or that, if addressed, the Company will be successful in the marketplace.
There can also be no assurance that products or technologies developed by
others will not render the Company's services uncompetitive or obsolete. The
Company's failure to address these developments could have a material adverse
effect on the Company's business, results of operations and financial
condition. In addition, the market for the Company's software products is
characterized by rapid technological change, evolving industry standards in
computer hardware and software technology, changes in customer requirements
and frequent new product introductions and enhancements. If the Company is
unable to identify and introduce new third-party developed products in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, results of operations and financial
condition could be adversely affected.
Variability of Quarterly Results of Operations. Variations in the Company's
revenues and results of operations occur from time to time as a result of a
number of factors, such as the timing of new Solution Branch openings,
Technical Practice expansion activities, the significance of client
engagements commenced and completed during a quarter, the number of business
days in a quarter, consultant hiring and utilization rates and the timing of
corporate expenditures. The timing of revenues is difficult to forecast
because the Company's sales cycle can be relatively long and may depend on
such factors as the size and scope of assignments and general economic
conditions. A variation in the number of client assignments or the timing of
the initiation or the completion of client assignments, particularly at or
near the end of any quarter, can cause significant variations in results of
operations from quarter to quarter and can result in losses to the Company. In
addition, the Company's engagements generally are terminable by the client at
any time without penalty. Although the number of consultants can be adjusted
to correspond to the number of active projects, the Company must maintain a
sufficient number of senior consultants to oversee existing client projects
and to assist with the Company's sales
8
<PAGE>
force in securing new client assignments. An unexpected reduction in the
number of assignments could result in excess capacity of consultants and
increased selling, general and administrative expenses as a percentage of
revenues. The Company has also experienced, and may in the future experience,
significant fluctuations in the quarterly results of its software sales as a
result of the variable size and timing of individual license transactions,
competitive conditions in the industry, changes in customer budgets, and the
timing of the introduction of new products or product enhancements. In the
event that the Company's results of operations for any period are below the
expectation of market analysts and investors, the market price of the Common
Stock could be adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Ability to Maintain Margins. The Company derives revenues primarily from the
hourly billing of its consultants' services and, to a lesser extent, from
fixed-price projects. The Company's most significant cost is project personnel
cost, which consists of consultant salaries and benefits. Thus, the Company's
financial performance is primarily based upon billing margin (billable hourly
rate less the consultant's hourly cost) and personnel utilization rates
(number of days worked by a consultant during a two-week billing cycle divided
by the number of billing days in that cycle). To date, the Company has been
able to maintain its billing margins by offsetting increases in employee
salaries with increases in its hourly rates. There can be no assurance,
however, that the Company's revenues will continue to be billed primarily on a
time and materials basis or that the Company will be able to continue to pass
along increases in its cost of services to its clients. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Competition. The market for IT services includes a large number of
competitors, is subject to rapid change and is highly competitive. Primary
competitors include participants from a variety of market segments, including
consulting divisions of the "Big Six" accounting firms, systems consulting and
implementation firms, application software firms and management consulting
firms. Many of these competitors have significantly greater financial,
technical and marketing resources and greater name recognition than the
Company. In addition, the Company competes with its clients' internal
resources, particularly when these resources represent a fixed cost to the
client. In the future, such competition may impose additional pricing
pressures on the Company. There can be no assurance that the Company will
compete successfully with its existing competitors or with any new
competitors. See "Business--Competition."
Reliance on Key Executives. The success of the Company is highly dependent
upon the efforts and abilities of its executive officers, particularly Shmuel
BenTov, the Company's founder, Chairman of the Board, Chief Executive Officer
and President. In addition, the Company is dependent upon the services of Mr.
Frank T. Thoelen, its Chief Financial Officer, who was hired as of June 1,
1997. Although Mr. BenTov and Mr. Thoelen have entered into employment
agreements containing noncompetition, nondisclosure and nonsolicitation
covenants, these contracts do not guarantee that these individuals will
continue their employment with the Company. The loss of the services of either
of these key executives for any reason could have a material adverse effect
upon the Company's business, results of operations and financial condition.
See "Management."
Control by Principal Shareholder. After the Offering, Mr. BenTov will
beneficially own approximately 66.4% of the outstanding Common Stock (62.3% if
the Underwriters' over-allotment option is exercised in full). Accordingly,
Mr. BenTov will be able to substantially control the election of the directors
of the Company and the outcome of all other matters submitted to a vote of the
shareholders. See "Principal and Selling Shareholder" and "Description of
Capital Stock."
Payments and Benefit to Existing Sole Shareholder. On the date of closing of
the Offering, the Company will make the Distribution to Mr. BenTov equal to
the Company's estimated earned and previously undistributed taxable S
Corporation income through the day preceding the Termination Date, which the
Company currently estimates will be approximately $2.0 million as of June 30,
1997. Purchasers of the Common Stock in the Offering will not receive any
portion of the Distribution. After the closing of the Offering, an appropriate
payment will be made to Mr. BenTov or the Company, as the case may be, in the
event that the actual amount of the previously undistributed taxable S
Corporation income through the day preceding the Termination Date is
9
<PAGE>
different than the Distribution. Additionally, Mr. BenTov has personally
guaranteed the Company's line of credit with Citibank, N.A. To the extent that
this line of credit is repaid in full with the proceeds of the Offering, Mr.
BenTov will benefit from a corresponding decrease in his personal obligation
to secure repayment of such line of credit and will be released from his
guaranty. Neither Mr. BenTov nor any other person has any obligation to make
personal guarantees available to the Company in the future, and there can be
no assurance that the absence of personal guarantees will not adversely affect
the Company's ability to obtain future financing. See "Prior S Corporation
Status," "Capitalization" and "Use of Proceeds."
Change in Corporate Tax Status. Effective January 1, 1995, the Company
elected to be treated as an S Corporation for federal and state income tax
purposes. As a result, the Company currently pays no federal income tax, and
all of the earnings of the Company have been taxed for federal income tax
purposes directly to Mr. BenTov. The Company currently pays City of New York
income taxes in the same manner as a C Corporation and pays certain state
income taxes at rates that are lower than imposed on C Corporations. If the
Company's S Corporation status were to be terminated by reason of a failure to
satisfy the S Corporation requirements of the Internal Revenue Code of 1986,
as amended, the Company would be subject to income tax as a C Corporation. The
Company believes, however, that it has complied with all applicable S
Corporation requirements. The Company's S Corporation status will terminate
effective the Termination Date, and the Company will again become a C
Corporation fully subject to federal, state and local corporate income
taxation. Prior to the Termination Date, the Company and Mr. BenTov will enter
into an agreement providing that, among other things, the Company will be
indemnified by Mr. BenTov with respect to any federal, state or local
corporate income taxes (plus interest and penalties) as a result of the
Company's failure to qualify as an S Corporation with respect to tax returns
in which the Company reported its income as an S Corporation. Mr. BenTov's
liability under the agreement will be limited to the aggregate amount of all
distributions received by Mr. BenTov from the Company during such S
Corporation reporting period, net of taxes paid or payable by Mr. BenTov with
respect to such distributions. The agreement will further provide that the
Company will indemnify Mr. BenTov on an after-tax basis with respect to any
federal, state or local income taxes (plus interest and penalties) paid or
required to be paid by Mr. BenTov, and Mr. BenTov will pay to the Company any
refunds of federal, state or local income taxes (including interest received
thereon) received by (or credited to) Mr. BenTov, as a result of a subsequent
adjustment in income of the Company with respect to any tax return in which
the Company reported its income as an S Corporation. The agreement will also
provide that Mr. BenTov shall have the option to control the filing of the
current year's tax returns and control or participate in audits and certain
other matters for any period in which the Company reported its income as an S
Corporation. See "Certain Transactions."
Intellectual Property Rights. The Company's business includes the
development of custom software applications in connection with specific client
engagements. Ownership of such software is generally assigned to the client.
The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of
proprietary information or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its intellectual
property rights. The Company is subject to the risk of litigation alleging
infringement of third-party intellectual property rights. Any such claims
could require the Company to spend significant sums in litigation, pay
damages, develop non-infringing intellectual property or acquire licenses to
the intellectual property which is the subject of the asserted infringement.
In addition, the Company is aware of other users of the term "TACT" and
combinations including "A Consulting," which users may be able to restrict the
Company's ability to establish or protect its right to use these terms. The
Company has in the past been contacted by other users of the term "TACT"
alleging rights to the term. The Company's inability or failure to establish
rights to these terms may have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--
Intellectual Property Rights."
10
<PAGE>
No Prior Public Market; Determination of Offering Price; Possible Volatility
of Stock Price. Prior to the Offering, there has been no public market for the
Common Stock. Consequently, the initial public offering price per share of the
Common Stock will be determined by negotiations among management of the
Company and the representatives of the Underwriters (the "Representatives")
and may bear no relationship to the price of the Company's securities after
the Offering. See "Underwriting" for factors to be considered in determining
the initial public offering price per share. Application has been made to have
the Common Stock approved for quotation on the Nasdaq National Market System;
however, there can be no assurance that such application will be approved,
that an active trading market will develop and be sustained subsequent to the
Offering or that the market price of the Common Stock will not decline below
the initial public offering price. The Common Stock may be subject to wide
fluctuations in price in response to variations in quarterly results of
operations and other factors, including acquisitions, technological
innovations and general economic or market conditions. In addition, stock
markets have experienced extreme price and volume trading volatility in recent
years. This volatility has had a substantial effect on the market price of
many technology companies and has often been unrelated to the operating
performance of those companies. This volatility may adversely affect the
market price of the Common Stock. See "Underwriting."
Shares Eligible for Future Sale. Upon completion of the Offering, the
Company will have a total of 5,350,000 shares of Common Stock outstanding
(5,485,000 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, the 1,800,000 shares offered hereby (2,070,000 shares
if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable without restriction or registration under the Securities Act
by persons other than "affiliates" of the Company, as defined under the
Securities Act of 1933, as amended (the "Securities Act"). Mr. BenTov, who
holds the remaining 3,550,000 shares (3,415,000 shares if the Underwriters'
over-allotment option is exercised in full), will be eligible to sell such
shares pursuant to Rule 144 ("Rule 144") under the Securities Act beginning 90
days after the date of this Prospectus, subject to a lockup agreement and
subject to the manner of sale, volume, notice and information restrictions of
Rule 144. As of the date of this Prospectus, options to purchase a total of
450,000 shares of Common Stock pursuant to the Company's Stock Option and
Award Plan are outstanding, none of which options are exercisable for a period
of one year from the date hereof. An additional 150,000 shares of Common Stock
are available for future option grants under the Stock Option and Award Plan.
The Company's existing sole shareholder, executive officers and directors have
agreed not to sell, offer to sell, contract to sell, solicit an offer to buy,
grant any option for the purchase or sale of, assign, pledge, distribute or
otherwise transfer, dispose of or encumber (or make any announcement with
respect to any of the foregoing), directly or indirectly, any shares of Common
Stock, or any options, rights, warrants or other securities convertible into
or exercisable or exchangeable for Common Stock or evidencing any right to
purchase or subscribe for shares of Common Stock, whether or not beneficially
owned by such director or executive officer, except as contemplated in the
Offering, for a period of 180 days from the date of this Prospectus without
the prior written consent of The Robinson-Humphrey Company, Inc., on behalf of
the Underwriters. Sales of a substantial amount of such shares in the public
market, or the availability of such shares for future sale, could adversely
affect the market price of the shares of Common Stock and the Company's
ability to raise additional capital at a price favorable to the Company. See
"Management--Stock Option Plan," "Principal and Selling Shareholder," "Shares
Eligible for Future Sale," "Underwriting" and Note 10 of Notes to Financial
Statements.
Immediate and Substantial Dilution. The initial public offering price per
share of Common Stock is substantially higher than the net tangible book value
per share of the Common Stock. Purchasers of shares of Common Stock in the
Offering will experience immediate and substantial dilution of $7.61 (69.2%)
in the pro forma net tangible book value per share of Common Stock (assuming
an initial public offering price of $11.00 per share). To the extent
outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dilution."
Broad Discretion of Management and the Board of Directors in Use of
Proceeds. Although the Company intends to apply the net proceeds of the
Offering in the manner described under "Use of Proceeds," the Company's
management and the Board of Directors have broad discretion within such
proposed uses as to the precise allocation of the net proceeds, the timing of
expenditures and all other aspects of the use thereof. The
11
<PAGE>
Company reserves the right to reallocate the net proceeds of the Offering
among the various categories set forth under "Use of Proceeds" as it, in its
sole discretion, deems necessary or advisable based upon prevailing business
conditions and circumstances. There can be no assurance that management will
use such net proceeds in a manner that enhances shareholder value. See "Use of
Proceeds."
Certain Anti-Takeover Provisions. The Company's Certificate of Incorporation
and the New York Business Corporation Law (the "NYBCL") contain provisions
that may have the effect of delaying, deferring or preventing a non-negotiated
merger or other business combination involving the Company. Section 912 of the
NYBCL prohibits a domestic corporation from engaging in a business combination
with an interested shareholder (defined as the beneficial owner of 20% or more
of the stock of the corporation) for a period of five years from the time the
shareholder acquired the stock unless certain conditions are met. These
provisions are intended to encourage any person interested in acquiring the
Company to negotiate with and obtain the approval of its Board of Directors in
connection with the transaction. Moreover, pursuant to the Company's
Certificate of Incorporation, the Board of Directors of the Company is
empowered to issue up to 2,000,000 shares of preferred stock and to determine
the price, rights, preferences and privileges of such shares, without any
further shareholder action. The existence of this "blank-check" preferred
stock could render more difficult or discourage an attempt to obtain control
of the Company by means of a tender offer, merger, proxy contest or otherwise.
These and certain other provisions of the Company's Certification of
Incorporation may discourage or make more difficult a future acquisition of
the Company not approved by the Board of Directors in which shareholders might
receive an attractive value for their shares or that a substantial number or
even a majority of the Company's shareholders might believe to be in their
best interest. As a result, shareholders who desire to participate in such a
transaction may not have the opportunity to do so. Such provisions could also
discourage bids for the shares of Common Stock at a premium, as well as create
a depressive effect on the market price of the shares of Common Stock. See
"Management--Directors and Executive Officers" and "Description of Capital
Stock--Preferred Stock."
Absence of Dividends. Except for the Distribution, the Company does not
anticipate paying any cash dividends in the foreseeable future and intends to
retain earnings, if any, to develop, operate and expand its business. See
"Prior S Corporation Status" and "Dividend Policy."
12
<PAGE>
THE COMPANY
The Company was incorporated under the laws of the State of New York on
February 16, 1983 under the name of Software Ben-Tov, Inc. and changed its
name to The A Consulting Team, Inc. on April 26, 1983. The mailing address of
its principal executive office is 200 Park Avenue South, New York, New York
10003. The telephone number of such office is (212) 979-8228. The Company
maintains a website at http://www.tact.com. Information contained on the
Company's website is not a part of this Prospectus and must not be relied upon
in evaluating the Company, its business or an investment in the Common Stock
offered hereby.
PRIOR S CORPORATION STATUS
Effective January 1, 1995, the Company elected to be treated as an S
Corporation for federal and state income tax purposes. As a result, the
Company currently pays no federal income tax, and all of the earnings of the
Company have been taxed for federal income tax purposes directly to Mr.
BenTov. The Company currently pays City of New York income taxes in the same
manner as a C Corporation and pays State of New York and State of New Jersey
income taxes at rates that are lower than imposed on C Corporations. If the
Company's S Corporation status were to be terminated by reason of a failure to
satisfy the S Corporation requirements of the Internal Revenue Code of 1986,
as amended, the Company would be subject to income tax as a C Corporation. The
Company believes, however, that it has complied with all applicable S
Corporation requirements. The Company's S Corporation status will terminate
effective the Termination Date, and the Company will again become a C
Corporation fully subject to federal, state and local corporate income
taxation.
On the date of closing of the Offering, the Company will make the
Distribution to Mr. BenTov equal to the Company's estimated earned and
previously undistributed taxable S Corporation income through the day
preceding the Termination Date, which the Company currently estimates will be
approximately $2.0 million as of June 30, 1997. Purchasers of the Common Stock
in the Offering will not receive any portion of the Distribution. After the
closing of the Offering, an appropriate payment will be made to Mr. BenTov or
the Company, as the case may be, in the event that the actual amount of the
previously undistributed taxable S Corporation income through the day
preceding the Termination Date is different than the Distribution. See "Use of
Proceeds," "Capitalization" and Notes 5 and 12 of Notes to Financial
Statements.
Prior to the Termination Date, the Company and Mr. BenTov will enter into
the S Corporation Termination, Tax Allocation and Indemnification Agreement
(the "Termination Agreement") providing that, among other things, the Company
will be indemnified by Mr. BenTov with respect to any federal, state or local
corporate income taxes (plus interest and penalties) as a result of the
Company's failure to qualify as an S Corporation with respect to tax returns
in which the Company reported its income as an S Corporation. Mr. BenTov's
liability under the Termination Agreement will be limited to the aggregate
amount of all distributions received by Mr. BenTov from the Company during
such S Corporation reporting period, net of taxes paid or payable by Mr.
BenTov with respect to such distributions. The Termination Agreement will
further provide that the Company will indemnify Mr. BenTov on an after-tax
basis with respect to any federal, state or local income taxes (plus interest
and penalties) paid or required to be paid by Mr. BenTov, and Mr. BenTov will
pay to the Company any refunds of federal, state or local income taxes
(including interest received thereon) received by (or credited to) Mr. BenTov,
as a result of a subsequent adjustment in income of the Company with respect
to any tax return in which the Company reported its income as an S
Corporation. The Termination Agreement will also provide that Mr. BenTov shall
have the option to control the filing of the current year's tax returns and
control or participate in audits and certain other matters for any period in
which the Company reported its income as an S Corporation. See "Certain
Transactions."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $17,914,000 ($19,295,000 if the over-
allotment option is exercised in full) assuming a public offering price of
$11.00 per share, after deducting underwriting discounts and estimated
offering expenses payable by the Company.
The Company presently intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
DOLLAR AMOUNT PERCENTAGE
------------- -----------
<S> <C> <C>
To pay the Distribution(1)..................... $ 2,000,000 11%
To repay certain indebtedness and accrued in-
terest........................................ 2,800,000 16
For working capital and general corporate pur-
poses......................................... 13,114,000 73
----------- ---
$17,914,000 100%
=========== ===
</TABLE>
- --------
(1) See "Prior S Corporation Status."
At June 30, 1997, the Company owed $2,665,000 in principal amount under the
Company's line of credit with Citibank, N.A. The line of credit provides for
borrowings of up to $3.1 million and bears interest at a variable rate based
on prime plus 1% (9.5% at June 30, 1997). The indebtedness under the line of
credit was incurred by the Company for working capital and other corporate
purposes, including payment of a loan from the Company's sole shareholder (the
"Shareholder Loan"), which had been accruing interest at a variable rate based
on prime (8.5% at June 13, 1997, the date of repayment). The Company's bank
line of credit is secured by substantially all of the Company's assets. Mr.
BenTov has guaranteed the Company's outstanding indebtedness under the line of
credit, and it is anticipated that he will be relieved of his guarantees as a
result of the Company's repayment of borrowings under this line. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions."
The balance of the net proceeds of the Offering (including any proceeds
received by the Company from the exercise of the Underwriters' over-allotment
option) will be used for working capital and general corporate purposes,
including opening additional Solution Branches and expanding the Company's
Technical Practices and sales and marketing staff. The Company presently plans
to open a Solution Branch in Connecticut by the end of 1997 and plans to open
additional Solution Branches in the future. In addition, the Company plans to
use a portion of the net proceeds to expand the scope of its Technical
Practices to address new technologies and vendor software solutions, such as
SAP and PeopleSoft. The Company also plans to hire additional technical, sales
and recruiting personnel to expand its client base. Finally, the Company plans
to expand its in-house selling and marketing capabilities in order to market
additional packaged software products to its growing client base.
The Company believes opportunities may exist to expand its current business
through acquisitions of local or regional competitors and may utilize a
portion of the proceeds for such purpose. In addition, the Company may
consider acquisitions of complementary businesses. The Company is not
currently a party to any agreements, arrangements or understandings with
respect to any acquisitions, and there can be no assurance that any of the
Company's expansion plans will be realized or, if realized, will prove
profitable for the Company. See "Risk Factors--Management of Growth."
The foregoing represents the Company's best estimate of its use of the net
proceeds based upon its current plans, certain assumptions regarding industry
and general economic conditions, and the Company's future revenues and
expenditures. If any of these factors change, the Company may find it
necessary or advisable to reallocate some of the proceeds within the above-
described categories or to use portions thereof for other purposes or may be
required to seek additional financing. Pending application thereof, the net
proceeds will be invested in short-term, investment-grade, interest bearing
securities. The Company will not receive any proceeds from the sale of shares
by the Selling Shareholder pursuant to any exercise of the Underwriters' over-
allotment option. See "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at June 30, 1997 (i) on an actual basis and (ii) on a pro forma, as adjusted
basis, to reflect (x) the sale of the Common Stock offered hereby and the
initial application of the estimated net proceeds therefrom, assuming a public
offering price of $11.00 per share, after deducting underwriting discounts and
estimated offering expenses payable by the Company, including payment of the
Distribution representing the Company's estimated earned and previously
undistributed S Corporation income and the repayment of debt described under
"Use of Proceeds" and (y) the recording of deferred tax liability in the
amount of $58,000 resulting from the change from an S Corporation to a C
Corporation. See "Prior S Corporation Status" and "Use of Proceeds." The
information set forth below should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------
PRO FORMA,
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current portion of long-term
debt).................................................. $2,860 $ 195
====== =======
Long-term debt.......................................... $ 38 $ 38
Shareholders' equity(1):
Preferred stock--$0.01 par value; 2,000,000 shares
authorized; no shares issued......................... -- --
Common stock--$0.01 par value; 10,000,000 shares
authorized; 3,550,000 shares issued and outstanding;
5,350,000 shares issued and outstanding, pro forma,
as adjusted.......................................... -- 53
Additional paid-in capital............................ -- 17,896
Retained earnings..................................... 2,265 172
------ -------
Total shareholders' equity.......................... 2,265 18,121
------ -------
Total capitalization.............................. $2,303 $18,159
====== =======
</TABLE>
- --------
(1) Excludes 600,000 additional shares issuable pursuant to the Stock Option
and Award Plan, of which 450,000 shares are subject to currently
outstanding options. See "Management--Stock Option Plan" and "Shares
Eligible for Future Sale."
DIVIDEND POLICY
Except for the Distribution to its existing shareholder, the Company
presently intends to employ all available funds for the expansion of its
business and, therefore, does not anticipate declaring or paying cash
dividends on the Common Stock in the foreseeable future. The payment of cash
dividends, if any, in the future will depend upon the Company's earnings,
financial condition, capital requirements, cash flow, long range plans and
such other factors as the Board of Directors of the Company may deem relevant.
15
<PAGE>
DILUTION
The unaudited pro forma net tangible book value of the Company's Common
Stock as of June 30, 1997, after giving effect to the Distribution and the
deferred tax liability in the amount of $58,000 resulting from the change from
an S Corporation to a C Corporation, was $162,000, or approximately $.05 per
share. "Net tangible book value per share" represents the total amount of
tangible assets less total liabilities divided by the number of shares of
Common Stock issued and outstanding. After giving effect to the sale of the
1,800,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $11.00 per share and after deducting underwriting discounts
and estimated offering expenses payable by the Company, the pro forma net
tangible book value of the Company at June 30, 1997 would have been
$18,121,000, or approximately $3.39 per share. This represents an immediate
increase in net tangible book value of $3.34 per share to the Company's sole
existing shareholder and an immediate dilution in net tangible book value of
$7.61 per share to new investors. The following table illustrates this
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................... $11.00
Pro forma net tangible book value per share prior to the Of-
fering....................................................... $ .05
Increase per share attributable to the Offering............... 3.34
-----
Pro forma net tangible book value after the Offering............ 3.39
------
Dilution to new investors(1).................................... $ 7.61
======
</TABLE>
- --------
(1) Dilution is determined by subtracting adjusted net tangible book value per
share after completion of the Offering from the public offering price paid
by a new shareholder for a share of Common Stock in the Offering. Assuming
the exercise in full of the Underwriters' over-allotment option, the pro
forma net tangible book value of the Company at June 30, 1997 would have
been approximately $3.56 per share, representing an immediate increase in
net tangible book value of $3.51 per share to the Company's sole existing
shareholder and an immediate dilution in net tangible book value of $7.44
per share to new investors.
The following table summarizes the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the Company's existing sole shareholder and new investors in
the Offering. The calculation below is based on an assumed initial public
offering price of $11.00 per share (before deducting underwriting discounts
and other estimated expenses of the Offering payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
--------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing sharehold-
er(1)(2)................ 3,550,000 66.4% $ 100 0.0% $ --
New investors(2)......... 1,800,000 33.6 19,800,000 100.0 11.00
--------- ----- ----------- -----
Total.................. 5,350,000 100.0% $19,800,100 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Excludes shares of Common Stock issuable upon exercise of outstanding
options. See "Management."
(2) Assuming the Underwriters' over-allotment option is exercised in full, the
number of shares held by new investors will be increased by 270,000 shares
to 2,070,000, or 37.7%, of the total shares of Common Stock outstanding
after the Offering, and the number of shares held by the Company's sole
existing shareholder will be reduced by 135,000 shares to 3,415,000, or
62.3%, of the total shares of Common Stock outstanding after the Offering.
16
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following statement of operations data of the Company for the years
ended December 31, 1994, 1995 and 1996 and the balance sheet data as of
December 31, 1995 and 1996 have been derived from the financial statements of
the Company, which have been audited by Ernst & Young LLP, independent
auditors, as indicated in their report included elsewhere herein. The selected
financial data for the six months ended June 30, 1996 and 1997, respectively,
and the balance sheet data as of December 31, 1994 and June 30, 1997,
respectively, are unaudited. In the opinion of the Company, such unaudited
data include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the information set forth therein.
Results of operations for interim periods are not necessarily indicative of
results to be expected for the full year. Selected financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and the
related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXPECT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Consulting services.............. $ 9,463 $14,430 $18,981 $ 8,637 $ 15,378
Software licensing............... 1,321 1,383 1,776 1,107 785
Training services................ 98 210 238 149 110
------- ------- ------- ------- --------
Total revenues.................. 10,882 16,023 20,995 9,893 16,273
Cost of revenues................. 8,016 11,041 14,521 6,806 11,217
------- ------- ------- ------- --------
Gross profit.................... 2,866 4,982 6,474 3,087 5,056
Operating expenses:
Selling, general and administra-
tive expenses
(excluding executive compensa-
tion).......................... 2,001 3,090 4,700 1,924 3,241
Executive compensation(1)....... 607 1,615 1,623 812 150
Research and development........ 300 185 -- -- --
Equity in net (income) loss from
joint venture(2)............... (35) -- 49 34 (13)
------- ------- ------- ------- --------
Income (loss) from operations.... (7) 92 102 317 1,678
Interest income.................. 3 3 2 2 --
Interest expense................. -- (14) (67) (39) (108)
------- ------- ------- ------- --------
Income (loss) before income tax-
es.............................. (4) 81 37 280 1,570
Provision (credit) for income
taxes........................... (6) (109) 29 25 116
------- ------- ------- ------- --------
Net income....................... $ 2 $ 190 $ 8 $ 255 $ 1,454
======= ======= ======= ======= ========
UNAUDITED PRO FORMA DATA(3):
Historical income (loss) from op-
erations........................ $ 102 $ 1,678
Pro forma adjustment for execu-
tive compensation............... 1,223 (37)
------- --------
Pro forma income from operations. 1,325 1,641
Interest (expense) income........ (65) (108)
------- --------
Pro forma income before income
taxes........................... 1,260 1,533
Pro forma provision for income
taxes........................... 568 681
------- --------
Pro forma net income............. $ 692 $ 852
======= ========
Pro forma net income per share... $ .18 $ .23
======= ========
Weighted average number of common
shares outstanding.............. 3,746 3,746
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------- AT JUNE 30,
1994 1995 1996 1997
----------- ----- ----- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 421 $ 579 $ 428 $1,742
Total assets................................ 1,663 3,196 5,100 7,236
Long-term debt.............................. -- -- 44 38
Total shareholder's equity.................. 613 803 811 2,265
</TABLE>
- -------
(1) Executive compensation represents compensation paid to Mr. BenTov during
the periods presented. Effective upon consummation of the Offering, Mr.
BenTov will enter into a two year employment agreement providing for an
annual base salary of $250,000, providing that he will receive no cash
bonus for 1997 and providing for an annual bonus not to exceed one percent
of the Company's total revenues for 1998 subject to approval by the non-
employee directors of the Executive Compensation Committee and further
subject to the Company meeting certain financial performance criteria. Mr.
BenTov and the Company have agreed during the two year term of Mr.
BenTov's employment agreement not to (i) increase Mr. BenTov's
compensation (including base salary and bonus) or (ii) otherwise amend the
terms of Mr. BenTov's employment agreement. See "Management--Employment
Agreements" and "--Executive Officer Bonus Plan."
(2) See Note 7 of Notes to Financial Statements and "Certain Transactions."
(3) The pro forma statements of operations data are presented to reflect (i)
reduced executive compensation expense (excluding any bonus which is
contingent upon the Company meeting certain financial performance
criteria) effective upon consummation of the Offering relating to Mr.
BenTov, partially offset by increased salary expense related to the
Company's hiring of a Chief Financial Officer and (ii) provision for
federal and state income taxes as if the Company had been subject to
federal and state income taxation as a C Corporation during each of the
periods presented. On the closing date of the Offering, the Company will
make the Distribution to Mr. BenTov estimated to be approximately
$2,000,000 as of June 30, 1997. See "Prior S Corporation Status,"
"Management--Executive Officer Bonus Plan" and Note 11 of Notes to
Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's historical financial
condition and results of operations should be read in conjunction with the
historical Financial Statements and Notes thereto and the other financial
information appearing elsewhere in this Prospectus. In addition to historical
information, this Management's Discussion and Analysis of Financial Condition
and Results of Operations and other parts of this Prospectus contain forward-
looking information that involves risks and uncertainties. The Company's
actual results could differ materially from those anticipated by such forward-
looking information due to competitive factors, risks associated with the
Company's expansion plans and other factors discussed under "Risk Factors" and
elsewhere in this Prospectus. All amounts and percentages are approximations.
OVERVIEW
Founded in 1983, TACT provides enterprise-wide IT consulting, software and
training services and solutions primarily to Fortune 1000 companies in a wide
range of industries. For each of the years ended December 31, 1995 and 1996
and the six months ended June 30, 1997, the Company generated over 90% of its
revenues from IT consulting services. Moreover, in each of these periods over
95% of the Company's consulting services revenues were generated from the
hourly billing of its consultants' services to its clients under time and
materials engagements, with the remainder generated under fixed-price
engagements.
The Company establishes standard billing guidelines for consulting services
based on the type of service offered. Actual billing rates are established on
a project by project basis and may vary from the standard guidelines. During
the years ended December 31, 1994, 1995 and 1996 and the six months ended June
30, 1997, the Company's average revenues per assignment hour have steadily
increased. The Company typically bills its time and materials clients on a
semi-monthly basis and makes arrangements on fixed-price engagements on a case
by case basis. The Company recognizes consulting services revenues generated
under time and materials engagements as those services are provided, whereas
consulting services revenues generated under fixed-price engagements are
recognized according to the percentage of completion method.
The Company's most significant operating cost is personnel cost, which is
contained in cost of revenues. As a result, the Company's financial
performance is primarily based upon billing margin (billable hourly rate less
the consultant's hourly cost) and consultant utilization rates (number of days
worked by a consultant during a two-week billing cycle divided by the number
of billing days in that cycle). During the years ended December 31, 1994, 1995
and 1996 and the six months ended June 30, 1997, the Company has been able to
increase its billing margins by increasing its hourly billing rates and
through higher margin service offerings in new technologies such as
client/server and internet/intranet. These increases, however, were partially
offset by increases in consultants' and employees' salaries and wages. Because
most of the Company's engagements are on a time and materials basis, the
Company generally has been able to pass on to its clients most increases in
cost of services. Accordingly, such increases have historically not had a
significant impact on the Company's financial results. Further, most of the
Company's engagements allow for periodic price adjustments to address, among
other things, increases in consultant costs. TACT also actively manages its
personnel utilization rates by constantly monitoring project requirements and
timetables. As projects are completed, consultants are redeployed either to
new projects at the current client site or to new projects at another client
site, or are encouraged to participate in TACT's training programs in order to
expand their technical skill sets.
The Company also generates revenues by selling software licenses and
providing training services. Historically, the Company has achieved attractive
gross margins on its software licensing. In addition to initial software
license fees, the Company derives revenues from the annual renewal of software
licenses. Revenues from the sale of software licenses are recognized upon
delivery of the software to a customer, and training service revenues are
recognized as the services are provided.
The Company's revenue growth over the past three years has been driven by
three primary factors: increasing the number of technical consultants,
managing the business to attain higher average billing rates through the
delivery of higher value-added services to the Company's clients and carefully
managing consultant utilization rates. Additionally, the Company has expanded
its Technical Practices into areas such as Windows
18
<PAGE>
NT and Internet/Intranet which has enabled it to cross-sell higher margin
services. The Company also has been successful in expanding existing client
relationships as well as establishing new client relationships. Such
relationships are established and maintained through local Solution Branches.
The Company currently plans to open one additional Solution Branch in
Connecticut by the end of 1997. Thereafter, the Company presently plans to
open additional Solution Branches in other select major U.S. markets. Based
upon its limited experience with opening Solution Branches, the Company cannot
predict when new Solution Branches will contribute to the Company's net
income. Until such time, the Company will have incurred the costs associated
with opening each new Solution Branch, including the costs of salaries,
occupancy and office equipment.
Because the Company has been an S Corporation since January 1, 1995, the
Company historically has not paid federal income taxes at the corporate level.
See "Prior S Corporation Status." Instead, the net income of the Company, for
federal and certain state income tax purposes, was reported by and taxed
directly at such time to Mr. BenTov, the Company's sole shareholder, rather
than to the Company. In addition, effective upon consummation of the Offering,
Mr. BenTov has entered into an employment agreement with the Company pursuant
to which he will be entitled to receive a base salary of $250,000 per annum
and an annual bonus for 1998 not to exceed one percent of the Company's total
revenues for 1998, subject to approval by the non-employee directors of the
Company's Executive Compensation Committee and further subject to the Company
meeting certain financial performance criteria. The Company also recently
entered into an employment agreement with Mr. Thoelen, its Chief Financial
Officer, pursuant to which he will receive $150,000 per annum in base salary.
See "Management--Employment Agreements" and "--Executive Officer Bonus Plan."
Mr. BenTov will not receive a cash bonus for 1997. Accordingly, the Company
has calculated certain pro forma items to reflect (i) reduced executive
compensation expense (not including any bonus), effective upon consummation of
the Offering, relating to Mr. BenTov that is partially offset by increased
salary expense related to the Company's hiring of Mr. Thoelen and (ii)
provision for federal and state income taxes as if the Company had been
subject to federal and state income taxation as a C Corporation during each of
the periods presented. The Company's status as an S Corporation will be
terminated prior to consummation of the Offering. See Note 11 of Notes to
Financial Statements.
RESULTS OF OPERATIONS
The following tables set forth for the periods indicated the percentages of
total revenues represented by each line item presented, together with the
percentage increase (or decrease) in each line item between comparative
periods:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-------------------------------
PERCENTAGE
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
------------------------------- -------------------
1994 1995 1996 1994/1995 1995/1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consulting services....... 87.0% 90.1% 90.4% 52.5% 31.5%
Software licensing........ 12.1 8.6 8.5 4.6 28.5
Training services......... 0.9 1.3 1.1 113.4 13.4
--------- --------- ---------
Total revenues.......... 100.0 100.0 100.0 47.2 31.0
Cost of revenues.......... 73.7 68.9 69.2 37.7 31.5
--------- --------- ---------
Gross profit............ 26.3 31.1 30.8 73.8 29.9
Selling, general and
administrative expenses
(excluding executive
compensation)............ 18.4 19.3 22.4 54.4 52.1
Executive compensation.... 5.6 10.1 7.7 165.9 0.5
Income (loss) from opera-
tions.................... (0.1) 0.6 0.5 NM 10.5
Net income................ * 1.2 * NM (95.8)
Pro forma income from op-
erations................. 6.3
Pro forma net income...... 3.3
</TABLE>
- --------
* Represents less than 0.1%.
NM--not meaningful.
19
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL REVENUES
----------------
SIX MONTHS PERCENTAGE
ENDED INCREASE
JUNE 30, (DECREASE)
---------------- ----------
1996 1997 1996/1997
------- ------- ----------
<S> <C> <C> <C>
Consulting services............................... 87.3% 94.5% 78.1%
Software licensing................................ 11.2 4.8 (29.1)
Training services................................. 1.5 0.7 (26.2)
------- -------
Total revenues.................................. 100.0 100.0 64.5
Cost of revenues.................................. 68.8 68.9 64.8
------- -------
Gross profit.................................... 31.2 31.1 63.8
Selling, general and administrative expenses
(excluding executive compensation)............... 19.4 19.9 68.5
Executive compensation............................ 8.2 0.9 (81.5)
Income from operations............................ 3.2 10.3 429.8
Net income........................................ 2.6 8.9 470.1
Pro forma income from operations.................. 10.1
Pro forma net income.............................. 5.2
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1997
Revenues. Revenues of the Company increased by $6,380,000, or 64.5%, from
$9,893,000 for the six months ended June 30, 1996 to $16,273,000 for the six
months ended June 30, 1997. Revenues from consulting services increased by
$6,741,000, or 78.1%, from $8,637,000 for the six months ended June 30, 1996
to $15,378,000 for the comparable period in 1997. As a percentage of total
revenues, consulting services revenues increased, representing 87.3% of
revenues for the six months ended June 30, 1996 compared to 94.5% for the
comparable period in 1997. This increase in revenues from consulting services
was primarily the result of an increase in the number of consultants and, to a
lesser extent, higher hourly billing rates and a higher consultant utilization
rate. The number of consultants engaged by the Company increased 38% from June
30, 1996 to June 30, 1997. In particular, the Company obtained significant
full life cycle projects involving networking and system management, Windows
NT rollout, client/server development, quality assurance and testing, and
internet/intranet from existing clients which resulted in higher billings.
Software licensing revenues decreased by $323,000, or 29.1%, from $1,107,000
for the six months ended June 30, 1996 to $785,000 for the comparable period
in 1997 as a result of licensing of new software products introduced in early
1996. As a percentage of revenues, software licensing revenue decreased from
11.2% for the six months ended June 30, 1996 to 4.8% for the comparable period
in 1997.
Training services revenues decreased by $39,000, or 26.2%, from $149,000 for
the six months ended June 30, 1996 to $110,000 for the comparable period in
1997. This decrease resulted from the use of the Company's training personnel
for in-house training in Windows NT administration and internet/intranet
technologies during the six months ended June 30, 1997.
Gross Profit. As a result of the above factors, gross profit increased by
$1,970,000, or 63.8%, from $3,087,000 for the six months ended June 30, 1996
to $5,056,000 for the comparable period in 1997. As a percentage of total
revenues, gross profit remained constant at approximately 31% during both of
the six month periods.
Selling, General and Administrative Expenses and Executive
Compensation. Selling, general and administrative expenses (excluding
executive compensation) increased by $1,317,000, or 68.5%, from $1,924,000 for
the six months ended June 30, 1996 to $3,241,000 for the comparable period in
1997. Increased
20
<PAGE>
selling, general and administrative expenses in the six months ended June 30,
1997 were primarily a result of the addition of several Technical Practice
Managers in the third quarter of 1996. As a percentage of total revenues,
selling, general and administrative expenses increased slightly, representing
19.4% of revenues for the six months ended June 30, 1996 compared to 19.9% for
the comparable period in 1997. Executive compensation representing
compensation to the Company's principal shareholder totalled $812,000 for the
six months ended June 30, 1996 and $150,000 for the comparable period in 1997.
The decrease results from the Company allocating the $1,623,000 in salary and
bonus paid to its sole shareholder in 1996 ratably over the six months ended
June 30, 1996 and allocating his compensation for the comparable period in
1997 based on an aggregate annual compensation of $250,000, which is the
amount set forth in his two-year employment agreement with the Company which
becomes effective upon the consummation of the Offering.
Actual and Pro Forma Income From Operations. Due to the foregoing reasons,
actual operating income increased by $1,362,000 from $317,000 for the six
months ended June 30, 1996 to $1,678,000 for the comparable period in 1997.
Pro forma income from operations was $1,641,000 for the six months ended June
30, 1997.
Actual and Pro Forma Net Income. Actual net income increased by $1,199,000
from $255,000 for the six months ended June 30, 1996 to $1,455,000 for the
comparable period in 1997. Pro forma net income was $852,000 for the six
months ended June 30, 1997.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1996
Revenues. Revenues of the Company increased by $4,972,000, or 31.0%, from
$16,023,000 for the year ended December 31, 1995 ("1995") to $20,995,000 for
the year ended December 31, 1996 ("1996"). Revenues from consulting services
increased by $4,551,000, or 31.5%, from $14,430,000 in 1995 to $18,981,000 in
1996. As a percentage of total revenues, consulting services revenues remained
relatively constant at approximately 90%. The increase in 1996 revenues from
consulting services was primarily the result of an increased number of
consultants and, to a lesser extent, higher hourly billing rates. The number
of consultants engaged by the Company increased 34% from December 31, 1995 to
December 31, 1996. The Company obtained several large projects from its
existing client base and new clients related to higher valued-added services
such as internet/intranet, client/server and networking and system management
services.
Software licensing revenues increased by $393,000, or 28.5%, from $1,383,000
in 1995 to $1,776,000 in 1996. This increase primarily resulted from increased
sales and marketing efforts by additional sales staff and the marketing of new
software products.
Training services revenues increased by $28,000, or 13.4%, from $210,000 in
1995 to $238,000 in 1996. This increase primarily resulted from a significant
training engagement obtained by the Company in early 1996.
Gross Profit. The resulting gross profit increased by $1,492,000, or 29.9%,
from $4,982,000 in 1995 to $6,474,000 in 1996. As a percentage of total
revenues, gross profit decreased slightly from 31.1% of total revenues in 1995
to 30.8% of total revenues in 1996, primarily as a result of increased cost of
revenues in 1996 related to software licensing and, to a lesser extent,
training services.
Selling, General and Administrative Expenses and Executive
Compensation. Selling, general and administrative expenses (excluding
executive compensation) increased by $1,610,000, or 52.1% from $3,090,000 in
1995 to $4,700,000 in 1996. As a percentage of total revenues, selling,
general and administrative expenses increased, representing 19.3% of total
1995 revenues as compared to 22.4% of total 1996 revenues. During 1996, the
Company implemented an expansion strategy to develop additional Technical
Practices. As a result, the Company incurred additional salary expense in 1996
because of the hiring of a number of additional Technical Practice Managers,
additional sales representatives and recruiters as well as other technical
support personnel. Executive compensation totalled $1,615,000 in 1995 compared
to $1,623,000 in 1996.
21
<PAGE>
Actual and Pro Forma Income From Operations. Actual operating income
increased by $10,000 from $92,000 in 1995 to $102,000 in 1996. Pro forma
income from operations was $1,325,000 in 1996.
Actual and Pro Forma Net Income. Actual net income decreased by $182,000, or
95.8%, from $190,000 in 1995 to $8,000 in 1996. Pro forma net income was
$692,000 in 1996.
COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues of the Company increased by $5,141,000, or 47.2%, from
$10,882,000 for the year ended December 31, 1994 ("1994") to $16,023,000 for
1995. Revenues from consulting services increased by $4,968,000, or 52.5%,
from $9,463,000 in 1994 to $14,430,000 in 1995 as the Company continued to
expand its Technical Practices, increased its number of client relationships
and hired additional technical consultants. The number of consultants engaged
by the Company increased 26% from December 31, 1994 to December 31, 1995.
Increased revenues in 1995 were the result of, among others, the addition of a
systems integration project for an existing client, a client/server project
for a new client and the expansion of value-added services to its existing
clients. As a percentage of total revenues, consulting services revenue
increased from 87.0% of total 1994 revenues to 90.1% of total 1995 revenues.
Software licensing revenues increased by $61,000, or 4.6%, from $1,321,000
in 1994 to $1,383,000 in 1995. Software licensing revenue growth in 1995 was
negatively impacted by the fact that the Company's customers were
transitioning to new releases of computer software, which in turn delayed the
licensing of the Company's add-on software products.
Training services revenues increased by $112,000, or 113.4%, from $98,000 in
1994 to $210,000 in 1995. This increase primarily resulted from a greater
focus by the Company on increasing training services revenue and, to that end,
the addition of an experienced manager for the Company's training division.
Gross Profit. As a result of the above factors, gross profit increased by
$2,116,000, or 73.8%, from $2,866,000 in 1994 to $4,982,000 in 1995. As a
percentage of total revenues, gross profit increased from 26.3% of total
revenues in 1994 to 31.1% of total revenues in 1995 primarily as a result of
the Company providing higher value-added services during 1995.
Selling, General and Administrative Expenses and Executive
Compensation. Selling, general and administrative expenses (excluding
executive compensation) increased by $1,089,000, or 54.4%, from $2,001,000 in
1994 to $3,090,000 in 1995. Selling, general and administrative expenses also
increased as a percentage of total revenues from 18.4% of 1994 revenues to
19.3% of 1995 revenues due to higher office occupancy costs in 1995. Executive
compensation totalled $607,000 in 1994 compared to $1,615,000 in 1995.
Income (Loss) From Operations. Operating income increased by $99,000 from a
loss of $7,000 in 1994 to an income of $92,000 in 1995.
Net Income. Net income increased by $188,000 from $2,000 in 1994 to $190,000
in 1995.
UNAUDITED SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly operating
information for each of the ten quarters ending with the quarter ended June
30, 1997, both in dollars and as a percentage of total revenues. This data has
been prepared on the same basis as the audited financial statements contained
elsewhere in this Prospectus and management believes that it includes all
adjustments, consisting only of normal recurring adjustments, necessary for
the fair presentation of the information for the periods presented when read
in conjunction with the Company's Financial Statements and related Notes
thereto. Results for any previous fiscal quarter are not necessarily
indicative of results for the full year or for any future quarter. The
Company's quarterly operating
22
<PAGE>
results have varied significantly in the past and may vary significantly in
the future. See "Risk Factors--Variability of Quarterly Results of
Operations."
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------
1995 1996 1997
---------------------------------- ---------------------------------- ----------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consulting services..... $3,359 $3,480 $3,719 $3,872 $4,028 $4,609 $4,925 $5,419 $7,058 $8,320
Software licensing...... 377 224 274 508 238 869 279 390 298 487
Training services....... 52 53 63 42 95 54 58 31 71 39
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 3,788 3,757 4,056 4,422 4,361 5,532 5,262 5,840 7,427 8,846
Cost of revenues........ 2,435 2,669 2,887 3,050 3,059 3,747 3,591 4,124 5,106 6,111
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit........... 1,353 1,088 1,169 1,372 1,302 1,785 1,671 1,716 2,321 2,735
Selling, general and
administrative
(excluding executive
compensation).......... 651 757 799 883 779 1,145 1,331 1,445 1,513 1,728
Executive compensation.. 404 404 404 403 406 406 406 405 87 63
Income (loss) from oper-
ations................. 301 (92) (157) 40 89 228 (74) (141) 734 944
Net income (loss)....... 407 (90) (156) 29 59 196 (91) (156) 635 819
Pro forma income from
operations............. 395 534 232 164 722 919
Pro forma net income.... 206 287 119 80 373 479
Pro forma net income per
share.................. $ .05 $ .08 $ .03 $ .02 $ .10 $ .13
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------
1995 1996 1997
---------------------------------- ---------------------------------- ----------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consulting services..... 88.7% 92.6% 91.7% 87.6% 92.4% 83.3% 93.6% 92.8% 95.0% 94.1%
Software licensing...... 9.9 6.0 6.8 11.5 5.4 15.7 5.3 6.7 4.0 5.5
Training services....... 1.4 1.4 1.5 0.9 2.2 1.0 1.1 0.5 1.0 0.4
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues........ 64.3 71.0 71.2 69.0 70.2 67.7 68.2 70.6 68.7 69.1
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit........... 35.7 29.0 28.8 31.0 29.8 32.3 31.8 29.4 31.3 30.9
Selling, general and
administrative
(excluding executive
compensation).......... 17.2 20.1 19.7 20.0 17.9 20.7 25.3 24.7 20.4 19.5
Executive compensation.. 10.7 10.7 10.0 9.1 9.3 7.3 7.7 6.9 1.2 0.7
Income (loss) from oper-
ations................. 8.0 (2.4) (3.9) 0.9 2.0 4.1 (1.4) (2.4) 9.9 10.7
Net income (loss)....... 10.8 (2.4) (3.9) 0.7 1.3 3.6 (1.7) (2.7) 8.6 9.3
Pro forma income from
operations............. 9.1 9.6 4.4 2.8 9.7 10.4
Pro forma net income.... 4.7 5.2 2.3 1.4 5.0 5.4
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements to date have been satisfied through
periodic use of its line of credit and from borrowings from its principal
shareholder. In April 1996, the Company increased its line of credit with
Citibank, N.A. from $200,000 to $350,000 and in December 1996 the line of
credit was increased to $1,700,000. In February 1997, the Company further
increased its line of credit to $2,100,000. In addition, in March 1997, the
Company borrowed an additional $150,000 from Citibank, N.A., which was
subsequently repaid by the Company in April 1997. In June 1997, the Company
further increased its line of credit by $1,000,000 to $3,100,000 for the
purpose of paying the outstanding balance of $980,000 under the Shareholder
Loan. The Company had $135,000, $1,450,000 and $2,665,000 in outstanding
borrowings from Citibank, N.A. as of December 31, 1995, December 31, 1996 and
June 30, 1997, respectively. The line of credit is guaranteed by the Company's
shareholder. The line of credit bears interest at a variable rate based on
prime plus 1% (9.25% at December 31, 1996 and 9.5% at June 30, 1997). See
"Risk Factors--Payments and Benefit to Existing Sole Shareholder" and "Use of
Proceeds."
The Company had $1,111,000, $1,045,000 and $0 outstanding under the
Shareholder Loan as of December 31, 1995, December 31, 1996 and June 30, 1997,
respectively. The Shareholder Loan bore interest at a variable rate based on
prime (8.5% on June 13, 1997, the date of repayment). At December 31, 1996,
$500,000 of such Shareholder Loan was subordinated to the Company's line of
credit. See "Use of Proceeds" and "Risk Factors--Payments and Benefit to
Existing Sole Shareholder."
23
<PAGE>
The Company's cash balances were $420,000 at December 31, 1995, $347,000 at
December 31, 1996 and $8,000 at June 30, 1997. Net cash used in operating
activities was $841,000 for the year ended December 31, 1995, $1,030,000 for
the year ended December 31, 1996 and $506,000 for the six months ended June
30, 1997, primarily due to increases in accounts receivable during the
respective periods and executive compensation payments. Net cash used in
investing activities was $98,000 for the year ended December 31, 1995,
$349,000 for the year ended December 31, 1996 and $135,000 for the six months
ended June 30, 1997. Net cash provided by financing activities was $1,246,000
for the year ended December 31, 1995, $1,306,000 for the year ended December
31, 1996 and $301,000 for the six months ended June 30, 1997.
The Company's accounts receivable at December 31, 1996 and June 30, 1997
were $4,164,000 and $6,528,000, representing 65 and 67 days of sales
outstanding ("DSO"), respectively. The Company does not anticipate any
difficulty in collecting amounts due, since this increase in DSO primarily
resulted from increased business with a client that has been granted longer
payment terms. Such account is not delinquent and represented approximately
19% and 31% of accounts receivable at December 31, 1996 and June 30, 1997,
respectively.
On April 11, 1994, the Company entered into a joint venture with Kalanit
Center for Marketing Software & Hardware Ltd. ("Kalanit"), an Israeli software
distribution company. At such time, Mr. BenTov owned less than 5% of Kalanit's
outstanding ordinary shares. The Company and Kalanit each owned a 50% interest
in a joint venture organized as Vianet, Inc. ("Vianet"). Vianet was
established to recruit international consultants and develop software. The
Company incurred research and development expenses of $185,000 for 1995
consisting of amounts paid to Vianet for software development which were
included in Vianet's revenues in 1995. In addition, the Company paid Vianet
$140,000, $37,000 and $0 for recruiting services for the years ended December
31, 1995 and 1996 and for the six months ended June 30, 1997, respectively.
The Company accounted for its investment in Vianet under the equity method of
accounting. The Company's investment in Vianet did not have a material impact
on the Company's results of operations. On March 31, 1997, the Company sold
its 50% interest in Vianet for a negligible amount to Kalanit at which time
Mr. BenTov owned approximately 6.8% of the outstanding ordinary shares of
Kalanit. In January 1997, Mr. BenTov subscribed for an additional 12.5% of the
outstanding ordinary shares of Kalanit, which shares have not yet been issued.
For the years ended December 31, 1994, 1995 and 1996 and the six months ended
June 30, 1997, Mr. BenTov acted as President of Vianet and received $150,000,
$150,000, $0 and $0, respectively, in compensation from Vianet. During 1994,
1995 and 1996, Mr. BenTov's sister, Victoria BenTov, was employed by Vianet as
a consultant and received a salary of $31,000, $60,000 and $65,000,
respectively. As of April 1, 1997, Ms. BenTov's employment with Vianet was
terminated, and she was hired by the Company as a consultant at a base salary
of $60,000. See Note 7 of Notes to Financial Statements and "Certain
Transactions."
The Company presently anticipates utilizing a portion of the net proceeds of
the Offering to repay approximately $2,665,000 in principal amount and accrued
interest estimated to be outstanding on the closing date of the Offering under
its revolving line of credit with Citibank, N.A., which bears interest at a
variable rate based on prime plus 1% (9.5% at June 30, 1997). The indebtedness
under the line of credit was incurred by the Company for working capital and
other corporate purposes, including payment of the Shareholder Loan. The line
of credit is secured by substantially all of the Company's assets. Mr. BenTov
has guaranteed the Company's outstanding indebtedness under the line of
credit, and it is anticipated that he will be relieved of his guarantees as a
result of the Company's repayment of all outstanding borrowings under this
line of credit. See "Use of Proceeds" and "Prior S Corporation Status."
In management's opinion, cash flows from operations and borrowing capacity
combined with proceeds from the Offering anticipated to be available to the
Company following the Offering will provide adequate flexibility for financing
the Company's expansion plans.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("SFAS 128"), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary (basic) earnings
per share, the dilutive effect of stock options will be excluded. The impact
of the adoption of SFAS 128 on the calculation of earnings per share for
periods prior to June 30, 1997 is not expected to be material.
24
<PAGE>
BUSINESS
GENERAL
The A Consulting Team, Inc. provides enterprise-wide information technology
("IT") consulting, software and training services and solutions primarily to
Fortune 1000 companies in a wide range of industries. The Company generally
serves as an outside resource to a client's internal IT staff, providing a
broad range of consulting services including strategic IT consulting, IT
solutions and IT professional services to improve the client's productivity,
competitive position and performance. Strategic IT consulting includes
technology infrastructure advisory services and systems architecture design.
IT solutions include planning, designing and implementing enterprise-wide
information systems, such as workgroup solutions (Microsoft Exchange and Lotus
Notes); client/server; internet/intranet and EDI; database management
services; application design, development and implementation; networking;
imaging and workflow; and systems integration. IT professional services
include systems support, maintenance and contract programming. TACT's ability
to provide comprehensive services and solutions across diverse technology
platforms allows its clients to maintain and enhance their current systems
while embracing new technologies. Clients of the Company include Alamo Rent-A-
Car Inc., Allied Signal, Inc., BMW of North America, Inc., Chase Manhattan
Bank, ChaseMellon Shareholder Services, Citibank, N.A., Dreyfus Corporation,
First Chicago Trust Company, General Electric Company, Goldman Sachs & Co.,
The Guardian Life Insurance Company of America, Humana Inc., International
Business Machines Corporation, Metropolitan Life Insurance Co., Merrill Lynch
Pierce Fenner & Smith Incorporated, National Broadcasting Co., Inc., New York
Life Insurance Company, Norfolk Southern Corporation, Pacific Telecom, Inc.,
Pfizer Inc., Prudential Insurance Company, St. John's University and Summit
Bancorp. For the six months ended June 30, 1997, no client accounted for more
than 10% of revenues, except for one client which accounted for 26% of
revenues. The Company's customers are primarily located in the New York/New
Jersey metropolitan area.
INDUSTRY BACKGROUND
The IT industry has experienced accelerating growth in recent years due to
rapid technological advances. These advances include more powerful and less
expensive computer technology and the transition from predominantly
centralized mainframe computer systems to open and distributed computing
environments. Additionally, information technology is becoming more critical
to successful business operations. IT services are no longer a peripheral
component of most organizations but instead are integral to many key business
processes. At the same time, managing information technology, especially
distributed architectures, has become more complex and expensive. Accordingly,
organizations are increasingly turning to external IT services organizations
to develop, support and enhance their internal IT systems. By outsourcing IT
services, companies are able to (i) focus on their core business, (ii) access
specialized technical skills, (iii) implement IT solutions more rapidly, (iv)
benefit from flexible staffing, providing a variable cost solution to a fixed
cost issue, and (v) reduce the cost of recruiting, training, and adjusting the
number of employees as IT requirements change. Based on industry sources, IT
outsourcing in the United States is estimated to increase from approximately
$50 billion in 1995 to approximately $100 billion in 2000, representing a
compound annual growth rate of approximately 15%. The Company has achieved a
compound annual revenue growth rate of 47.6% for the three year period ended
December 31, 1996.
The Company operates in a highly fragmented segment of the IT services
industry. In addition to the consulting divisions of the "Big Six" accounting
firms, the Company's competitors include a large number of small and medium-
sized consulting firms as well as divisions of national and regional
consulting firms. The Company believes that the industry is experiencing a
trend toward consolidation and that there may be opportunities to expand
TACT's current business through acquisitions of small local or regional
competitors.
25
<PAGE>
GROWTH STRATEGY
The Company's objective is to be a leading provider of IT services and
solutions for Fortune 1000 companies and other organizations with diverse IT
needs in select markets nationwide. In order to achieve this objective, the
Company intends to pursue the following strategies:
Cross-Sell Additional IT Services To Existing Clients. TACT intends to
leverage its existing client base by offering its current clients
additional IT consulting, software and training services. The Company's
access to and relationship with existing clients provide the Company with
significant opportunities to market additional services and solutions to
these clients in current and new geographic markets. For example, the
Company has been successful in generating incremental consulting business
from existing software and training clients. The Company also believes its
ability to address the broad spectrum of its clients' IT needs provides the
opportunity to become a preferred provider of IT solutions.
Expand Client Base. The Company seeks to develop additional client
relationships in new and existing Solution Branches through targeted
marketing initiatives, participation in local and national trade shows,
user group meetings and conventions, referrals from existing clients and
direct mail. With a portion of the proceeds of the Offering, the Company
intends to hire additional sales personnel in order to achieve greater
market penetration.
Expand the Range of Technical Practices. The Company is committed to
continuously expanding its Technical Practice expertise and plans to add
additional Technical Practices, such as SAP and PeopleSoft, in the near
future. The Company has historically invested significant human and capital
resources in identifying, evaluating and recommending leading edge
technologies to be added to the Company's Technical Practices when such
technologies are commercially viable and can help address business needs.
The Company believes the expansion of its service offerings will allow the
Company to continue to address its clients' needs throughout the lifecycle
of their IT systems, thereby providing the opportunity to become a
preferred provider of IT solutions for its client base.
Open Additional Solution Branches. The Company intends to increase its
client base by opening additional Solution Branches in select major markets
throughout the country. It has been management's experience that its local
Solution Branch structure has contributed to the Company's ability to
provide efficient and effective solutions to its clients by reducing
consultant travel expenses and enhancing the Company's ability to attract
skilled, locally-based consultants. Furthermore, TACT believes that local
Solution Branches establish greater name recognition for the Company and
increase referrals for its services within the potential client base in
that market. As a result, the Company believes that it possesses a
competitive advantage when competing with firms that do not maintain a
local presence. The Company anticipates opening a Solution Branch in
Connecticut by the end of 1997 and presently plans to open additional
Solution Branches in select major markets nationwide in the future. The
Company plans to leverage its current client base by targeting markets
where its existing consulting, software and training clients have
operations.
Increase Sales and Marketing of Software Products and Training
Services. The Company intends to continue to add to its software product
offerings by identifying and marketing innovative third-party developed
software products, particularly in the area of Windows NT add-on products.
TACT also intends to increase its marketing efforts of its software
products through trade shows, direct mail, telemarketing, telesales, client
presentations and referrals. The Company also plans to expand its training
services in order to generate additional revenue as well as to attract,
develop, motivate and retain its IT professionals. The Company plans to
continue to generate incremental consulting business from existing software
and training clients.
Attract, Develop, Motivate and Retain Quality IT Professionals. The
Company's past and future success is dependent upon TACT's ability to
attract, develop, motivate and retain highly qualified personnel. As a
result, the Company offers attractive compensation and benefit packages and
free training opportunities to attract, develop, motivate and retain highly
qualified IT professionals. In addition, the Company devotes
26
<PAGE>
significant resources to recruiting by maintaining recruiting personnel at
corporate headquarters as well as at the Company's local Solution Branches.
In addition to providing consultants with challenging project opportunities
and significant client responsibility, development of TACT employees is
enhanced by in-house consultant training and mentoring programs.
TACT OPERATIONS
The Company provides enterprise-wide IT consulting, software and training
services and solutions to Fortune 1000 companies and other organizations in a
wide range of industries. The Company's services offered through TACT
Consulting include strategic IT consulting, IT solutions and IT professional
services designed to improve the client's productivity, competitive position
and performance. TACT Software markets software add-on tools to enhance
database environments, mainframe and non-mainframe connectivity and Windows NT
administration. TACT Training offers a wide selection of technical and end-
user training courses in client/server, internet/intranet, legacy and
networking technologies for both clients and consultants.
TACT Consulting. Founded in 1983, TACT Consulting provides enterprise-wide
IT consulting services across diverse technology platforms for Fortune 1000
companies and other organizations. Strategic IT consulting includes technology
infrastructure advisory services and systems architecture design. IT solutions
include planning, designing and implementing enterprise-wide information
systems, such as workgroup solutions (Microsoft Exchange and Lotus Notes);
internet/intranet and EDI; client/server; database management services;
application design, development and implementation; networking; imaging and
workflow; and systems integration. Revenues from consulting services were
$14,430,000 (90.1% of total revenues), $18,981,000 (90.4% of total revenues)
and $15,378,000 (94.5% of total revenues) for the years ended December 31,
1995 and 1996 and the six months ended June 30, 1997, respectively.
By focusing on its technical expertise, high level of service and business-
oriented IT solutions, the Company has attempted to build a reputation as a
quality provider of IT consulting services. The Company continuously
identifies and develops additional technical expertise in emerging
technologies in anticipation of the evolving IT needs of its clients. In order
to become a one stop solution provider for its client's IT needs, the Company
has organized its extensive service offerings into specific Technical
Practices having specialized expertise in particular information technologies.
The Company's current Technical Practices and other specialized areas of
expertise include Internet/Intranet, Client/Server, Legacy Systems, Networking
and System Management, Windows NT, Year 2000 and Conversions, Imaging and
Workflow, Quality Assurance and Testing, Messaging, Security, Data Warehousing
and Lotus Notes/Microsoft Exchange.
Each Technical Practice is managed by an expert in a particular IT field.
Technical Practice Managers architect and develop solutions for the Company's
clients as well as interact closely with one another to devise a total
solution that spans multiple technologies and platforms for a client.
Additionally, the Technical Practice Managers continually perform quality
assurance reviews to ensure that the proposed solution addresses both the
technical and business needs of the client. The Company has organized its
services into Technical Practices in an effort to enable TACT to deliver IT
services quickly and efficiently to solve the diverse IT needs of its clients.
27
<PAGE>
The following table provides a list of TACT's consulting services and related
skills associated with the Company's current Technical Practices and other
specialized areas of expertise:
<TABLE>
<CAPTION>
SERVICES PROCESSES SKILLS/TOOLS
- ----------------------------------------------------------------------------------
<C> <C> <S>
Client/Server . Infrastructure Design and . PowerBuilder, Visual
Implementation Basic, Visual C+ +
. Application Development and . SYBASE, Oracle, MS
Maintenance SQLServer, ACCESS
. Database Design, Implementation and . Object Oriented
Maintenance Methodologies
. Performance Monitoring/Tuning and
Capacity Planning
. System Implementations and
Migrations
. Outsourcing
. Project Management
- ----------------------------------------------------------------------------------
Internet/Intranet . Infrastructure Design and . Java, VB Script, CGI,
Implementation HTML, Microsoft
. Website Design, Development and . Active Server Pages,
Maintenance ActiveX Controls
. Web Application, Development and . Microsoft Internet
Maintenance Information Server,
Netscape
. Database Design, Implementation and Enterprise, Microsoft
Maintenance Internet Explorer,
Netscape
. Performance Monitoring/Tuning and Navigator
Capacity Planning
. System Implementation and
Migrations
. Outsourcing
. Project Management
- ----------------------------------------------------------------------------------
Legacy Systems . Application Development and . COBOL, CICS,
Maintenance ADS/Online, Assembler
. Database Design, Implementation and . DB2, IDMS, VSAM
Maintenance
. Performance Monitoring/Tuning and . Performance Monitoring
Capacity Planning Tools
. Outsourcing of Database
Administration Function
. Conversions
. Project Management
- ----------------------------------------------------------------------------------
Networking and . LAN/WAN Architecture Design and . Window NT Server,
Netware, UNIX, MVS
System Implementation . Window NT
Workstation/95/3.11,
Management . System Planning, Implementation and Xterminal, NetPC
Management . Microsoft BackOffice
(SMS, SNA Server,
. Network Integration, Monitoring, IIS, Exchange Servers),
Management and Administration CA Unicenter,
Intel LanDesk, Netview,
OpenView, PVCS
. Remote Access and Monitoring . TCP/IP, SNA, IPX, DNS,
Frame Relay,
. Change and Problem Management Remote Access, WINS,
Winframe
. Performance Monitoring/Tuning and . Cisco, 3Com, Bay
Capacity Planning Networks Routers
. Software Distribution
- ----------------------------------------------------------------------------------
Windows NT . TCP/IP Architecture, Design and . Windows NT Server and
Implementation Workstation
. Domain Planning and Implementation . Microsoft SMS
. Network Configuration and . Microsoft SNA Server
Administration
. Performance Monitoring/Tuning and
Capacity Planning
. Enterprise-Wide Windows NT/95
Rollout
- ----------------------------------------------------------------------------------
Year 2000 & . Impact Analysis . Microfocus Revolve,
Compuware tools,
Conversions . Conversion Planning and Management CA Discovery 2000, EZ-
Test2000,
. Pilot Study Identification Platinum tools,
Hourglass
. Code Remediation/Conversion
. Implementation
. Roll-Out
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
<TABLE>
<CAPTION>
SERVICES PROCESSES SKILLS/TOOLS
- ----------------------------------------------------------------------------------
<C> <C> <S>
Imaging & . Architecture Design and . Filenet, Liberty, Key
Workflow Implementation File
. Application Development and . Microsoft Exchange,
Maintenance Novell GroupWise
. Business Process Re-engineering
. Performance Monitoring/Tuning and
Capacity Planning
. Outsourcing
. Project Management
. Document Management
. Automated Work Procedures/Workflow
. COLD, COOL
- ----------------------------------------------------------------------------------
Q/A and Testing . Usability Analysis (Flow, Screen . SQA TeamTest,
Design) Microsoft Visual Test,
. Design Walkthrough Mercury Test
. Test Planning, Tracking and Review . Object based modeling
tools
. Unit, System, Integration, . ISO 900x
Performance, Regression and User
Acceptance Testing
- ----------------------------------------------------------------------------------
Messaging . Infrastructure Design and . IBM MQSeries,
Implementation Microsoft Message Q
. Distributed Processing and Multi- Server, Microsoft
Tier Transaction Server
. Application Development . CORBA, DCOM, DCE
Architecture
. Application Development and . Internet Inter-ORB
Maintenance Protocol (IIOP),
Orbix,
. Software Installation, Configuring Tuxedo, Encino
and Customization
. Performance Monitoring/Tuning and
Capacity Planning
. Project Management
- ----------------------------------------------------------------------------------
Security . Security Architecture Design and . TCP/IP, PGP, Kerberos,
Implementation Encryption Key
. Fire Walls, Router Based Security, Algorithms, TACACS+
Proxy Servers
. Authentication and Monitoring . HP Prasaedium, Cisco
Secure, ACF2, RACF,
. Internet/Electronic Commerce Top Secret, Secured
Security Sockets
. Windows, Netware, UNIX, Mainframe, Layer, PGP, Checkpoint,
LAN, Raptor, Alta
Database Security Vista, Axcent Systems,
Platinum, LDAP,
. Single Sign On Solutions OSI Security
Implementations and
Smartcard
. Public Key, Private Key and Vendor Solutions
Encryption
. Virus Protectlon . Bay Networks, Cisco
and 3Com Router
Security Packet
Filtering
. Virus Protection
Software
- ----------------------------------------------------------------------------------
Data Warehousing . Data Mining . Info Pump, DataHub,
Cognos Impromptu,
. Source Systems Analysis and DynaCube
Migration
. Data Conversion and Cleanup . Arbor Essbase, Oracle,
Redbrick
. Infrastructure Design and
Implementation
. Database Design, Implementation and
Maintenance
. Performance Monitoring/Tuning and
Capacity Planning
- ----------------------------------------------------------------------------------
Lotus Notes/ . Infrastructure, Design, . Lotus Notes, Microsoft
Implementation and Exchange, Domino
Microsoft Administration Notes and HTTP Server,
Exchange CC-Mail
. Application Development and and Notes Mail,
Maintenance Internet/Intranet Mail
. Performance Monitoring/Tuning and Systems and Gateways,
Capacity Planning NNTP News Servers
. Enabling Internet Access
. Project Management
</TABLE>
TACT markets and delivers its IT solutions through TACT Solution Teams
comprised of Project Managers, Technical Practice Managers and Technical
Specialists. These professionals possess the project management skills,
technical expertise and industry experience to identify and effectively
address a particular client's technical needs in relation to its business
objectives. TACT's focus on providing highly qualified IT professionals allows
the Company to identify additional areas of the client's business which could
benefit from the Company's IT solutions, thereby facilitating the cross-
marketing of multiple Company services. The Company keeps its
29
<PAGE>
Solution Teams at the forefront of emerging technologies through close
interaction with TACT research personnel who identify innovative IT tools and
technologies with significant applications for Fortune 1000 companies and
other organizations. As a result, management believes that TACT Solution Teams
are better prepared to anticipate client needs, develop appropriate strategies
and deliver comprehensive IT services, thereby allowing the Company to deliver
the highest quality IT services in a timely fashion.
A Solution Team is typically deployed from one of the Company's local
Solution Branches in order to provide solutions to its clients by utilizing
local resources. Currently, the Company maintains two Solution Branches in New
York and New Jersey. Management's experience has been that the local presence
established by a Solution Branch improves the Company's ability to attract
local clients, as well as its ability to attract, develop, motivate and retain
locally-based IT professionals. The Company's corporate headquarters supports
each Solution Branch and performs many functions which allow the Solution
Branches to focus on recruiting, sales and marketing. Management has developed
the TACT Solution Teams, as well as TACT's local Solution Branch structure, in
an effort to advance the Company's objective of establishing and maintaining
long-term relationships with its clients. Eleven of the Company's top twenty
clients measured by revenue for the six months ended June 30, 1997 had been
clients for over three years.
Solution Branch Managers are responsible for recruiting consultants,
assigning consultants to fulfill client requirements, implementing sales and
marketing programs, and managing client and employee relations. In employing
new Solution Branch Managers, the Company seeks candidates who have
demonstrated IT industry and local client knowledge, managerial and
organizational skills, initiative and strong interpersonal skills. In
addition, a significant portion of the Solution Branch Managers' compensation
results from an incentive bonus package based upon revenue and profit
generated by the Solution Branch, fostering an entrepreneurial culture
throughout the Company.
TACT has established professional affiliations that enable the Company to
share technical and industry knowledge and pursue marketing opportunities.
TACT is currently an IBM BESTeam Member, Microsoft Solution Provider and
Computer Associates Consulting Partner. These relationships typically allow
the Company to receive information, products and product support and
participate in training programs which may enable the Company's employees to
become certified in a given technology.
TACT Software. TACT markets and distributes over 20 software products
developed by independent software developers. The Company believes its
relationships with over 150 software clients throughout the country provide
opportunities for the delivery of additional TACT consulting services. The
software products offered by TACT Software are developed in England and
Finland and marketed primarily through trade shows, direct mail,
telemarketing, client presentations and referrals. TACT Software personnel
currently includes sales and marketing personnel as well as 24-hour technical
support. Revenues from the sale of software products were 8.6%, 8.5% and 4.8%
of total revenues for the years ended December 31, 1995 and 1996 and the six
months ended June 30, 1997, respectively.
TACT's software product offerings include add-on tools that enhance
functionality, performance and productivity of IDMS database environments,
IDMS and DB2 connectivity, and mainframe and non-mainframe connectivity. For
example, the Company's VEGA-90's software allows coexistence of mainframe and
non-mainframe clients in a client/server environment as well as connectivity
between IDMS and DB2 database systems.
The Company intends to continue to focus on adding to its software product
offerings by identifying and marketing innovative third-party developed
software products and become a leading provider of Windows NT add-on products.
TACT intends to increase its marketing efforts of new and existing software
products through telemarketing, telesales, direct mail, client presentations,
trade shows and referrals. The Company intends to leverage existing software
client relationships by targeting new Solution Branches in or near markets
where software clients are located to cross-sell consulting services.
TACT Training. TACT offers an extensive selection of technical training
courses to Fortune 1000 companies and other organizations at either TACT's
Training Center or at a client's site. These courses include classes in
client/server and legacy technologies as well as in recent technologies, such
as JAVA, ActiveX, Active Server Pages and HTML. In addition, the Company
conducts presentations on specific topics, such as co-
30
<PAGE>
existence of legacy and client/server systems, use of legacy mainframe
databases as servers, conversion/migration of legacy systems to new
architectures and performance monitoring/tuning. TACT offers end-user training
for both off-the-shelf software, such as Microsoft Office and Lotus Notes, and
customer specific applications. Revenues from training services represented
approximately 1% of total revenues for the years ended December 31, 1995 and
1996 and less than 1% for the six months ended June 30, 1997, respectively.
The Company's training services are often included in total project
solutions for businesses, in retraining MIS personnel in new technologies and
in software vendor product training. These courses may be customized to
address a client's specific needs and are taught at the client's site or at
the TACT Training Center. TACT utilizes computer labs to enable participants
to gain practical experience in the materials presented. TACT's training
curriculum is developed in-house by technicians with a working experience in
the technologies being taught. In addition, TACT provides a "Fast Track"
program and a series of "For Consultants Only" classes on evenings and
weekends to train/re-train the consultant community in new technologies. All
classes are free of charge for TACT employees. Consultants who are non-TACT
employees pay a nominal fee which is refunded if the consultant joins TACT
within three months after completing the training.
Management believes that TACT's training services are an important and
differentiating factor in attracting and retaining IT professionals. TACT
training courses introduce prospective consultants to the Company and provide
for technical advancement for the Company's existing consultants. TACT
training clients also represent an opportunity for the Company to market
additional services such as consulting services. The Company has been
successful in generating consulting business from its training clients and
plans to continue to identify situations where its knowledge of a training
client's needs can lead to other IT business.
CLIENTS
The Company's clients consist primarily of Fortune 1000 companies. Because
of the diverse range of industries in which the Company's clients operate, the
Company believes that it is not dependent upon any single industry or market.
The Company establishes and maintains long-term relationships with its
clients. Eleven of the Company's top twenty clients measured by revenue for
the six months ended June 30, 1997 had been clients for over three years.
The Company believes the ability to provide qualified personnel in a timely
manner, to understand specific technical requirements and to ensure client
satisfaction are the primary factors in attracting and retaining clients.
Although the Company believes it offers its services at competitive prices, it
is typically not the lowest priced provider and, instead, competes on the
basis of technical expertise and quality of service.
31
<PAGE>
The following is a partial list of the Company's clients:
MANUFACTURING
BANKING/FINANCE Allied Signal, Inc.
BMW of North America, Inc.
Bank of Boston, N.A. General Electric Company
Chase Manhattan Bank Matsushita Electric Corp. of
ChaseMellon Shareholder Services America
Citibank, N.A. Mercedes-Benz of North America,
Donaldson, Lufkin & Jenrette, Inc.
Inc.
Dreyfus Corporation MEDIA
First Chicago Trust Company Capital Cities/ABC, Inc.
Goldman Sachs & Co. Dow Jones, Inc.
MasterCard International, Inc. National Broadcasting Co., Inc.
Merrill Lynch Pierce Fenner & Smith Time Warner Inc.
Incorporated Viacom Inc.
Salomon Brothers Inc.
Scudder, Stevens & Clark, Inc. TELECOMMUNICATIONS/TECHNOLOGY
Spear Leeds & Kellogg
Sumitomo Bank, Limited AT&T Corporation
International Business Machines
GOVERNMENT/EDUCATION Corporation
NCR Corporation
Clemson University Pacific Telecom, Inc.
Comptroller of the Currency
Department of Agriculture OTHER
Department of Health and Human Alamo Rent-A-Car Inc.
Services Consolidated Edison Company of New
St. John's University York, Inc.
U.S. Air Force Florida Power Corporation
Veterans Affairs Holland America Line Westours
Joseph E. Seagram & Sons, Inc.
HEALTHCARE/INSURANCE/PHARMACEUTICALS Norfolk Southern Corporation
Aetna Life and Casualty
American International Group
Bergen Brunswig Corporation
The Guardian Life Insurance Company
of America
Humana Inc.
Merck & Co., Inc.
Metropolitan Life Insurance Co.
Montefiore Medical Center
New York Life Insurance Company
Pfizer Inc.
Prudential Insurance Company
TACT RECRUITING
The Company's success depends in large part upon its ability to attract,
develop, motivate and retain highly skilled technical consultants. Because
qualified technical consultants are in great demand and are likely to remain a
limited resource for the foreseeable future, the Company dedicates significant
human and capital resources to recruit consultants with both IT consulting and
industry experience. The Company's corporate headquarters has overall
responsibility for national, international and internet recruiting and for
providing corporate-wide recruiting guidelines and procedures. In addition,
each Solution Branch works with corporate headquarters to recruit locally-
based consultants. TACT conducts ongoing candidate searches and maintains an
extensive central repository of data for candidates and client requirements.
The Company hires consultants through various recruiting efforts and by
referral from the technical and administrative personnel of the Company. Each
candidate is screened through detailed interviews by the Company's recruiting,
technical and management personnel. In addition, the Company's training
programs provide a pool of experienced candidates from which the Company has
recruited and hired qualified consultants. Consultants include management
consultants, project managers, team leaders, system architects, business
analysts, system analysts, database administrators, programmer analysts,
programmers, data warehousing specialists, systems administrators, LAN
administrators and messaging specialists. The Company seeks to offer
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its consultants competitive pay, attractive assignment opportunities and state
of the art training and retraining courses and may, in the future, consider
offering stock options as part of an overall compensation program to attract
and retain certain technical specialists. See "Risk Factors--Attraction and
Retention of Project Managers and Technical Specialists."
TACT RESEARCH
TACT continuously researches new technologies developed by third parties to
determine their viability and potential acceptance in the Fortune 1000
marketplace. TACT research personnel work closely with Technical Practice
Managers to predict future tools and technologies to be used by corporate
America so that TACT consultants can be trained in those emerging
technologies. TACT research personnel also prepare technology demonstrations
and pilot projects used in the Company's marketing and sales efforts and
identify, evaluate and recommend software products, including those to be
marketed by TACT's Software division. In addition, TACT research personnel
participate in short-term special projects requiring particular expertise for
certain of the Company's clients.
MARKETING ACTIVITIES
TACT markets its services to its clients directly through its marketing and
relationship management personnel at its corporate headquarters. The Company's
relationship managers focus their marketing efforts at the level of chief
information officers and senior executives who determine corporate level IT
needs and requirements. The Company's customer relationship managers interact
closely with the Company's sales, recruiting and Technical Practice personnel.
Sales representatives at the Solution Branch level initiate contacts at lower
levels within an organization, targeting actual users up to the decision
makers.
The Company also markets itself through various targeted marketing
initiatives. One such initiative is The Tactician magazine, which is regularly
published in-house and distributed by TACT. The Tactician presents articles on
a variety of topics including current TACT projects, TACT's accomplishments,
industry viewpoints and technology trends, technology "bugs" or "fixes,"
product reviews and business-related news and developments. The magazine
circulates both to existing and potential clients as well as existing
consultants and candidates. Another marketing resource, which has also served
the Company in its recruiting efforts, is the Company's web site at
http://www.tact.com. The web site provides information about TACT consulting
and training services and software products to the IT community.
The Company's participation in local and national user groups, trade shows,
conventions and expositions enhances the Company's visibility, name
recognition and contacts. TACT Consulting, for example, exhibited a
demonstration of its web-enabled database transaction capabilities by creating
personalized web pages for visitors at the DB-Expo and Internet World shows in
New York City in 1996. TACT Software exhibited its products at COMDEX Chicago
and Las Vegas, the Windows NT/Internet Solutions show in San Francisco,
Computer Associates World '96 in New Orleans and IDUG '97 in Chicago. In
addition, TACT's recruiting personnel regularly participate in IT industry
career fairs.
COMPETITION
The market for IT services is intensely competitive, is affected by rapid
technological advances and includes a large number of competitors. Primary
competitors include the consulting divisions of "Big Six" accounting firms,
systems consulting and implementation firms, application software firms and
management consulting firms. Many of these competitors have significantly
greater financial, technical and marketing resources and greater name
recognition than the Company. In addition, the Company competes with its
clients' internal resources, particularly when these resources represent an
existing cost to the client. Such competition may impose additional pricing
pressures on the Company. See "Risk Factors--Competition."
The Company believes that the principal competitive factors in the IT
services market include breadth of services offered, technical expertise,
knowledge and experience in the industry, quality of service and
responsiveness to client needs. The Company believes it competes primarily on
the basis of its in-depth technical expertise, timely delivery and quality of
service.
A critical component of the Company's ability to compete in the marketplace
is its ability to attract, develop, motivate and retain skilled professionals.
Although highly skilled technical employees, particularly project
33
<PAGE>
managers and technical specialists, are in great demand, the Company believes
it can compete favorably in hiring such personnel by offering competitive
compensation packages and attractive assignment opportunities.
HUMAN RESOURCES
At June 30, 1997, the Company had 276 employees and independent contractors,
of whom 216 were consultants, 8 were recruiting personnel, 13 were sales and
marketing personnel, 7 were technical and customer service personnel, and 32
were executive and administrative personnel. The Company utilizes the services
of a significant number of independent contractors to act as consultants.
These independent contractors are not employees of the Company, and there can
be no assurance that the services of these independent contractors will
continue to be available to the Company on terms acceptable to the Company.
Except for two of the Company's executive officers who have employment
agreements with the Company, the Company does not have any collective
bargaining, employment, pension, incentive compensation arrangements or non-
solicitation agreements with any of its employees or independent contractors.
The Company considers its relations with its employees and independent
contractors to be good. See "Management."
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. The Company has entered into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance, however, that the steps
taken by the Company in this regard will be adequate to deter misappropriation
of proprietary information or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its intellectual
property rights. In addition, the Company is aware of other users of the term
"TACT" and combinations including "A Consulting," which users may be able to
restrict the Company's ability to establish or protect its right to use these
terms. The Company has in the past been contacted by other users of the term
"TACT" alleging rights to the term. The Company's inability or failure to
establish or protect rights to these terms may have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Risk Factors--Intellectual Property Rights."
Software developed by the Company in connection with a client engagement is
typically assigned to the client. In limited situations, the Company may
retain ownership or obtain a license from its client, which permits the
Company or a third party to market the software for the joint benefit of the
client and the Company or for the sole benefit of the Company.
Various trademarks, service marks and trade names to which reference is made
in this Prospectus are the property of owners other than the Company. Such
owners have all applicable rights with respect to their respective trademarks,
service marks and trade names.
PROPERTIES
The Company does not own any real property. The Company's principal
executive offices are leased and are located at 200 Park Avenue South, New
York, New York and consist of approximately 5,900 square feet of space. The
Company is presently negotiating to acquire approximately 5,800 square feet of
additional office space at its present location. The Company also leases a
facility at 67 Walnut Avenue, Clark, New Jersey, consisting of approximately
2,591 square feet of space. See "Certain Transactions."
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
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<PAGE>
MANAGEMENT
DIRECTORS, DIRECTOR NOMINEES, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the directors, director nominees, executive
officers and key employees of TACT, their ages and the positions held by them
with TACT.
Directors, Director Nominees and Executive Officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Chairman of the Board, Chief Executive Officer and
Shmuel BenTov............... 42 President
Frank T. Thoelen(1)......... 48 Chief Financial Officer, Director Nominee
Joseph E. Imholz(1)......... 65 Director Nominee
Steven S. Mukamal(1)........ 57 Director Nominee
Key Employees:
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Martin Korsin............... 39 Director of Marketing
Allison H. Mandel........... 38 Director of Corporate Recruiting
Shai Talmi.................. 34 Director of Research
Meira Steinbock............. 56 Director of Finance and Administration
</TABLE>
- --------
(1) Messrs. Imholz and Mukamal have each agreed to serve as a director and to
serve on certain committees of the Board of Directors described below
effective upon completion of the Offering. Following the Offering, the
Company plans to elect one additional independent Board member and to
elect contemporaneously Mr. Frank T. Thoelen as a member of the Board.
SHMUEL BENTOV is the founder, Chairman of the Board, Chief Executive Officer
and President of TACT. Mr. BenTov received a B.Sc. in Economics and Computer
Science in 1979 from the Bar-Ilan University in Israel and founded TACT in
1983. From 1979 to 1983, Mr. BenTov was a consultant Database Administrator
and then an Account Manager with Spiridellis & Associates. From 1972 to 1979,
Mr. BenTov served with the Israeli Defense Forces as a Programmer, Analyst,
Project Manager, Database Administrator and Chief Programmer.
FRANK T. THOELEN is the Chief Financial Officer of TACT. Mr. Thoelen is a
C.P.A. and received a B.S. in Public Accounting in 1971 from the University at
Albany, New York. Prior to joining TACT in June 1997, Mr. Thoelen was
President of FTT Consulting Inc., his own consulting firm. From 1971 to 1996,
Mr. Thoelen was with Arthur Andersen, an international consulting and business
advisory firm. From 1989 to 1996, he was the Division Head for the Business
Systems Consulting and Computer Risk Management Business Unit. Prior to that,
he was an Audit and Business Advisory Partner, serving a variety of global
companies.
JOSEPH E. IMHOLZ has been nominated to serve as a director of TACT following
the completion of the Offering. Mr. Imholz received a B.S. in Management in
1957 from Hofstra University. Prior to his retirement in 1995, Mr. Imholz was
Vice President and Chief Information Officer of the Property and Casualty
Division of Metropolitan Life Insurance Co. ("MetLife") since 1987. From 1985
to 1987, Mr. Imholz was Executive Director and Chief Information Officer of
Albany Life Insurance, a subsidiary of MetLife. From 1981 to 1985, Mr. Imholz
was Vice President of Corporate Information Systems of MetLife, and from 1974
to 1981 he was the officer in charge of the MetLife Computer Center in
Greenville, South Carolina. From 1957 to 1974, Mr. Imholz served in various
capacities with MetLife, including Analyst, Programmer and Manager of
Information Systems.
STEVEN S. MUKAMAL has been nominated to serve as a director of TACT
following the completion of the Offering. Mr. Mukamal received a B.A. in 1962
from Michigan State University and a J.D./L.L.B. in 1965 from Brooklyn Law
School. Since 1965, he has been a member and senior partner of the law firm
Barst & Mukamal. Mr. Mukamal specializes in the areas of immigration and
nationality law, consular law and real estate and debt restructuring.
35
<PAGE>
MARTIN KORSIN is the Director of Marketing for TACT. His primary
responsibilities include sales and marketing of TACT IT solutions to chief
information officers and senior executives. Mr. Korsin received a B.A. in
Philosophy in 1979 from the University of Sussex in England and has been with
TACT since May 1995. From August 1992 to May 1995, Mr. Korsin was Vice
President, Client/Server with RCG. From February 1989 to August 1992, Mr.
Korsin was a Corporate Vice President of New York Life. From October 1988 to
February 1989, Mr. Korsin was a Director of End User Computers at Integrated
Resources, and from July 1982 to September 1987 he was Manager of Development
and Customer Service at Warner Computer.
ALLISON H. MANDEL is TACT's Director of Corporate Recruiting. Her
responsibilities include overseeing national, international and internet
recruiting; providing priority recruiting support to all Solution Branch
locations; overseeing the central candidate, client/manager and requirement
listing databases; and establishing and implementing standard recruiting
guidelines and procedures. Ms. Mandel received an M.S. degree in Special
Education in 1981 and a B.S. degree in Psychology and Elementary Education in
1980 from SUNY--Geneseo and has been with TACT since August 1993. From July
1990 to August 1993, Ms. Mandel was a Senior Recruiter at Comtex Systems,
Inc., a division of Norrell. From January 1990 until June 1990, Ms. Mandel was
a Senior Recruiter at TelTech, Inc. From January 1987 to December 1989, Ms.
Mandel was a Manager of the Full Time Division at TSR Consulting Services,
Inc., and from January 1986 to January 1987 she was a Recruiter at Protocol
Career Concepts Inc.
SHAI TALMI is TACT's Director of Research. He is responsible for evaluating
new technology to determine its viability and acceptance in the Fortune 1000
marketplace. Mr. Talmi has been with TACT since 1990. From 1988 to 1990, Mr.
Talmi was a Software Developer and Product Manager with Outlook Systems. From
1987 to 1988, Mr. Talmi was a Technical Account Manager at Contahal, and from
1981 to 1987 he was a Programmer, Database Administrator and Team Leader with
the Israeli Defense Forces.
MEIRA STEINBOCK is the Director of Finance and Administration for TACT. She
is responsible for finance, accounting, personnel, legal and office
administration. Ms. Steinbock received an Associate degree in Business
Administration in 1982 from the Israel Institute of Productivity and has been
with TACT since 1989. From 1983 to 1989, Ms. Steinbock was a Finance
Consultant and Controller for various businesses. From 1972 to 1983, Ms.
Steinbock was Executive Vice President of ATIDIM, and from 1959 to 1965 she
was a Sergeant-Major with the Israeli Defense Forces.
The term of office of each director ends when his or her successor has been
elected at the annual meeting of shareholders and qualified or upon his or her
removal or resignation. The term in office of each executive officer ends when
his or her successor has been elected by the Board at any time in its
discretion and qualified or upon his or her removal or resignation.
DIRECTOR COMPENSATION
TACT has adopted a policy of paying an annual fee of $4,000 to each non-
employee director for serving on the Board of Directors. All directors will
also be reimbursed for all reasonable expenses incurred in connection with
traveling to and from meetings. In addition, the Company plans to issue
options to each of the Company's non-employee Directors to purchase 1,000
shares of Common Stock at the initial public offering price hereof. The
options will vest one-year after the date of grant. Each subsequently elected
non-employee Director (including each non-employee director who is re-elected
to the Board of Directors) will receive an option to purchase an additional
1,000 shares of Common Stock at the fair market value of the Common Stock on
the date of grant. Directors who are officers of TACT are not entitled to any
additional compensation as such.
COMMITTEES OF THE BOARD
In connection with the Offering, the Board of Directors will establish an
Executive Committee. The Executive Committee will have the authority to
exercise all of the powers of the Board between meetings of the Board. The
members of the Executive Committee will include Mr. BenTov and two additional
directors to be nominated effective upon consummation of the Offering.
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<PAGE>
In addition, the Board will establish an Audit Committee to consist of three
directors, two of whom will not be officers or employees of the Company. The
Audit Committee will be responsible for the engagement of the Company's
independent auditors and will review with them the scope and timing of their
audit services and any other services they are asked to perform, their report
on the Company's financial statements following completion of their audit and
the Company's policies and procedures with respect to internal accounting and
financial controls. It is presently anticipated that Mr. BenTov and two
additional independent directors will serve on the Audit Committee.
The Board will establish an Executive Compensation Committee to consist of
three directors, two of whom will not be officers or employees of the Company.
The Executive Compensation Committee will be responsible for approving
appointments and promotions and fixing salaries of executives of the Company
between meetings of the full Board and for administering the Stock Option and
Award Plan. Mr. BenTov and two additional independent directors will serve on
the Executive Compensation Committee. All actions of the Executive
Compensation Committee must be ratified by the Board within six months in
order to remain effective.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long-
term compensation earned for the year ended December 31, 1996 for services to
the Company in all capacities by the Chief Executive Officer of the Company
and his spouse, Ronit BenTov. No other executive officers of the Company
earned salary and bonus in excess of $100,000 for the year ended December 31,
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION SALARY BONUS(1)
--------------------------- -------- ----------
<S> <C> <C>
Shmuel BenTov
Chairman of the Board, Chief Executive Officer and
President.............................................. $350,000 $1,272,886
Ronit BenTov(2)
Corporate Secretary.................................... $121,529 --
</TABLE>
- --------
(1) Includes $12,886 in payment of health and insurance benefits and a car
allowance.
(2)Mrs. BenTov's employment was terminated as of December 31, 1996.
EMPLOYMENT AGREEMENTS
Effective upon consummation of the Offering, the Company and Mr. BenTov will
enter into a two year employment agreement providing for his employment as the
Company's Chairman of the Board, Chief Executive Officer and President at an
initial base salary of $250,000. Mr. BenTov and the Company have agreed during
the two year term of his employment agreement not to (i) increase Mr. BenTov's
compensation (including base salary and bonus) or (ii) otherwise amend the
terms of Mr. BenTov's employment agreement. The employment agreement provides
that in the event of termination: (i) without cause, Mr. BenTov will receive a
lump sum severance allowance in an amount equal to 2.00 times his then annual
base salary; (ii) as a result of the disability or incapacity of Mr. BenTov,
Mr. BenTov will be entitled to receive his then annual base salary during the
two years following the termination notice; and (iii) as a result of the death
of Mr. BenTov, Mr. BenTov's estate will be entitled to receive a lump sum
payment equal to his then annual base salary. The agreement includes a two-
year non-compete covenant commencing on the termination of employment.
Effective June 1997, the Company and Mr. Thoelen entered into a three year
employment agreement providing for his employment as the Company's Chief
Financial Officer at an initial base salary of $150,000. The employment
agreement provides that in the event of termination due to a change of control
or without cause, Mr. Thoelen will receive a lump sum severance allowance in
an amount equal to his then annual base salary. The agreement includes a one-
year non-compete covenant commencing on the termination of employment.
Pursuant to the employment agreement, Mr. Thoelen received a one-time signing
bonus of $25,000 and five-year options to purchase an aggregate 50,000 shares
of Common Stock at the initial public offering price of the Offering, 20,000
of which options vest after one year and 30,000 of which vest ratably over the
next three years.
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<PAGE>
EXECUTIVE OFFICER BONUS PLAN
Upon consummation of the Offering, the Company's bonus program for executive
officers will be administrated by the non-employee directors of the Company's
Executive Compensation Committee. In determining the bonus compensation
payable to the Company's executive officers, the committee will seek to create
a direct link between the bonus payable to each executive officer and the
financial performance of the Company as a whole. Factors which may be
considered in determining the amount of individual bonus awards will include
earnings per share targets and individual performance compared to pre-
established strategic, financial and operational objectives. For the year
ending December 31, 1997, Mr. BenTov will not receive a cash bonus award for
his services as Chief Executive Officer and President of the Company and, for
the year ending December 31, 1998, may be entitled to receive an annual cash
bonus not to exceed one percent of the Company's total revenues for that year
subject to approval by the non-employee directors of the Executive
Compensation Committee and further subject to the Company meeting certain
financial performance criteria.
STOCK OPTION PLAN
Prior to the effective date hereof, the Company will adopt the Stock Option
and Award Plan (the "Plan"). The purpose of the Plan is to enable the Company
to provide additional incentives to the Company's officers, directors and
employees to advance the interests of the Company by giving them an
opportunity to participate in an increase in the market value of the Common
Stock. The Plan provides for the grant of stock options, stock appreciation
rights, restricted stock awards, performance units and performance shares
(collectively, "Awards") to eligible participants. "Incentive" stock options
must satisfy the requirements of Section 422 of the Internal Revenue Code of
1986, as amended, and, accordingly, no "incentive" stock options may be
granted to directors of the Company who are not also employees of the Company.
The Plan, which provides for the issuance of up to a maximum of 600,000
shares of Common Stock (subject to adjustment pursuant to customary anti-
dilution provisions), will be administered by the Executive Compensation
Committee of the Board (the "Committee"). The Committee will have sole
discretion (subject to the terms of the Plan) to determine the officers,
directors and employees to whom Awards will be granted and the terms and
conditions of such Awards. The number of shares of Common Stock as to which
Awards will be granted to any officer, director or employee will be determined
by the Committee based upon such factors as it may deem to be relevant, such
as previous and anticipated contributions to, and duration of employment with,
the Company.
The exercise price per share of a stock option will be established by the
Committee in its discretion, but may not be less than the fair market value
(or not less than 110% of such value if the individual to whom an "incentive"
stock option is granted owns, as of the date of grant, shares of the Company's
capital stock possessing 10% or more of the total voting power of all
outstanding shares of the Company's capital stock) of a share of Common Stock
as of the date of grant. The aggregate fair market value (determined as of the
date of grant) of shares of Common Stock with respect to which "incentive"
stock options are exercisable for the first time by an individual to whom an
"incentive" stock option is granted during any calendar year (under
"incentive" stock option plans of the Company) may not exceed $100,000.
Payment for shares of Common Stock purchased upon the exercise of stock
options may be made only in cash or by check.
Stock appreciation rights ("SARs") entitle the participant to receive, upon
exercise of the SAR, an amount determined by multiplying: (1) the difference
between (a) the fair market value of a share of Common Stock on the date of
exercise and (b) the exercise price, times (2) the number of shares with
respect to which the SAR is exercised. The exercise price of each SAR will
equal at least 100% of the fair market value of the shares covered by the
Award on the date of grant. Thus, SARs, like options, will have value only if
the Common Stock appreciates in value after the date of grant. Proceeds from
SAR exercises may be paid in cash or shares of Common Stock, as determined in
the discretion of the Committee.
Awards of restricted stock are shares of Common Stock which vest in
accordance with terms established in the discretion of the Committee. For
example, the Committee may determine that the shares will vest only upon the
satisfaction of a continuous employment requirement and/or the achievement of
performance goals specified by the Committee.
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<PAGE>
Performance units and performance shares are amounts credited to a
bookkeeping account established for the participant. Whether a performance
unit or share actually will result in a payment to a participant will depend
upon the extent to which performance goals established by the Committee are
satisfied. Payment will be in cash or shares of Common Stock, as determined in
the discretion of the Committee.
No stock options or other equity-linked derivative securities have been
granted or awarded by the Company outside of the Plan.
401(K) PLAN
The Company sponsors a defined contribution plan under Section 401(k) of the
Internal Revenue Code for eligible employees of the Company. Participants may
contribute up to 15% of their annual salaries to the 401(k) Plan not to exceed
certain limitations. All contributions made by an employee are fully vested
and are not subject to forfeiture. The Company may make discretionary matching
contributions to the 401(k) Plan on behalf of all eligible employees. No such
contributions were made by the Company in 1994, 1995, 1996 and the six months
ended June 30, 1997.
CERTAIN TRANSACTIONS
The Company leased an apartment, located at 7 East 14th Street, Suite 20F,
New York, New York, from Mr. BenTov, the Company's sole shareholder and
Chairman of the Board, Chief Executive Officer and President, on a month-to-
month basis with annual payments of $12,000 in 1996 and $30,000 in 1995. The
Company terminated this rental effective December 31, 1996. The Company
believes the terms of the rental agreement were no less favorable to the
Company than could have been obtained from an unaffiliated third party. See
"Business--Properties."
In April 1996, the Company increased its line of credit with Citibank, N.A.
from $200,000 to $350,000, and in December 1996 this line of credit was again
increased to $1,700,000. In February 1997, the Company increased this line of
credit from $1,700,000 to $2,100,000 and, in June 1997, to $3,100,000 to repay
$980,000 outstanding under the Shareholder Loan. The Company had $135,000,
$1,450,000 and $2,665,000 outstanding under this line of credit as of December
31, 1995 and 1996 and June 30, 1997, respectively. In March 1997, the Company
borrowed an additional $150,000 from Citibank, N.A., which subsequently was
repaid by the Company in April 1997. The line of credit is guaranteed by Mr.
BenTov and bears interest at a variable rate based on prime plus 1% (9.5% at
June 30, 1997). It is anticipated that Mr. BenTov will be relieved of his
guarantees as a result of the Company's repayment of borrowings under this
line. See "Risk Factors--Payments and Benefit to Existing Sole Shareholder,"
"Prior S Corporation Status" and "Use of Proceeds."
The Company had outstanding $1,111,000, $1,045,000 and $0 under the
Shareholder Loan from Mr. BenTov as of December 31, 1995 and 1996 and June 30,
1997, respectively. The loan bore interest at a variable rate based on prime
(8.5% on June 13, 1997, the date of repayment). At December 31, 1996, $500,000
of the Shareholder Loan was subordinated to the Company's line of credit. The
Company will use a portion of the proceeds to repay amounts outstanding under
the line of credit. See "Use of Proceeds."
Effective January 1995, the Company became an S Corporation for federal and
certain state income tax purposes. As such, the Company's income was allocated
and taxable to the Company's individual shareholder, Mr. BenTov, rather than
to the Company. Between January 1, 1995 and June 30, 1997, the Company paid
Mr. BenTov compensation aggregating $3,388,000. The Company intends to use a
portion of the proceeds to pay the Distribution. See "Prior S Corporation
Status."
Prior to the Termination Date, the Company and Mr. BenTov will enter into an
agreement (the "Tax Indemnification Agreement") providing that the Company
will be indemnified by Mr. BenTov with respect to any federal, state or local
corporate income taxes (plus interest and penalties) as a result of the
Company's failure to qualify as an S Corporation with respect to tax returns
in which the Company reported its income as an S Corporation. Mr. BenTov's
liability under the Tax Indemnification Agreement will be limited to the
aggregate amount of all distributions received by Mr. BenTov from the Company
during such S Corporation reporting
39
<PAGE>
period, net of taxes paid or payable by Mr. BenTov with respect to such
distributions. The Indemnification Agreement will further provide that the
Company will indemnify Mr. BenTov on an after-tax basis with respect to any
federal, state or local income taxes (plus interest and penalties) paid or
required to be paid by Mr. BenTov, and Mr. BenTov will pay to the Company any
refunds of federal, state or local income taxes (including interest received
thereon) received by (or credited to) Mr. BenTov, as a result of a subsequent
adjustment in income of the Company with respect to any tax return in which
the Company reported its income as an S Corporation. The Tax Indemnification
Agreement will also provide that Mr. BenTov shall have the option to control
the filing of the current year's tax returns and control or participate in
audits and certain other matters for any period in which the Company reported
its income as an S Corporation. See "Prior S Corporation Status."
On April 11, 1994, the Company entered into a joint venture with Kalanit
Center for Marketing Software & Hardware Ltd. ("Kalanit"), an Israeli software
distribution company. At such time, Mr. BenTov owned less than 5% of Kalanit's
outstanding ordinary shares. The Company and Kalanit each owned a 50% interest
in a joint venture organized as Vianet, Inc. ("Vianet"). Vianet was
established to recruit international consultants and develop software. The
Company incurred research and development expenses of $185,000 for 1995
consisting of amounts paid to Vianet for software development which were
included in Vianet's revenues in 1995. In addition, the Company paid Vianet
$140,000, $37,000 and $0 for recruiting services for the years ended December
31, 1995 and 1996 and for the six months ended June 30, 1997, respectively.
The Company accounted for its investment in Vianet under the equity method of
accounting. The Company's investment in Vianet did not have a material impact
on the Company's results of operations. On March 31, 1997, the Company sold
its 50% interest in Vianet for a negligible amount to Kalanit at which time
Mr. BenTov owned approximately 6.8% of the outstanding ordinary shares of
Kalanit. In January 1997, Mr. BenTov subscribed for an additional 12.5% of the
outstanding ordinary shares of Kalanit, which shares have not yet been issued.
For the years ended December 31, 1994, 1995 and 1996 and the six months ended
June 30, 1997, Mr. BenTov acted as President of Vianet and received $150,000,
$150,000, $0 and $0, respectively, in compensation from Vianet.
During 1994, 1995 and 1996, Mr. BenTov's spouse, Ronit BenTov, was employed
by the Company as Corporate Secretary and received a salary of $126,529,
$121,529 and $121,529, respectively. Mrs. BenTov's employment was terminated
as of December 31, 1996. During 1994, 1995 and 1996, Mr. BenTov's sister,
Victoria BenTov, was employed by Vianet as a consultant and received a salary
of $31,000, $60,000 and $65,000, respectively. As of April 1, 1997, Ms.
BenTov's employment with Vianet was terminated, and she was hired by the
Company as a consultant at a base salary of $60,000.
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PRINCIPAL AND SELLING SHAREHOLDER
The following table sets forth information with respect to beneficial
ownership of the Common Stock, as of June 30, 1997 and as adjusted to reflect
the sale of Common Stock offered hereby by (i) each person who beneficially
owns, to the knowledge of the Company, 5% or more of the Common Stock, (ii)
each director and director nominee of the Company, (iii) each executive
officer named in the Summary Compensation Table, and (iv) all directors,
director nominees and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(2) AFTER OFFERING(2)
---------------------- ----------------------
NUMBER NUMBER OF
NAME(1) OF SHARES PERCENT SHARES PERCENT
- ------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Shmuel BenTov(3)................ 3,550,000 100.0% 3,550,000 66.4%
Frank T. Thoelen................ -- -- -- --
Joseph E. Imholz................ -- -- -- --
Steven S. Mukamal............... -- -- -- --
All directors, director nominees
and executive officers as a
group (four persons)(4)........ 3,550,000 100.0% 3,550,000 66.4%
</TABLE>
- --------
(1) The address of each person listed, unless otherwise indicated, is 200 Park
Avenue South, New York, New York 10003.
(2) As used in this table "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition
of any security. A person is deemed as of any date to have "beneficial
ownership" of any security that such person has a right to acquire within
60 days after such date. Any security that any person named above has the
right to acquire within 60 days is deemed to be outstanding for purposes
of calculating the ownership percentage of such person but is not deemed
to be outstanding for purposes of calculating the ownership percentage of
any other person. Unless otherwise noted, each person listed has the sole
power to vote, or direct the voting of, and power to dispose, or direct
the disposition of, all of such shares.
(3) Assumes no exercise of the Underwriters' over-allotment option. In the
event such option is exercised in full, each of the Company and Mr. BenTov
will sell 135,000 shares of Common Stock (for a total of 270,000 shares of
Common Stock) and Mr. BenTov will beneficially own 3,415,000 shares, or
62.3%, of the outstanding Common Stock after the Offering.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock, par value $0.01 per share, and 2,000,000 shares of Preferred
Stock, par value $0.01 per share. As of the date of this Prospectus, 3,550,000
shares of Common Stock are outstanding and no shares of Preferred Stock are
outstanding. After giving effect to the sale of the shares of Common Stock
offered hereby, there will be 5,350,000 shares of Common Stock outstanding
(5,485,000 shares if the Underwriters' over-allotment option is exercised in
full).
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per share on
all matters submitted to a vote at a meeting of shareholders. Each shareholder
may exercise such vote either in person or by proxy. Shareholders are not
entitled to cumulate their votes for the election of directors, which means
that the holders of more than 50% of the Common Stock voting for the election
of directors can elect all of the directors to be elected by holders of Common
Stock, in which event the holders of the remaining shares of Common Stock will
not be able to elect any director. Subject to preferences to which holders of
Preferred Stock issued after the sale of the Common Stock offered hereby may
be entitled, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board out of
funds legally available therefor. In the event of a liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
share ratably in all assets of the Company which are legally available for
distribution to shareholders, subject to the prior rights on liquidation of
creditors and to preferences to which holders of Preferred Stock issued after
the sale of the Common Stock offered hereby may be entitled. The holders of
Common Stock have no preemptive, subscription, redemption or sinking fund
rights. The Common Stock currently outstanding, and the Common Stock offered
hereby, is and will be validly issued, fully paid and nonassessable. The
Company does not presently anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."
Subsequent to the completion of the Offering, Mr. BenTov will own
approximately 66.4% of the then-outstanding shares of Common Stock (62.3% if
the Underwriter's over-allotment option is exercised in full) and will be able
to elect all of the members of the Board of Directors and exercise substantial
influence over the outcome of any issues which may be subject to a vote of the
Company's shareholders. See "Risk Factors--Control by Principal Shareholder."
PREFERRED STOCK
The Board has the authority to issue the Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
prices and liquidation preferences, and the number of shares constituting and
the designation of any such series, without further vote or action by the
shareholders. At present, the Company has no plans to issue any of the
Preferred Stock and is not aware of any pending or proposed transaction that
would be affected by such an issuance.
NEW YORK ANTI-TAKEOVER LAW
The Company, as a New York corporation, is subject to the provisions of
Section 912 of the New York Business Corporation Law and will continue to be
so subject if and for so long as it has a class of securities registered under
Section 12 of the Exchange Act and continues to be organized under the laws of
the State of New York. Section 912 provides, with certain exceptions, that a
New York corporation may not engage in a "business combination" (e.g., merger,
consolidation, recapitalization or disposition of stock or assets) with any
"interested shareholder" for a period of five years from the date that such
person first became an interested shareholder unless: (a) the transaction
resulting in a person becoming an interested shareholder, or the business
combination, was approved by the Board of Directors of such corporation prior
to that person becoming an interested shareholder; (b) the business
combination is approved by the holders of a majority of the outstanding
42
<PAGE>
voting stock not beneficially owned by such interested shareholder; or (c) the
business combination meets certain valuation and consideration requirements
for the stock of such corporation. An "interested shareholder" is defined as
any person that is the beneficial owner of 20% or more of the then-outstanding
voting stock. These provisions are likely to impose greater restrictions on an
unaffiliated shareholder than on the existing shareholder who will continue to
own a majority of the Company's outstanding Common Stock after the Offering.
CERTAIN EFFECTS OF AUTHORIZED AND UNISSUED STOCK
There will be, at the time of the sale of the Common Stock offered hereby,
4,100,000 unissued and unreserved shares of Common Stock (3,965,000 shares if
the Underwriters' over-allotment option is exercised in full) and 2,000,000
unissued and unreserved shares of Preferred Stock. These additional shares may
be issued for a variety of proper corporate purposes, including future public
or private offerings to raise additional capital or facilitate acquisitions.
The Company does not presently intend to issue additional shares of Common
Stock or Preferred Stock (other than in connection with the Plan).
One of the effects of the existence of unissued and unreserved shares of
Common Stock and Preferred Stock may be to enable the Board to discourage an
attempt to change control of the Company (by means of a tender offer, proxy
contest or otherwise) and thereby to protect the continuity of the Company's
management. If, in the due exercise of its fiduciary duties, the Board
determined that an attempt to change control of the Company was not in the
Company's best interest, the Board could authorize, without having to obtain
approval of the shareholders, the issuance of such shares in one or more
transactions that might prevent or render more difficult the completion of
such attempt. In this regard, the Board has the authority to establish the
rights and preferences of the authorized and unissued shares of Preferred
Stock, one or more series of which could be issued entitling the holders
thereof to vote separately as a class or to cast a proportionately larger vote
than the holders of shares of Common Stock on any proposed action, to elect
directors having terms of office or voting rights greater than the terms of
office or voting rights of other directors, to convert shares of Preferred
Stock into a proportionately larger number of shares of Common Stock or other
securities of the Company, to demand redemption at a specified price under
prescribed circumstances related to such a change or to exercise other rights
designed to impede such a change. The issuance of shares of Preferred Stock,
whether or not related to any attempt to effect such a change, may adversely
affect the rights of the holders of shares of Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have a total of 5,350,000
shares of Common Stock outstanding (5,485,000 if the Underwriters' over-
allotment option is exercised in full). Of these shares, the 1,800,000 shares
offered hereby (2,070,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or
registration under the Securities Act by persons other than "affiliates" of
the Company, as defined by Rule 144 promulgated under the Securities Act. The
remaining 3,550,000 shares of Common Stock outstanding upon completion of the
Offering (3,415,000 shares of Common Stock outstanding if the Underwriters'
over-allotment option is exercised in full) will be "restricted shares" as
that term is defined by Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding or the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years would be entitled to sell such shares under Rule 144(k)
without regard to the requirements described above.
Under Rule 144 (and subject to the conditions thereof), all of the
restricted shares will be eligible for sale upon completion of the Offering.
However, the Company's existing sole shareholder and its executive officers
and directors, who in the aggregate will beneficially own 66.4% shares of
Common Stock upon completion of the Offering (62.3% if the Underwriters' over-
allotment option is exercised in full), have agreed not to sell, offer to
sell, contract to sell, solicit an offer to buy, grant any option for the
purchase or sale of, assign, pledge, distribute or otherwise transfer, dispose
of or encumber (or make any announcement with respect to any of the
foregoing), directly or indirectly, any shares of Common Stock, or any
options, rights, warrants or other securities convertible into or exercisable
or exchangeable for Common Stock or evidencing any right to purchase or
subscribe for shares of Common Stock, whether or not beneficially owned by
such shareholder, director or executive officer, except as contemplated in the
Offering, for a period of 180 days from the date of this Prospectus without
the prior written consent of The Robinson-Humphrey Company, Inc., on behalf of
the Underwriters.
The Company may file a registration statement on Form S-8 under the
Securities Act registering the 600,000 shares of Common Stock reserved for
issuance under its Stock Option and Award Plan. As a result, shares issued
upon exercise of stock options granted under the Plan will be available,
subject to special rules for affiliates, for resale in the public market after
the effective date of such registration statement. Options to purchase 450,000
shares of Common Stock commence vesting one year from the date hereof. See
"Management--Stock Option Plan."
No prediction can be made as to the effect, if any, that the sales of the
Common Stock or the availability of such shares for sale in the public market
will have on the market price for the Common Stock prevailing from time to
time. Nevertheless, sales of substantial amounts of Common Stock in the public
market after the restrictions described above lapse could adversely affect
prevailing market prices for the Common Stock and impair the ability of the
Company to raise capital through an offering of its equity securities in the
future.
44
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Underwriters named below, for whom The Robinson-Humphrey Company, Inc. and
Wheat, First Securities, Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company, and
the Company has agreed to sell to the Underwriters, the respective number of
shares of Common Stock set forth opposite their respective names below at the
initial public offering price less the underwriting discounts set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
The Robinson-Humphrey Company, Inc. ...............................
Wheat, First Securities, Inc. .....................................
---------
Total............................................................ 1,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of the
Common Stock offered hereby if any such shares are purchased.
The Company has been advised by the Underwriters that they propose to offer
the shares of Common Stock directly to the public at the initial public
offering price per share set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share in sales to certain other dealers. After the Offering,
the public offering price and other selling terms may be changed by the
Underwriters.
The Company and the Selling Shareholder have each granted the Underwriters
an option, exercisable not later than 30 days after the date of this
Prospectus, to purchase up to an additional 135,000 shares of Common Stock (a
total of 270,000 shares of Common Stock) at the initial public offering price,
less the underwriting discounts, set forth on the cover page of the Prospectus
to cover over-allotments, if any. If the Underwriters exercise their over-
allotment option, the Underwriters have severally agreed, subject to certain
conditions, to purchase from the Company and the Selling Shareholder
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by each of them as shown in the table above bears to the
1,800,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the 1,800,000 shares of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 1,800,000 shares are being offered.
The Company, the existing sole shareholder and each of the Company's
directors and executive officers have agreed that they will not sell, offer to
sell, contract to sell, solicit an offer to buy, grant any option for the
purchase or sale of, assign, pledge, distribute or otherwise transfer, dispose
of or encumber (or make any announcement with respect to any of the
foregoing), directly or indirectly, any shares of Common Stock, or any
options, rights, warrants or other securities convertible into or exercisable
or exchangeable for Common Stock or evidencing any right to purchase or
subscribe for shares of Common Stock, whether or not beneficially owned by
such shareholder, director or executive officer, except as contemplated in the
Offering, for a period of 180 days from the date of this Prospectus without
the prior written consent of The Robinson-Humphrey Company, Inc. on behalf of
the Underwriters. See "Shares Eligible for Future Sale."
45
<PAGE>
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against, or to contribute to losses arising out of, certain
liabilities, including liabilities under the Securities Act.
In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M promulgated under the Securities
Exchange Act of 1934, as amended, pursuant to which such persons may bid for
or purchase the Common Stock for the purpose of stabilizing their respective
market prices. The Underwriters also may create a short position for the
account of the Underwriters by selling more Common Stock in connection with
the Offering than they are committed to purchase from the Company, and in such
case may purchase Common Stock in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters
may also cover all or a portion of such short position, up to 270,000 shares
of Common Stock, by exercising the over-allotment option referred to above. In
addition, the Underwriters may impose "penalty bids" under contractual
arrangements with dealers whereby they may reclaim from a dealer participating
in the Offering for the account of the Underwriters the selling concession
with respect to the Common Stock that is distributed in the Offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the prices of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock will be
determined by negotiations between the Company and the Representatives and
will not be based upon any independent appraisal or valuation of the Company.
Among the factors to be considered in determining the initial public offering
price are the economic outlook for the industry in which the Company operates,
the Company's position in the industry, the Company's earnings prospects, the
Company's financial position, the ability and experience of the Company's
management, the prevailing conditions of the securities market at the time of
the Offering and the stock prices of publicly traded companies which the
Company and the Representatives believe to be comparable to the Company.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Orrick, Herrington
& Sutcliffe LLP, New York, New York. Certain legal matters will be passed upon
for the Underwriters by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The financial statements of the Company at December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 1996, appearing
in this Prospectus and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form SB-2
under the Securities Act with respect to the shares of Common Stock offered
hereby. This
46
<PAGE>
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission, to which Registration Statement reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other documents filed as an exhibit to the Registration
Statement, are not necessarily complete and reference is made to the exhibit
for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.C., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, the Company is
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
The Company intends to furnish to its shareholders annual reports containing
audited financial information for each fiscal year of the Company and
unaudited quarterly reports for the first three quarters of each fiscal year
of the Company.
47
<PAGE>
THE A CONSULTING TEAM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997
(unaudited).............................................................. F-3
Statements of Operations and Retained Earnings for the years ended
December 31, 1994, 1995 and 1996 and the six months ended
June 30, 1996 and 1997 (unaudited)....................................... F-4
Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996 and the six months ended June 30, 1996 and 1997 (unaudited)..... F-5
Notes to Financial Statements............................................. F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
The A Consulting Team, Inc.
We have audited the accompanying balance sheets of The A Consulting Team,
Inc. (the "Company") as of December 31, 1995 and 1996, and the related
statements of operations and retained earnings, and cash flows for each of the
three years in the period ended December 31, 1996. 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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December
31, 1995 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
January 31, 1997, except for
Note 1, as to which the date
is August 4, 1997
F-2
<PAGE>
THE A CONSULTING TEAM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 11)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................ $ 420,157 $ 347,285 $ 7,578 $ 7,578
Accounts receivable............. 2,496,360 4,163,869 6,528,427 6,528,427
Prepaid expenses and other...... 56,241 162,550 138,703 138,703
---------- ---------- ---------- ----------
Total current assets.......... 2,972,758 4,673,704 6,674,708 6,674,708
Investment in and advances to
joint venture (Note 7).......... 36,322 16,452 -- --
Property and equipment, at cost,
less accumulated depreciation
(Note 2)........................ 170,531 375,323 481,053 481,053
Deposits......................... 16,696 34,614 34,614 34,614
Deferred offering costs.......... -- -- 45,511 45,511
---------- ---------- ---------- ----------
Total assets.................. $3,196,307 $5,100,093 $7,235,886 $7,235,886
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQ-
UITY
Current liabilities:
Loan payable--bank (Note 3)..... $ 135,000 $1,450,000 $2,665,000 $2,665,000
Loan payable to shareholder
(Note 3)....................... 1,111,000 1,045,000 -- --
Current portion of long-term
debt (Note 3).................. -- 12,896 13,332 13,332
Due to joint venture (Note 7)... 43,480 -- -- --
Distribution payable to share-
holder......................... -- -- -- 2,000,000
Accounts payable and accrued ex-
penses (Note 4)................ 998,591 1,713,347 2,156,449 2,156,449
Income taxes payable............ 58,515 8,107 91,441 91,441
Deferred income taxes (Note 5).. 47,000 16,000 6,000 64,000
---------- ---------- ---------- ----------
Total current liabilities..... 2,393,586 4,245,350 4,932,222 6,990,222
Long-term debt (Note 3).......... -- 44,059 38,367 38,367
Commitments (Note 9).............
Shareholder's equity:
Preferred stock, (pro forma:
$.01 par value; 2,000,000
shares authorized; no shares
issued or outstanding)......... -- -- -- --
Common stock, no par value;
3,550,000 shares authorized,
issued and outstanding (pro
forma: $.01 par value;
10,000,000 authorized)......... 100 100 100 35,500
Retained earnings............... 802,621 810,584 2,265,197 171,797
---------- ---------- ---------- ----------
Total shareholder's equity.... 802,721 810,684 2,265,297 207,297
---------- ---------- ---------- ----------
Total liabilities and share-
holder's equity.............. $3,196,307 $5,100,093 $7,235,886 $7,235,886
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE A CONSULTING TEAM, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL:
Revenues:
Consulting services.... $ 9,462,400 $14,430,355 $18,980,857 $8,636,946 $15,378,395
Software licensing..... 1,321,228 1,382,642 1,776,222 1,107,307 784,781
Training services...... 98,363 209,888 237,975 149,425 110,222
----------- ----------- ----------- ---------- -----------
Total revenues....... 10,881,991 16,022,885 20,995,054 9,893,678 16,273,398
Cost of revenues........ 8,015,818 11,040,609 14,521,124 6,806,991 11,216,866
----------- ----------- ----------- ---------- -----------
Gross profit............ 2,866,173 4,982,276 6,473,930 3,086,687 5,056,532
Operating expenses:
Selling, general and
administrative
(excluding executive
compensation)......... 2,001,280 3,089,911 4,699,756 1,923,999 3,241,165
Executive compensation. 607,465 1,615,162 1,622,886 811,462 150,000
Research and
development (Note 7).. 300,000 185,000 -- -- --
Equity in net (income)
loss from joint
venture, including
loss on disposal of
$1,584 for June 30,
1997 (Note 7)......... (35,475) 153 49,575 34,395 (13,253)
----------- ----------- ----------- ---------- -----------
Total operating ex-
penses.............. 2,873,270 4,890,226 6,372,217 2,769,856 3,377,912
----------- ----------- ----------- ---------- -----------
Income (loss) from oper-
ations................. (7,097) 92,050 101,713 316,831 1,678,620
Interest income......... 2,840 3,321 2,446 2,331 171
Interest expense........ -- (13,996) (67,496) (39,725) (108,178)
----------- ----------- ----------- ---------- -----------
Income (loss) before in-
come taxes............. (4,257) 81,375 36,663 279,437 1,570,613
Provision (credit) for
income taxes (Note 5).. (6,700) (108,800) 28,700 24,300 116,000
----------- ----------- ----------- ---------- -----------
Net income.............. 2,443 190,175 7,963 255,137 1,454,613
Retained earnings at
beginning of period.... 610,003 612,446 802,621 802,621 810,584
----------- ----------- ----------- ---------- -----------
Retained earnings at end
of period.............. $ 612,446 $ 802,621 $ 810,584 $1,057,758 $ 2,265,197
=========== =========== =========== ========== ===========
UNAUDITED PRO FORMA
INFORMATION
(NOTE 11):
Historical income (loss)
from operations........ $ 101,713 $ 1,678,620
Pro forma adjustment for
executive compensation. 1,222,886 (37,500)
----------- -----------
Pro forma income from
operations............. 1,324,599 1,641,120
Interest (expense) in-
come, net.............. (65,050) (108,007)
----------- -----------
Pro forma income before
income taxes........... 1,259,549 1,533,113
Pro forma provision for
income taxes........... 568,000 681,000
----------- -----------
Pro forma net income.... $ 691,549 $ 852,113
=========== ===========
Pro forma net income per
share.................. $ .18 $ .23
=========== ===========
Weighted average number
of common shares out-
standing............... 3,745,503 3,745,503
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
THE A CONSULTING TEAM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES
Net income.............. $ 2,443 $ 190,175 $ 7,963 $ 255,137 $ 1,454,613
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation.......... 56,782 66,588 96,261 23,984 59,143
Deferred income taxes. (22,000) (168,000) (31,000) (15,500) (10,000)
Equity in net (income)
loss from joint
venture, including
loss on disposal of
$1,584 for June 30,
1997................. (35,475) 153 49,575 34,395 (13,253)
Changes in operating
assets and
liabilities:
Accounts receivable.. (108,773) (1,181,348) (1,667,509) (1,650,424) (2,364,558)
Prepaid expenses and
other............... (17,533) (14,206) (106,309) 59,360 23,847
Accounts payable and
accrued expenses.... 281,320 213,311 714,756 1,315,544 261,171
Due to joint venture. 50,000 (6,520) (43,480) (43,480) --
Income taxes payable. -- 58,515 (50,408) (27,090) 83,334
--------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 206,764 (841,332) (1,030,151) (48,074) (505,703)
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property and
equipment.............. (130,589) (95,598) (301,053) (72,169) (164,873)
Repayment from (invest-
ment and advances in)
joint venture.......... (1,000) -- (29,705) -- 29,705
Deposits................ (2,447) (2,701) (17,918) (4,080) --
--------- ----------- ----------- ----------- -----------
Net cash used in invest-
ing activities......... (134,036) (98,299) (348,676) (76,249) (135,168)
CASH FLOWS FROM
FINANCING ACTIVITIES
Bank overdraft.......... -- -- -- 194,926 181,931
Proceeds from loan pay-
able--bank............. -- 135,000 1,315,000 65,000 1,215,000
Proceeds from loan to
shareholder............ -- 1,111,000 691,000 -- --
Repayment of loan to
shareholder............ -- -- (757,000) (550,000) (1,045,000)
Proceeds from long-term
debt................... -- -- 57,984 -- --
Repayment of long-term
debt................... -- -- (1,029) -- (5,256)
Deferred offering costs. -- -- -- -- (45,511)
--------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............. -- 1,246,000 1,305,955 (290,074) 301,164
--------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash................ 72,728 306,369 (72,872) (414,397) (339,707)
Cash at beginning of pe-
riod................... 41,060 113,788 420,157 420,157 347,285
--------- ----------- ----------- ----------- -----------
Cash at end of period... $ 113,788 $ 420,157 $ 347,285 $ 5,760 $ 7,578
========= =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the pe-
riod for:
Interest.............. $ 902 $ 3,214 $ 13,921 $ 13,170 $ 88,819
========= =========== =========== =========== ===========
Income taxes.......... $ 13,263 $ 685 $ 110,108 $ 66,890 $ 42,666
========= =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE A CONSULTING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
The A Consulting Team, Inc. (the "Company") was incorporated on February 16,
1983, in the State of New York, for the purpose of providing various computer
consulting and training services and marketing software products. The
Company's customers are primarily located in the New York/New Jersey
metropolitan area.
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. Actual results could differ from those estimates.
Share Information
All outstanding share amounts included in the accompanying financial
statements have been adjusted to reflect a 355,000-for-1 stock split on August
4, 1997.
Interim Financial Statements
The unaudited interim information as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. Interim results are not necessarily
indicative of results for a full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
Cash Equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents. The
Company had no cash equivalents as of the dates presented.
Property and Equipment
Property and equipment acquired after December 31, 1994 are depreciated
using the straight-line method over the estimated useful lives of the assets,
which range from five to ten years. Property and equipment acquired prior to
January 1, 1995 are depreciated using an accelerated method over the estimated
useful lives of the assets, which range from five to seven years.
Revenue and Accounts Receivable
Consulting and training revenue are recognized as services are provided.
Revenue from sales of software licenses is recognized upon delivery of the
software to a customer because future obligations associated with such revenue
are insignificant.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Provisions for doubtful
accounts, which have not been material for any of the periods presented, are
recorded when such losses are determined. Credit losses historically have been
consistent with management's expectations.
Research and Development Expenses
Research and development costs are charged to expense as incurred.
F-6
<PAGE>
THE A CONSULTING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
JUNE 30,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Equipment........................................ $251,121 $450,056 $599,897
Software......................................... 5,911 8,518 8,518
Furniture and fixtures........................... 83,189 124,715 136,491
Automobiles...................................... 72,346 102,355 96,824
-------- -------- --------
412,567 685,644 841,730
Less accumulated depreciation.................... 242,036 310,321 360,677
-------- -------- --------
$170,531 $375,323 $481,053
======== ======== ========
</TABLE>
3. LOANS PAYABLE AND CREDIT ARRANGEMENT
In February 1997, the Company increased its line of credit with a bank from
$1,700,000 to $2,100,000 and, in June 1997, the Company further increased its
line of credit to $3,100,000 to repay the then outstanding balance of the
shareholder's loan. As of December 31, 1995 and 1996, and June 30, 1997,
$135,000, $1,450,000 and $2,665,000 was outstanding under the line of credit,
respectively. The line of credit is guaranteed by the shareholder. The loan
bears interest at a variable rate based on prime plus 1% (9.25% at December
31, 1996 and 9.5% at June 30, 1997).
The Company had outstanding borrowings of $1,111,000, $1,045,000 and $0 from
the shareholder as of December 31, 1995 and 1996, and June 30, 1997,
respectively. The loan bore interest at a variable rate based on prime (8.25%
at December 31, 1996 and 8.5% at June 13, 1997, the date of repayment) and was
due on demand. At December 31, 1996, $500,000 of the shareholder loan was
subordinated to the above mentioned bank loan.
Long-term debt is comprised of an automobile loan and is payable in monthly
installments of $1,415 including interest at 8%. As of December 31, 1996, the
loan matures as follows: 1997--$12,896, 1998--$13,967, 1999--$15,126 and
2000--$14,966.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
JUNE 30,
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Accounts payable.............................. $357,878 $ 680,805 $ 479,764
Bank overdraft................................ -- -- 181,931
Commissions................................... 46,295 74,227 7,825
Payroll....................................... 407,284 716,280 1,167,983
Interest...................................... 10,782 64,357 83,716
Other accrued expenses........................ 176,352 177,678 235,230
-------- ---------- ----------
$998,591 $1,713,347 $2,156,449
======== ========== ==========
</TABLE>
F-7
<PAGE>
THE A CONSULTING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
5. INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Effective January 1, 1993, the Company elected to change its tax accounting
method from cash to accrual basis. The cumulative tax effect of this change as
of January 1, 1993 is being recognized over four years on the Company's tax
returns. The federal income tax provision consists of the tax effect of this
change.
Effective January 1, 1995, the Company elected to be treated as an S
Corporation under Subchapter S of the Internal Revenue Code for federal income
tax purposes. In addition, the Company elected to be treated for New Jersey
and New York State income tax purposes as an S Corporation. Consequently, the
Company is not subject to federal income taxes because the shareholder
includes the Company's income in his own personal income tax return. For New
York and New Jersey State purposes, S Corporations are subject to a minimum
income tax. The Company is liable for New York City income taxes because New
York City does not allow S Corporation status.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
JUNE 30,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Licensing revenue.................................. $15,000 $16,000 $6,000
Amortization of cumulative effect of change in tax
accounting basis.................................. 32,000 -- --
------- ------- ------
Total deferred tax liabilities................... $47,000 $16,000 $6,000
======= ======= ======
</TABLE>
Significant components of the provision (credit) for income taxes are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -----------------
1994 1995 1996 1996 1997
-------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Current:
Federal..................... $ 2,000 $ 28,300 $ 28,300 $14,200 $ --
State and local............. 13,300 30,900 31,400 25,600 126,000
-------- --------- -------- ------- --------
Total current............. 15,300 59,200 59,700 39,800 126,000
-------- --------- -------- ------- --------
Deferred:
Federal..................... (8,800) (117,400) (28,500) (14,200) --
State and local............. (13,200) (50,600) (2,500) (1,300) (10,000)
-------- --------- -------- ------- --------
Total deferred............ (22,000) (168,000) (31,000) (15,500) (10,000)
-------- --------- -------- ------- --------
$ (6,700) $(108,800) $ 28,700 $24,300 $116,000
======== ========= ======== ======= ========
</TABLE>
As a result of the change in tax status effective January 1, 1995,
approximately $110,000 of the December 31, 1994 deferred tax liability was
reversed and reflected as a 1995 deferred tax benefit.
F-8
<PAGE>
THE A CONSULTING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
5. INCOME TAXES--(CONTINUED)
A reconciliation between the federal statutory rate and the effective
unaudited pro forma income tax rate for the year ended December 31, 1996 and
the six months ended June 30, 1997 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Federal statutory rate......................... 34.0% 34.0%
State and local taxes net of federal tax bene-
fit........................................... 10.0 9.9
Non deductible expenses........................ 1.1 0.5
---- ----
45.1% 44.4%
==== ====
</TABLE>
The Company presently plans to effect an initial public offering ("IPO").
Effective upon consummation of the IPO, the Company will no longer be an S
Corporation. Upon the change in status of the Company, under SFAS 109, there
will be an additional income tax liability due to federal and state income
taxes being payable on the temporary differences. The additional income tax
expense that would have to be recognized had the change occurred on December
31, 1996 and June 30, 1997 would be approximately $165,000 and $58,000,
respectively.
6. RETIREMENT PLAN
The Company sponsors a defined contribution plan under Section 401(k) of the
Internal Revenue Code for its employees. Participants can make elective
contributions subject to certain limitations. The Company can make matching
contributions on behalf of all participants. No such contributions were made
by the Company in 1994, 1995, 1996 or the six months ended June 30, 1997.
7. JOINT VENTURE
The Company owned a 50% interest in Vianet, Inc. ("Vianet"), which is
located in New York and is engaged in the recruiting of international
consultants and software development for resale. The Company's research and
development expenses of $300,000 and $185,000 for the years ended December 31,
1994 and 1995, respectively, consisted of amounts paid to Vianet for software
development. These amounts were included in Vianet's revenues in 1994 and
1995. In addition, the Company paid Vianet $139,565 and $36,595 for recruiting
services in 1995 and 1996, respectively. The Company accounts for this
investment under the equity method of accounting.
The following is summarized financial information of Vianet:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- --------
<S> <C> <C>
Cash..................................................... $24,757 $ 4,036
Due from related party................................... 43,480 --
Other assets............................................. 4,406 3,140
------- --------
Total assets........................................... $72,643 $ 7,176
======= ========
Due to related party..................................... $ -- $ 29,705
Other liabilities........................................ -- 3,978
Shareholders' equity (deficit)........................... 72,643 (26,507)
------- --------
$72,643 $ 7,176
======= ========
</TABLE>
F-9
<PAGE>
THE A CONSULTING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
7. JOINT VENTURE--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues.................................. $ 300,000 $ 324,565 $ 36,595
Costs and expenses........................ (229,051) (324,871) (135,745)
--------- --------- ---------
Net income (loss)......................... $ 70,949 $ (306) $ (99,150)
========= ========= =========
</TABLE>
Vianet had limited activity during the six months ended June 30, 1996 and
the three months ended March 31, 1997. On March 31, 1997, the Company sold its
50% interest in Vianet to its joint venture partner for a nominal amount.
Vianet repaid the $29,705 advance to the Company during March 1997.
8. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. The Company maintains its cash balances on deposit with a limited
number of financial institutions.
Sales to two customers represent approximately 12% and 11%, 11% and 14%, 12%
and 8%, 14% and 8% and 26% and 8% of revenues for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30, 1996 and 1997,
respectively. Receivables from two customers with the largest balances
represent approximately 18%, 28% and 37% of accounts receivable as of December
31, 1995 and 1996, and June 30, 1997, respectively.
9. LEASES
The Company leases office space under noncancellable operating leases.
Future base rental payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
-------------------------
<S> <C>
1997........................................ $120,000
1998........................................ 110,000
1999........................................ 77,000
--------
$307,000
========
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 and for
the six months ended June 30, 1996 and 1997 was approximately $72,000,
$101,000 $119,000, $52,000 and $68,000, respectively.
In addition, the Company has leased on a month-to-month basis, other space
from the shareholder. Rent paid to the shareholder was $30,000 in 1994 and
1995, $12,000 in 1996 and $6,000 for the six months ended June 30, 1996.
10. STOCK OPTION PLAN
The Company intends to adopt a Stock Option Plan which provides for the
grant of stock options that are either "incentive" or "non-qualified" for
federal income tax purposes. The Plan will provide for the issuance of up to a
maximum of 600,000 shares of common stock (subject to adjustment pursuant to
customary anti-dilution provisions).
The exercise price per share of a stock option is to be established by the
Executive Compensation Committee of the Board of Directors in its discretion,
but may not be less than the fair market value of a share of common stock as
of the date of grant. The aggregate fair market value of the shares of common
stock with respect to which "incentive" stock options are exercisable for the
first time by an individual to whom an "incentive" stock option is granted
during any calendar year may not exceed $100,000.
F-10
<PAGE>
THE A CONSULTING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
10. STOCK OPTION PLAN--(CONTINUED)
Stock options, subject to certain restrictions, may be exercisable any time
after full vesting for a period not to exceed five years from the date of
grant and terminate upon the date of termination of employment. Such period is
to be established by the Company in its discretion on the date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 requires compensation expense to be
recorded (i) using the new fair value method or (ii) using existing accounting
rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations with pro
forma disclosure of what net income and earnings per share would have been had
the Company adopted the new fair value method. The Company intends to account
for its stock-based compensation plans in accordance with the provisions of
APB 25.
11. PRO FORMA ADJUSTMENTS (UNAUDITED)
Pro Forma Balance Sheet
Effective upon consummation of the IPO, the Company intends to declare an S
Corporation distribution to its existing shareholder representing all previous
earned and undistributed S Corporation taxable earnings. Through June 30,
1997, such amount is estimated to be approximately $2,000,000. A portion of
the net proceeds from the IPO will be used to pay such distribution. The pro
forma balance sheet at June 30, 1997 gives effect to this item.
The pro forma balance sheet at June 30, 1997 also gives effect to an
additional deferred tax liability of $58,000 (see Note 5) and the change in
common stock from no par value to $.01 par value.
Pro Forma Statements of Operations
Effective upon consummation of the IPO, the Company will no longer be
treated as an S Corporation, and accordingly will be subject to federal and
New York and New Jersey state income taxes. In addition, effective upon
consummation of the IPO, the Company will enter into a two-year employment
contract with its Chief Executive Officer ("CEO") which provides for an annual
base salary of $250,000, and a three-year employment contract with its Chief
Financial Officer ("CFO") which provides for an annual base salary of
$150,000. The CEO's employment contract also will provide that he will receive
no cash bonus for 1997 and will provide for an annual bonus not to exceed one
percent of the Company's total revenues for 1998 subject to approval by the
non-employee directors of the Company's Executive Compensation Committee and
further subject to the Company meeting certain financial performance criteria.
The CEO and the Company have agreed during the two year term of his employment
agreement not to (i) increase his compensation (including base salary and
bonus) or (ii) otherwise amend the terms of his employment agreement. The
unaudited pro forma adjustments on the statements of operations reflect (i) a
provision for income taxes based upon pro forma income as if the Company had
not been an S Corporation, and (ii) an adjustment to reflect the terms of the
new contracts with the CEO and CFO (excluding any bonus to the CEO which is
contingent upon the Company meeting certain financial performance criteria).
Pro Forma Net Income Per Share
Pro forma net income per share for the year ended December 31, 1996 and the
six months ended June 30, 1997 has been computed by dividing pro forma net
income by the weighted average number of common shares outstanding plus the
estimated number of shares assumed to be sold by the Company to pay the S
Corporation distribution to the shareholder (estimated to be $2,000,000 at
June 30, 1997). There were no common stock equivalents outstanding during any
period presented.
The estimated number of shares assumed to be sold by the Company to repay
the loans payable to the bank and shareholder (net of the cash balance at
December 31, 1996 and June 30, 1997) had no material effect on pro forma net
income per share for the year ended December 31, 1996 and for the six months
ended June 30, 1997.
F-11
<PAGE>
THE A CONSULTING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
11. PRO FORMA ADJUSTMENTS (UNAUDITED)--(CONTINUED)
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("SFAS 128"), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary (basic) earnings
per share, the dilutive effect of stock options will be excluded. The impact
of the adoption of SFAS 128 on the calculation of earnings per share for
periods prior to June 30, 1997 is not expected to be material.
F-12
<PAGE>
[Inside Back Cover of the Preliminary Prospectus: Graphic superimposed over text
of page consisting of 3 arrows shaped to form a large circle. Each arrow
contains one of the following words: Consulting, Training, Software.]
THE A CONSULTING TEAM, INC.
SELECTED CLIENT ENGAGEMENTS
TACT served as a systems integrator to merge two separate shareholder service
operations. All activities from planning and project management to application
development, conversions and rollout were included in the engagement. During the
systems integration process, TACT's high level technical experts proposed
additional solutions based on their extensive banking experience. As a result,
TACT was awarded additional projects including: system management and
networking; voice response and call center; mergers and acquisitions support;
database administration, Year 2000, client/server solutions, Internet and
Windows NT roll-out.
Technologies: CICS, COBOL, VSAM, Access, PowerBuilder; Visual Basic, Microsoft
Active Server Pages, Transaction Server, IDMS, Sybase, Novell, Windows NT, SNA
Server, IDMS and MS-Office Training
TACT implemented a client/server materials management system, enabling a
manufacturing company to manage inventory more efficiently and minimize its
number of suppliers, reducing costs. The TACT Solution Team performed all
functions necessary for the implementation of this full life-cycle project
including project management, database administration, application development,
quality assurance, documentation and production support. TACT has expanded its
service offerings to this client to include financial applications.
Technologies: Visual Basic, EDA/SQL, MS SQL Server, DB2, Oracle, IMS, Novell,
Windows NT, SNA Server, CICS, COBOL,
TACT designed, developed, implemented and rolled out an auto parts pricing
system for a multi-national auto maker. TACT developed a sophisticated "what if"
analysis using a method to determine the best auto parts prices for a
geographical location based on local market factors. In the past, the client
priced spare parts using a cost plus formula, not taking into account local
competition and supply and demand. The system was implemented successfully for
the client's North American market and later adopted for use worldwide. TACT
has continued to provide services to this client across all platforms, including
networking and internet/intranet.
Technologies: PowerBuilder; Oracle7 on both UNIX and Windows NT, Erwin, DB2,
CICS, COBOL, VSAM
A TACT database specialist developed and implemented one of the first
client/server applications for a major bank's credit officers. When the bank
developed its first corporate-wide intranet project, TACT was hired to resolve
significant performance problems with the initial prototype. Based upon TACT's
recommendation to enhance the architecture, TACT was awarded the overall
intranet project leading to other engagements including performing internal R&D
and additional intranet application development projects.
Technologies: PowerBuilder, MDI Database Gateway; Visual C++, Microsoft Internet
Information Server, Microsoft's ISAPI framework, SYBASE SQL Server on OS/2, DB2
TACT designed and rolled out approximately 150 Windows 95 workstations and
associated NT servers, allowing a large university to support mission critical
functions such as student registration and financial aid. Successful
implementation led to a larger roll-out of 500 administrative and 500 faculty
workstations. Ongoing services provided to this client include PC help desk,
network infrastructure design, project management, management consulting and
internet/intranet solutions.
Technologies: Windows NT, Windows 95, TCP/IP Architecture, Bay Networks,
Checkpoint Firewalls, Compaq Prolinea servers.
TACT developed a customized "Bridge to Client/Server" training course to help a
large insurance company make a transition to new technologies. TACT was awarded
a project to build a client/server prototype and to provide Lotus Notes Mail
training to all of the client's personnel. In addition, TACT is deploying IT
professionals across various platforms and technologies in the client's company.
Technologies: PowerBuilder, Visual Basic, DB2, Windows NT, OS/2, Client/Server,
Lotus Notes Mail training, CICS, COBOL, VSAM.
TACT was instrumental in delivering mainframe-based TV Network applications for
a major television network. When the network decided to convert to the next
generation of systems, TACT provided a complete system architecture for their
24x7 environment. TACT continues to co-manage and supply all resources for the
quality assurance and testing effort, and IT resources for application
development. Ongoing projects include Windows NT roll-out, Windows NT training,
an Internet/Intranet project, a business process re-engineering of Network
Affiliate systems and development of sophisticated custom solutions for the
Network Operations group.
Technologies: SYBASE, HP-UX, HP Service Guard, BMC Patrol, Windows NT, Citrix,
ADS/Online, PowerBuilder, Visual C++, Visual Basic, Microsoft Active Server
Pages, ActiveX, HTML, MS Exchange, Windows NT Training, CICS, COBOL, IDMS.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER,
ANY OF THE UNDERWRITERS OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OF COMMON STOCK
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITA-
TION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITA-
TION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
The Company............................................................... 13
Prior S Corporation Status................................................ 13
Use of Proceeds........................................................... 14
Capitalization............................................................ 15
Dividend Policy........................................................... 15
Dilution.................................................................. 16
Selected Historical and Pro Forma Financial Data.......................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 25
Management................................................................ 35
Certain Transactions...................................................... 39
Principal and Selling Shareholder......................................... 41
Description of Capital Stock.............................................. 42
Shares Eligible for Future Sale........................................... 44
Underwriting.............................................................. 45
Legal Matters............................................................. 46
Experts................................................................... 46
Available Information..................................................... 46
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIRE-
MENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,800,000 SHARES
[LOGO] T A C T
---------------------------
THE A CONSULTING TEAM, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 722 of the New York Business Corporation Law ("NYBCL") permits,
in general, a New York corporation to indemnify any person made, or threatened
to be made, a party to an action or proceeding by reason of the fact that he or
she was a director or officer of the corporation, or served another entity in
any capacity at the request of the corporation, against any judgment, fines and
amounts paid in settlement and reasonable expenses, including attorney's fees
actually and necessarily incurred as a result of such action or proceeding, or
any appeal therein, if such person acted in good faith, for a purpose he or she
reasonably believed to be in, or, in the case of service for another entity, not
opposed to, the best interests of the corporation and, in criminal actions or
proceedings, in addition had no reasonable cause to believe that his or her
conduct was unlawful. Section 723 of the NYBCL permits the corporation to pay in
advance of a final disposition of such action or proceeding the expenses
incurred in defending such action or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount as, and to the
extent, required by statute. Section 721 of the NYBCL provides that
indemnification and advancement of expense provisions contained in the NYBCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expenses may be entitled, provided no
indemnification may be made on behalf of any director or officer if a judgment
or other final adjudication adverse to the director or officer establishes that
his or her acts were committed in bad faith or were the result of active or
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled.
Article Seventh of the Company's Certificate of Incorporation provides,
in general, that the Company may indemnify, to the fullest extent permitted by
applicable law, every person threatened to be made a party to any action, suit
or proceeding by reason of the fact that such person is or was an officer or
director or was serving at the request of the Company as a director, officer,
employee, agent or trustee of another corporation, business, partnership, joint
venture, trust, employee benefit plan, or other enterprise, against expenses,
judgments, fines and amounts paid in settlement in connection with such suit or
proceeding. Article Seventh of the Certificate of Incorporation also provides
that the Company may indemnify and advance expenses to those persons as
authorized by resolutions of a majority of the Board of Directors or
shareholders, agreement, directors' or officers' liability insurance policies,
or any other form of indemnification agreement.
In accordance with that provision of the Certificate of Incorporation,
the Company shall indemnify any officer or director (including officers and
directors serving another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity at the Company's
request) made, or threatened to be made, a party to an action or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he or she was serving in any of those capacities against judgments, fines,
amounts paid in settlement and reasonable expenses (including attorneys' fees)
incurred as a result of such action or proceeding. Indemnification would not be
available under Article Seventh of the Certificate of Incorporation if a
judgment or other final adjudication adverse to such director or officer
establishes that (i) his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and, in either case, were material to
the cause of action so adjudicated, or (ii) he or she personally grained in fact
a financial profit or other advantage to which he or she was not legally
entitled.
Reference is also made to the Form of Underwriting Agreement, attached
hereto as Exhibit 1.1, which contains, among other things, provisions whereby
the Underwriters agree to indemnify the Company, each officer and director of
the Company who has signed the Registration Statement and each person who
controls the Company within the meaning of Section 15 of the Act against any
losses, liabilities, claims or damages arising out of alleged untrue statements
or alleged omissions of material facts with respect to
II-1
<PAGE>
information furnished to the Company by the Underwriters for use in the
Registration Statement or Prospectus. See Item 28 "Undertakings".
In addition, the Company intends to purchase directors' and officers'
liability insurance after the completion of the Offering.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts, payable by the Company in connection with the sale of
the securities being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq/NMS listing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................... $ 7,527.27
NASD Filing Fee.................................... 2,984.00
Nasdaq/NMS Listing Fee............................. 32,375.00
Printing Costs..................................... 100,000.00
Legal Fees and Expenses............................ 175,000.00
Accounting Fees and Expenses....................... 100,000.00
Blue Sky Fees and Expenses......................... 5,000.00
Transfer Agent and Registrar Fees.................. 10,000.00
Miscellaneous...................................... 67,113.73
-----------
Total.............................................. $500,000.00
===========
</TABLE>
- ---------------------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1994 the Registrant has issued (without payment of
any selling commission to any person) the following unregistered
securities:
(a) options to purchase a total of 450,000 shares of Common Stock will
be issued prior to the effective date hereof pursuant to the Company's Stock
Option and Award Plan; and
(b) 3,549,900 shares of Common Stock issued pursuant to a 355,000-for-1
split of the Common Stock, effected prior to the effective date hereof in the
form of a stock dividend.
ITEM 27. EXHIBITS
(A) EXHIBITS
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.**
3.2 Restated Certificate of Incorporation of the
Registrant.
3.3 Amended and Restated By-Laws of the Registrant.
4 Specimen Common Stock Certificate.**
5 Opinion of Orrick, Herrington & Sutcliffe LLP.
II-2
<PAGE>
10.1 Stock Option and Award Plan of the Registrant and
Form of Nonqualified Stock Option Agreement.
10.2 Form of Employment Agreement, dated as of the Effective Date,
between the Registrant and Shmuel BenTov.
10.3 Form of Employment Agreement, dated as of June 30, 1997, between
the Registrant and Frank T. Thoelen.
10.4 Form of S Corporation Termination, Tax Allocation and
Indemnification Agreement.
10.5 Demand Note (Multiple Advances), issued February 1997,
between Citibank, N.A. and the Registrant.**
10.6 Promissory Note and Cross-Receipt in connection with the
Shareholder Loan.
10.7 Joint Venture Agreement, dated April 11, 1994, between Kalanit
Center for Marketing Software & Hardware Ltd. and the
Registrant.**
10.8 Form of Director and Executive Officer Indemnification
Agreement.
10.9 Letter of Undertaking from the Registrant and Shmuel BenTov.**
11 Computation of Earnings Per Share.**
23.1 Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5).
23.2 Consent of Independent Auditors.
24 Power of Attorney (included on page II-5 of the Registration
Statement as originally filed).**
27 Financial Data Schedule.**
99.1 Consent of Joseph E. Imholz.**
99.2 Consent of Steven S. Mukamal.**
- ---------------------
** Previously filed.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described in
Item 24, or otherwise, the Registrant has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
II-3
<PAGE>
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) It will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 6th day of August, 1997.
THE A CONSULTING TEAM, INC.
By:/s/ Shmuel BenTov
---------------------------------
Shmuel BenTov, Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
/s/ Shmuel BenTov August 6, 1997
- -------------------------------------------------------
Shmuel BenTov, Chairman and sole member of the Board
of Directors, Chief Executive Officer and President
(Principal Executive Officer)
/s/ Frank T. Thoelen August 6, 1997
- -------------------------------------------------------
Frank T. Thoelen, Chief Financial Officer
(Principal Financial Officer
and Chief Accounting Officer)
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.**
3.2 Restated Certificate of Incorporation of the Registrant.
3.3 Amended and Restated By-Laws of the Registrant.
4 Specimen Common Stock Certificate.**
5 Opinion of Orrick, Herrington & Sutcliffe
LLP.
10.1 Stock Option and Award Plan of the Registrant and
Form of Nonqualified Stock Option Agreement.
10.2 Form of Employment Agreement, dated as of the Effective Date,
between the Registrant and Shmuel BenTov.
10.3 Form of Employment Agreement, effective as of June 30, 1997,
between the Registrant and Frank T. Thoelen.
10.4 Form of S Corporation Termination, Tax Allocation and
Indemnification Agreement.
10.5 Demand Note (Multiple Advances), issued February
1997, between Citibank, N.A. and the Registrant.**
10.6 Promissory Note and Cross-Receipt in connection with the
Shareholder Loan.
10.7 Joint Venture Agreement, dated April 11, 1994,
between Kalanit Center for Marketing Software &
Hardware Ltd. and the Registrant.**
10.8 Form of Director and Executive Officer Indemnification
Agreement.
10.9 Letter of Undertaking from the Registrant and Shmuel
BenTov.**
11 Computation of Earnings Per Share.**
23.1 Consent of Orrick, Herrington & Sutcliffe LLP
(included in Exhibit 5).
23.2 Consent of Independent Auditors.
24 Power of Attorney (included on page II-5 of the Registration
Statement as originally filed).**
27 Financial Data Schedule.**
99.1 Consent of Joseph E. Imholz.**
99.2 Consent of Steven S. Mukamal.**
- ----------
** Previously filed
<PAGE>
EXHIBIT 1
THE A CONSULTING TEAM, INC.
COMMON STOCK
_____________________________
UNDERWRITING AGREEMENT
----------------------
__________, 1997
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
As Representatives of the several Underwriters named in Schedule I hereto
c/o The Robinson-Humphrey Company, Inc.
3333 Peachtree Road, N.E.
Atlanta, Georgia 30326
Ladies and Gentlemen:
The A Consulting Team, Inc., a New York corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I (the "Underwriters") an aggregate of
1,800,000 shares of common stock, par value $.01 per share ("Common Stock"), of
the Company (the "Firm Shares"), and at the election of the Underwriters, the
Company and Shmuel BenTov (the "Selling Shareholder") propose, subject to the
terms and conditions stated herein, to issue and sell to the Underwriters up to
135,000 and 135,000 additional shares, respectively, of Common Stock
(collectively, the "Optional Shares") (the Firm Shares and the Optional Shares
that the Underwriters elect to purchase pursuant to Section 2 hereof are
collectively called the "Shares" ).
1. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form SB-2 (File No. 333-29233)
(the "Initial Registration Statement") with respect to the Shares,
including a prospectus subject to completion, has been filed by the Company
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and one or more amendments
to such Initial Registration Statement have been so filed. After the
execution of this Agreement, the Company will file with the Commission
either (A) if such Initial Registration
<PAGE>
Statement, as it may have been amended, has become effective under the Act
and information has been omitted therefrom in accordance with Rule 430A
under the Act, a prospectus in the form most recently included in an
amendment to such Initial Registration Statement with such changes or
insertions as are required by Rule 430A or permitted by Rule 424(b) under
the Act and as have been provided to and approved by the Representatives,
(B) if such Initial Registration Statement, as it may have been amended,
has not become effective under the Act, an amendment to such Initial
Registration Statement, including a form of prospectus, a copy of which
amendment has been provided to and approved by the Representatives prior to
the execution of this Agreement (which approval shall not be unreasonably
withheld or delayed) or (C) if such Initial Registration Statement, as it
may have been amended, has become effective under the Act and the number of
shares to be offered has subsequently been increased, a registration
statement (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Act and as has been provided to and approved by the
Representatives. As used in this Agreement, the term "Registration
Statement" means such Initial Registration Statement, as amended at the
time when it was or is declared effective, including all financial
statement schedules and exhibits thereto together with any Rule 462(b)
Registration Statement and including any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each
prospectus subject to completion included in such Initial Registration
Statement or any amendment or post-effective amendment thereto (including
the prospectus subject to completion, if any, included in the Registration
Statement at the time it was or is declared effective); and the term
"Prospectus" means the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act or, if no prospectus is required to be so
filed, such term means the prospectus included in the Registration
Statement. For purposes of the following representations and warranties, to
the extent reference is made to the Prospectus and at the relevant time the
Prospectus is not yet in existence, such reference shall be deemed to be to
the most recent Preliminary Prospectus.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued and no proceeding for that purpose has been
instituted or threatened by the Commission or the securities authority of
any state or other jurisdiction. If the Registration Statement has become
effective under the Act, no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and no
proceeding for that purpose has been instituted or threatened or, to the
best knowledge of the Company, is contemplated by the Commission or the
securities authority of any state or other jurisdiction.
-2-
<PAGE>
(iii) When the Preliminary Prospectus dated July 23, 1997 was
filed with the Commission it (A) contained all statements required to be
stated therein in accordance with, and complied in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, and at each Time of
Delivery (as hereinafter defined), it (A) contained or will contain all
statements required to be stated therein in accordance with, and complied
or will comply in all material respects with the requirements of, the Act
and the rules and regulations of the Commission thereunder and (B) did not
or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading. When the Prospectus or any amendment or supplement thereto is
filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus or
such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment
or supplement to the Prospectus was or is declared effective) and at each
Time of Delivery, the Prospectus, as amended or supplemented at any such
time, (A) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the rules and regulations of
the Commission thereunder and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing provisions of
this paragraph (iii) do not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in reliance upon
and in conformity with written information furnished to the Company by any
Underwriter through you specifically for use therein. The Company and the
Underwriters hereby acknowledge that the following constitutes the only
information furnished in writing to the Company by the Underwriters
specifically for use in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any such amendment or supplement: (i) the
statements in the last paragraph on the cover page of the Prospectus; (ii)
the statements with respect to stabilization in the paragraph at the bottom
of the inside front cover page of the Prospectus; and (iii) the statements
under the caption "Underwriting" in the Prospectus.
(iv) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings or contracts and
other documents are accurate in all material respects and fairly present
the information required to be shown; and there are no statutes or legal or
governmental
-3-
<PAGE>
proceedings required to be described in the Registration Statement or the
Prospectus that are not described as required and no contracts or documents
of a character that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described and filed as required.
(v) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of New York
and has full corporate power and authority to own or lease its properties
and conduct its business as described in the Prospectus. The Company has
full corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The Company is duly qualified to
transact business as a foreign corporation and is in good standing under
the laws of each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification, except where
the failure to so qualify would not have a material adverse effect on the
financial position, results of operations or business of the Company.
(vi) The Company's authorized, issued and outstanding capital
stock is as disclosed in the Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued,
are fully paid and nonassessable and conform to the description of the
Common Stock contained in the Prospectus. None of the issued shares of
capital stock of the Company or its predecessors has been issued or is
owned or held in violation of any preemptive rights of shareholders, and no
person or entity (including any holder of outstanding shares of capital
stock of the Company) has any preemptive or other rights to subscribe for
any of the Shares.
(vii) The Company does not own, directly or indirectly, any
capital stock or other equity securities of any corporation or any
ownership interest in any partnership, joint venture or other association.
(viii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible into
or exchangeable for any capital stock of the Company, (B) warrants, rights
or options to subscribe for or purchase from the Company any such capital
stock or any such convertible or exchangeable securities or obligations, or
(C) obligations of the Company to issue any shares of capital stock, any
such convertible or exchangeable securities or obligations, or any such
warrants, rights or options.
(ix) Since the date of the most recent audited financial
statements included in the Prospectus, the Company has not sustained any
material loss or interference with its business from fire, explosion, flood
or other calamity,
-4-
<PAGE>
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as disclosed in or
contemplated by the Prospectus.
(x) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus and other than as
disclosed in or contemplated by the Registration Statement and the
Prospectus, (A) the Company has not incurred any liabilities or
obligations, direct or contingent, or entered into any transactions, not in
the ordinary course of business, that are material to the Company, (B) the
Company has not purchased any of its outstanding capital stock or declared,
paid or otherwise made any dividend or distribution of any kind on its
capital stock, (C) there has not been any material change in the capital
stock, long-term debt or short-term debt of the Company, and (D) there has
not been any material adverse change, or any development including a
prospective material adverse change, in or affecting the financial
position, results of operations or business of the Company.
(xi) The Shares to be issued and sold by the Company have been
duly authorized and, when issued and delivered against payment therefor as
provided herein, will be validly issued and fully paid and nonassessable
and will conform to the description of the Common Stock contained in the
Prospectus; and the certificates evidencing the Shares comply with all
applicable requirements of New York law.
(xii) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act.
(xiii) All offers and sales of the Company's capital stock prior
to the date hereof were at all relevant times duly registered under the Act
or exempt from the registration requirements of the Act by reason of
Sections 3(b), 4(2) or 4(6) thereof and were duly registered or the subject
of an available exemption from the registration requirements of the
applicable state securities or blue sky laws
(xiv) The Company is not, or with the giving of notice or
passage of time or both would not be, in violation of its Certificate of
Incorporation or Bylaws or in default under any material term of any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company is a party or to which any of
its properties or assets are subject.
-5-
<PAGE>
(xv) The issue and sale of the Shares to be issued and sold by
the Company and the performance of this Agreement and the consummation of
the transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach or violation of any of the material terms or material provisions of,
or constitute a material default under, any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which the
Company is a party or to which any of its properties or assets is subject
nor will such action conflict with or violate any provision of the
Certificate of Incorporation or Bylaws of the Company or any statute, rule
or regulation or any order, judgment or decree of any court or governmental
agency or body having jurisdiction over the Company or any of its
properties or assets.
(xvi) The Company owns no real property, and all real property
and buildings held under lease by the Company are held under leases which
are valid and enforceable as to the Company and, to the Company's
knowledge, as to others, with such exceptions as are disclosed in the
Prospectus or are not material and do not interfere with the use made or
proposed to be made of such property and buildings by the Company.
(xvii) No consent, approval, authorization, order or declaration
of or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the sale of the Shares or the
consummation of the transactions contemplated by this Agreement, except the
registration of the Shares under the Act (which, if the Registration
Statement is not effective as of the time of execution hereof, shall be
obtained as provided in this Agreement) and such as may be required from
the National Association of Securities Dealers, Inc. (the "NASD") and under
state securities or blue sky laws in connection with the offer, sale and
distribution of the Shares by the Underwriters.
(xviii) There is no litigation, arbitration, claim, proceeding
(formal or informal) or investigation pending or, to the Company's
knowledge, threatened (or any basis therefor) in which the Company is a
party or of which any of its properties or assets are the subject which, if
determined adversely to the Company, would individually or in the aggregate
reasonably be expected to have a material adverse effect on the financial
position, results of operations or business of the Company. The Company is
not in violation of, or in default with respect to, any statute, rule,
regulation, order, judgment or decree, except as such as do not and will
not individually or in the aggregate have a material adverse effect on the
financial position, results of operations or business of the Company.
-6-
<PAGE>
(xix) To the Company's knowledge, Ernst & Young LLP, who have
certified certain financial statements of the Company, are and were during
the periods covered by their reports included in the Registration Statement
and the Prospectus, independent public accountants as required by the Act
and the rules and regulations of the Commission thereunder.
(xx) The financial statements and schedules (including the
related notes) of the Company included in the Registration Statement, the
Prospectus or any Preliminary Prospectus were prepared in accordance with
generally accepted accounting principles consistently applied throughout
the periods involved and fairly present the financial position and results
of operations of the Company, on a consolidated basis, at the dates and for
the periods presented. The selected financial data set forth under the
caption "Selected Historical and Pro Forma Financial Data" in the
Prospectus fairly present, on the basis stated in the Prospectus, the
information included therein.
(xxi) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding agreement of
the Company enforceable against the Company in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles.
(xxii) Neither the Company nor any of its officers, directors or
other affiliates has (A) taken, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Shares
or (B) since the filing of the Registration Statement (1) sold, bid for,
purchased or paid anyone any compensation for soliciting purchases of, the
Shares or (2) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(xxiii) The Company has obtained for the benefit of the Company
and the Underwriters from each of its directors and executive officers a
written agreement that for a period of 180 days from the date of the
Prospectus such director or executive officer will not, without your prior
written consent, sell, offer to sell, contract to sell, solicit an offer to
buy, grant any option for the purchase or sale of, assign, pledge,
distribute or otherwise transfer, dispose of or encumber (or make any
announcement with respect to any of the foregoing), directly or indirectly,
any shares of Common Stock, or any options, rights, warrants or other
securities convertible into or exercisable or exchangeable for Common Stock
or evidencing any right to purchase or subscribe for shares of Common
Stock,
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whether or not beneficially owned by such director or executive officer,
except as provided in Section 2.
(xxiv) Neither the Company nor any director, officer, agent,
employee or other person associated with or acting on behalf of the Company
has, directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment,
using corporate funds.
(xxv) The operations of the Company with respect to any real
property currently leased or owned or by any means controlled by the
Company (the "Real Property") are in compliance with all material federal,
state, and local laws, ordinances, rules, and regulations relating to
occupational health and safety and the environment applicable to the
Company (collectively, "Laws"); the Company has all material licenses,
permits and authorizations necessary to operate under all Laws and is in
compliance with all terms and conditions of such licenses, permits and
authorizations except where the failure to comply singly or in the
aggregate would not have a material adverse effect on the financial
position, results of operations or business of the Company; and there is no
pending or threatened claim, litigation or any administrative agency
proceeding, nor has the Company received any written or oral notice from
any governmental entity or third party, that: (A) alleges a violation of
any Laws by the Company; (B) alleges the Company is a liable party under
the Comprehensive Environmental Response, Compensation, and Liability Act,
42 U.S.C. (S) 9601 et seq. or any state superfund law; (C) alleges possible
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contamination of the environment by the Company; or (D) alleges possible
contamination of the Real Property by the Company.
(xxvi) Except as disclosed in the Prospectus, the Company owns
or has the right to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, franchises,
trade secrets, proprietary or other confidential information and intangible
properties and assets (collectively, "Intangibles") necessary to its
business as presently conducted or as the Prospectus indicates the Company
proposes to conduct; to the best knowledge of the Company and except as
disclosed in the Prospectus, the Company has not infringed and is not
infringing, and the Company has not received notice of infringement with
respect to, asserted Intangibles of others; and, to the best knowledge of
the Company and except as disclosed in the Prospectus, there is no
infringement by others of Intangibles of the Company.
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(xxvii) The Company has delivered or made available to you prior
to the date the Registration Statement was declared effective copies of all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus or other incentive
plans, all other written employee programs, arrangements or agreements, all
medical, vision, dental or other health plans, all life insurance plans and
all other employee benefit plans or fringe benefit plans, including,
without limitation, "employee benefit plans" as that term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), adopted, maintained, sponsored in whole or in part or
contributed to by the Company or its predecessors for the benefit of
employees, retirees, dependents, spouses, directors, independent
contractors or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors or other
beneficiaries are eligible to participate as of the date of this Agreement
(collectively, the "Company Benefit Plans").
The Company (and each predecessor of the Company that adopted or
contributed to a Company Benefit Plan) has maintained all Company Benefit
Plans (including filing all reports and returns required to be filed with
respect thereto) in accordance with their terms and in compliance with the
applicable terms of ERISA, the Internal Revenue Code and any other
applicable federal and state laws, except for any breach or violation which
would not have, individually or in the aggregate, a material adverse effect
on the financial position, results of operations or business of the
Company. Each Company Benefit Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code has either received a favorable
determination letter from the Internal Revenue Service or will timely
request such a letter prior to the expiration of any remedial amendment
period applicable without penalty to the Company Benefit Plan under the
Internal Revenue Code and has at all times been maintained in accordance
with Section 401 of the Internal Revenue Code, except where any failure to
so maintain such Company Benefit Plan would not have, individually or in
the aggregate, a material adverse effect on the financial position, results
of operations or business of the Company. The Company has not engaged in a
transaction with respect to any Company Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof, would
subject the Company or any subsidiary to a tax or penalty imposed by either
Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA in
amounts which are reasonably likely to have, individually or in the
aggregate, a material adverse effect on the financial position, results of
operations or business of the Company.
The Company is not obligated to provide post-retirement medical
benefits or any other unfunded post-retirement welfare benefits (except
continuation coverage under the Consolidated Omnibus Budget Reconciliation
Act required to
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be provided by ERISA Section 601), which such liabilities to the Company
would have, individually or in the aggregate, a material adverse effect on
the financial position, results of operations or business of the Company.
Neither the Company nor any member of a group of trades or businesses under
common control (as defined in ERISA Sections 4001(a)(14) and 4001(b)(1))
with the Company have at any time within the last six years sponsored,
contributed to or been obligated under Title I or IV of ERISA to contribute
to a "defined benefit plan" (as defined in ERISA Section 3(35)). Within the
last six years, neither the Company nor any member of a group of trades or
businesses under common control (as defined in ERISA Sections 4001(a)(14)
and 4001(b)(1)) with Company have had an "obligation to contribute" (as
defined in ERISA Section 4212) to a "multiemployer plan" (as defined in
ERISA Sections 4001(a)(3) and 3(37)(A)).
(xxviii) No labor dispute exists with the Company's employees
or, to the Company's knowledge, is imminent which could materially
adversely affect the financial position, results of operations or business
of the Company. The Company is not aware of any existing or imminent labor
disturbance by its employees which could be expected to adversely affect
the financial position, results of operations or business of the Company.
(xxix) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as are customary in the businesses in which it is engaged; and the Company
does not have any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or that would
prevent the Company from obtaining similar coverage from similar insurers
as may be necessary to continue its business at a comparable cost, except
as disclosed in the Prospectus.
(xxx) The Company makes and keeps accurate books and records
reflecting its assets and maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are recorded
as necessary to permit preparation of the Company's financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for the assets of the Company, (C) access to the assets of
the Company is permitted only in accordance with management's
authorization, and (D) the recorded accountability for assets of the
Company is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxxi) The Company's software systems include design,
performance and functionality so that the Company does not reasonably
expect to experience invalid or incorrect results or abnormal software
operation related to calendar year 2000. The Company's software systems
include calendar year 2000
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date conversion and compatibility capabilities, including, but not limited
to, date data century recognition, same century and multiple century
formula and date value calculations, and user interface date data values
that reflect the century.
(xxxii) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed by it and has paid all
taxes shown as due on such returns as well as all other taxes, assessments
and governmental charges that are due and payable, and no material
deficiency with respect to any such return has been assessed or proposed.
All applicable income and employment taxes have been withheld and paid for
any individuals who would be considered common law employees of the Company
for federal income and employment tax withholding purposes.
(xxxiii) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment company"
or a company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(b) REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER. The
Selling Shareholder represents and warrants to, and agrees with, each of the
several Underwriters and the Company that:
(i) Such Selling Shareholder has full right, power and authority
to enter into this Agreement, the Power of Attorney (as hereinafter
defined) and the Custody Agreement (as hereinafter defined) and to sell,
assign, transfer and deliver to the Underwriters the Shares to be sold by
such Selling Shareholder hereunder.
(ii) Such Selling Shareholder has duly executed and delivered
this Agreement, the Power of Attorney and the Custody Agreement, and each
constitutes the valid and binding agreement of such Selling Shareholder
enforceable against such Selling Shareholder in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles.
(iii) No consent, approval, authorization, order or declaration
of or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the sale of the Shares to be
sold by such Selling Shareholder or the consummation of the transactions
contemplated by this Agreement, the Power of Attorney or the Custody
Agreement, except the registration of such Shares under the Act (which, if
the Registration Statement is
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not effective as of the time of execution hereof, shall be obtained as
provided in this Agreement) and such as may be required from the NASD and
under state securities or blue sky laws in connection with the offer, sale
and distribution of such Shares by the Underwriters.
(iv) The sale of the Shares to be sold by such Selling
Shareholder and the performance of this Agreement, the Power of Attorney
and the Custody Agreement and the consummation of the transactions herein
and therein contemplated will not conflict with, or (with or without the
giving of notice or the passage of time or both) result in a breach of
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which such Selling Shareholder is a party
or to which any of its properties or assets is subject, nor will such
action conflict with or violate any statute, rule or regulation or any
order, judgment or decree of any court or governmental agency or body
having jurisdiction over such Selling Shareholder or any of such Selling
Shareholder's properties or assets.
(v) Such Selling Shareholder has, and immediately prior to each
Time of Delivery (as defined in Section 4 hereof), such Selling Shareholder
will have, good and valid title to the Shares to be sold by such Selling
Shareholder hereunder, free and clear of all liens, security interests,
pledges, charges, encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever; and, upon delivery of
such Shares against payment therefor as provided herein, good and valid
title to such Shares, free and clear of all liens, security interests,
pledges, charges, encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever, will pass to the
several Underwriters.
(vi) Except as contemplated by this Agreement, such Selling
Shareholder has not (A) taken, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Shares
or (B) since the filing of the Registration Statement (1) sold, bid for,
purchased or paid anyone any compensation for soliciting purchases of, the
Shares or (2) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(vii) When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated therein
regarding such Selling Shareholder in accordance with, and complied in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission
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<PAGE>
thereunder and (B) did not include any untrue statement of a material fact
or omit to state any material fact regarding such Selling Shareholder
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared
effective, and at each Time of Delivery (as hereinafter defined), it (A)
contained or will contain all statements required to be stated therein
regarding such Selling Shareholder in accordance with, and complied or will
comply in all material respects with the requirements of, the Act and the
rules and regulations of the Commission thereunder and (B) did not or will
not include any untrue statement of a material fact regarding such Selling
Shareholder or omit to state any material fact regarding such Selling
Shareholder necessary to make the statements therein regarding such Selling
Shareholder not misleading. When the Prospectus or any amendment or
supplement thereto is filed with the Commission pursuant to Rule 424(b)
(or, if the Prospectus or such amendment or supplement is not required to
be so filed, when the Registration Statement or the amendment thereto
containing such amendment or supplement to the Prospectus was or is
declared effective) and at each Time of Delivery, the Prospectus, as
amended or supplemented at any such time, (A) contained or will contain all
statements required to be stated therein regarding such Selling Shareholder
in accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not or will not include any untrue
statement of a material fact regarding such Selling Shareholder or omit to
state any material fact regarding such Selling Shareholder necessary in
order to make the statements therein regarding such Selling Shareholder, in
the light of the circumstances under which they were made, not misleading.
The foregoing provisions of this paragraph (iii) do not apply to statements
or omissions made in any Preliminary Prospectus, the Registration Statement
or any amendment thereto or the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you specifically for
use therein. Such Selling Shareholder and the Underwriters hereby
acknowledge that the following constitutes the only information furnished
in writing to the Company by the Underwriters specifically for use in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or
any such amendment or supplement: (i) the statements in the last paragraph
on the cover page of the Prospectus; (ii) the statements with respect to
stabilization in the paragraph at the bottom of the inside front cover page
of the Prospectus; and (iii) the statements under the caption
"Underwriting" in the Prospectus.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Internal Revenue Code of 1986, as amended,
with respect to the transactions herein contemplated, the Selling Shareholder
agrees to deliver to you
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prior to or at the First Time of Delivery (as hereinafter defined) a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
The Selling Shareholder represents and warrants that certificates in
negotiable form representing all of the Shares to be sold by such Selling
Shareholder hereunder have been placed in custody under a Custody Agreement (the
"Custody Agreement"), in the form heretofore furnished to and approved by you,
duly executed and delivered by such Selling Shareholder to the Company, as
custodian (the "Custodian"), and that such Selling Shareholder has duly executed
and delivered a Power of Attorney (the "Power of Attorney") in the form
heretofore furnished to you and approved by you, which Power of Attorney
appoints __________________ as such Selling Shareholder's attorney-in-fact (the
"Attorney-in-Fact") with authority to execute and deliver this Agreement on
behalf of such Selling Shareholder, to determine the purchase price to be paid
by the Underwriters to the Selling Shareholders as provided in Section 2 hereof,
to authorize the delivery of the Shares to be sold by such Selling Shareholder
hereunder and otherwise to act on behalf of such Selling Shareholder in
connection with the transactions contemplated by this Agreement and the Custody
Agreement.
The Selling Shareholder specifically agrees that the Shares
represented by the certificates held in custody for such Selling Shareholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Shareholder for such
custody, and the appointment by such Selling Shareholder of the Attorney-in-
Fact, are irrevocable. The Selling Shareholder specifically agrees that the
obligations of the Selling Shareholder hereunder shall not be terminated by
operation of law, whether by the death or incapacity of the Selling Shareholder
or, in the case of an estate or trust, by the death or incapacity of any
executor or trustee or the termination of such estate or trust, or in the case
of a partnership or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event.
2. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
herein set forth, (a) the Company agrees to sell to each of the Underwriters,
and each of the Underwriters agrees, severally and not jointly, to purchase from
the Company at a purchase price of $_____ per share, the number of Firm Shares
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Firm Shares to be sold by the Company by a
fraction, the numerator of which is the aggregate number of Firm Shares to be
purchased by such Underwriter as set forth opposite the name of such Underwriter
in Schedule I hereto, and the denominator of which is the aggregate number of
Firm Shares to be purchased by the Underwriters from the Company and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters and the Selling Shareholder agrees to sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the
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Company and the Selling Shareholder, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
to be sold by the Company and the Selling Shareholder as set forth opposite
their respective names in Schedule II hereto as to which such election shall
have been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares that such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of the Optional Shares that all of the Underwriters are entitled to
purchase hereunder.
The Company and the Selling Shareholder hereby grant to the
Underwriters the right to purchase, at the Underwriters' election in whole or in
part at the First Time of Delivery (as hereinafter defined) and/or one time
thereafter, up to a total of 135,000 and 135,000 Optional Shares, respectively,
at the purchase price per share set forth in clause (a) in the paragraph above,
for the sole purpose of covering over-allotments in the sale of Firm Shares.
Any such election to purchase Optional Shares may be exercised by written notice
from you to the Company and the Selling Shareholder, given within two business
days after the date of this Agreement with respect to any Optional Shares to be
purchased at the First Time of Delivery and within a period of 30 calendar days
after the date of this Agreement with respect to any Optional Shares to be
purchased other than at the First Time of Delivery and setting forth the
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery or, unless you, the Company and the
Selling Shareholder otherwise agree in writing, earlier than two or later than
ten business days after the date of such notice. In the event you elect to
purchase all or a portion of the Optional Shares, the Company and the Selling
Shareholder agree to furnish or cause to be furnished to you the certificates,
letters and opinions, and to satisfy all conditions, set forth in Section 7
hereof at each Subsequent Time of Delivery (as hereinafter defined).
3. OFFERING BY THE UNDERWRITERS. Upon the authorization by you of
the release of the Shares, the several Underwriters propose to offer the Shares
for sale upon the terms and conditions disclosed in the Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for the
Shares to be purchased by each Underwriter hereunder, and in such denominations
and registered in such names as The Robinson-Humphrey Company, Inc. may request
upon at least 48 hours' prior notice to the Company, shall be delivered by or on
behalf of the Company and the Selling Shareholder to you for the account of such
Underwriter against payment by such Underwriter on its behalf of the purchase
price therefor by wire transfer, payable to the order of the Company and the
Custodian, as their interests may appear, in same-day available funds. The
closing of the sale and purchase of the Shares shall be held at the offices of
Alston & Bird LLP, One Atlantic Center, 1201 West Peachtree Street, Atlanta,
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Georgia 30309-3424, or at such other location as you, the Company and the
Attorney-in-Fact may agree upon, except that physical delivery of such
certificates shall be made at the office of The Depository Trust Company, 55
Water Street, New York, New York 10041. The time and date of such delivery and
payment shall be, with respect to the Firm Shares, at 9:00 a.m., Atlanta time,
on the third (or if the Firm Shares are priced, as contemplated by Rule 15c6-
1(c) promulgated pursuant to the Securities Act of 1934, as amended (the
"Exchange Act"), after 4:30 p.m., Washington, D.C. time, the fourth) full
business day after this Agreement is executed or at such other time and date not
less than the seventh full business day thereafter as you, the Company and the
Attorney-in-Fact may agree upon in writing, and, with respect to the Optional
Shares, at 9:00 a.m., Atlanta time, on the date and at the location specified by
you in the written notice given by you of the Underwriters' election to purchase
all or part of such Optional Shares, or at such other time and date as you, the
Company and the Attorney-in-Fact may agree upon. Such time and date for
delivery of the Firm Shares is herein called the "First Time of Delivery," such
time and date for delivery of any Optional Shares, if not the First Time of
Delivery, is herein called a "Subsequent Time of Delivery," and each such time
and date for delivery is herein called a "Time of Delivery." The Company will
make such certificates available for checking and packaging at least 24 hours
prior to each Time of Delivery at the office of The Depository Trust Company, 55
Water Street, New York, New York 10041 or at such other location in New York,
New York specified by you in writing at least 48 hours prior to such Time of
Delivery.
5. (A) COVENANTS OF THE COMPANY. The Company covenants and agrees with
each of the Underwriters:
(i) If the Registration Statement has been declared effective
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by you,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifth business day after the date on which the Registration
Statement is declared effective. The Company will advise you promptly of
any such filing pursuant to Rule 424(b).
(ii) The Company will not file with the Commission the
prospectus or the amendment referred to in the second sentence of Section
l(a)(i) hereof, any amendment or supplement to the Prospectus or any
amendment to the Registration Statement unless you have received a
reasonable period of time to review any such proposed amendment or
supplement and consented (which consent shall not be unreasonably withheld
or delayed) to the filing thereof and will use its best efforts to cause
any such amendment to the Registration Statement to be declared effective
as promptly as possible. Upon the reasonable request of the Representatives
or counsel for the Underwriters, the Company will promptly
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prepare and file with the Commission, in accordance with the rules and
regulations of the Commission, any amendments to the Registration Statement
or amendments or supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Shares by the several
Underwriters and will use its best efforts to cause any such amendment to
the Registration Statement to be declared effective as promptly as
possible. If required, the Company will file any amendment or supplement to
the Prospectus with the Commission in the manner and within the time period
required by Rule 424(b) under the Act. The Company will advise the
Representatives, promptly after receiving notice thereof, of the time when
the Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectus or any amendment or supplement thereto
has been filed and will provide evidence to the Representatives of each
such filing or effectiveness.
(iii) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the Commission
in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the
date of this Agreement, and the Company shall at the time of filing either
pay to the Commission the filing fee for the Rule 462(b) Registration
Statement or give irrevocable instructions for the payment of such fee
pursuant to Rule 111(b) under the Act.
(iv) The Company will advise you promptly after receiving notice
or obtaining knowledge of (A) the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
part thereof or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto or of the initiation or threatening of any proceeding for any such
purpose, (B) the suspension of the qualification of the Shares for offer or
sale in any jurisdiction or of the initiation or threatening of any
proceeding for any such purpose, or (C) any request made by the Commission
or any securities authority of any other jurisdiction for amending the
Registration Statement, for amending or supplementing the Prospectus or for
additional information. The Company will use its best efforts to prevent
the issuance of any such stop order and, if any such stop order is issued,
to obtain the withdrawal thereof as promptly as possible.
(v) If the delivery of a prospectus relating to the Shares is
required under the Act at any time prior to the expiration of nine months
after the date of the Prospectus and if at such time any events have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if for any reason it is necessary during such same period to
amend or supplement the Prospectus to comply with the Act or the rules and
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regulations thereunder, the Company will promptly notify you and, at the
Company's expense, prepare and file with the Commission an amendment or
supplement to the Prospectus that corrects such statement or omission or
effects such compliance and will furnish without charge to each Underwriter
and to any dealer in securities as many copies of such amended or
supplemented Prospectus as you may from time to time reasonably request. If
the delivery of a prospectus relating to the Shares is required under the
Act at any time nine months or more after the date of the Prospectus, upon
your request but at the expense of such Underwriter, the Company will
prepare and deliver to such Underwriter as many copies as you may request
of an amended or supplemented Prospectus complying with Section 10(a)(3) of
the Act. Neither your consent to, nor the Underwriters' delivery of, any
such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 7.
(vi) The Company promptly from time to time will take such
action as you may reasonably request to qualify the Shares for offering and
sale under the securities or blue sky laws of such jurisdictions as you may
reasonably request and will continue such qualifications in effect for as
long as may be necessary to complete the distribution of the Shares,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction.
(vii) The Company will promptly provide you, without charge,
(A) three manually executed copies of the Registration Statement as
originally filed with the Commission and of each amendment thereto, (B) for
each other Underwriter a conformed copy of the Registration Statement as
originally filed and of each amendment thereto, without exhibits, and (C)
so long as a prospectus relating to the Shares is required to be delivered
under the Act, as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as you may reasonably
request.
(viii) As soon as practicable, but in any event not later than
45 days after the end of the Company's fiscal quarter in which the first
anniversary of the effective date of the Registration Statement occurs, the
Company will make generally available to its security holders an earnings
statement of the Company and its subsidiaries, if any, covering a period of
at least 12 months beginning after the effective date of the Registration
Statement (which need not be audited) complying with Section 11(a) of the
Act and the rules and regulations thereunder.
(ix) During the period beginning on the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, the Company will not, without your prior written consent,
offer, pledge, issue, sell, contract to sell, grant any option for the sale
of, or otherwise dispose of (or
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announce any of the foregoing, directly or indirectly, any shares of
Common Stock or securities convertible into, exercisable or exchangeable
for, shares of Common Stock, except as provided in Section 2 and except
that the Company may (aa) grant options pursuant to the Company's stock
option plans described in the Registration Statement with the prior
approval of The Robinson-Humphrey Company, Inc.; and (bb) issue shares of
Common Stock upon the exercise of any of the Company's outstanding stock
options as described in the Registration Statement or stock options granted
under clause (aa) above.
(x) During a period of two years from the effective date of the
Registration Statement, the Company will furnish to you and, upon request,
to each of the other Underwriters, without charge, (A) copies of all
reports or other communications (financial or other) generally distributed
to shareholders, (B) as soon as they are available, copies of any reports
and financial statements furnished to or filed with the Commission, the
NASD or any national securities exchange, and (C) such additional
information (other than material non-public information) concerning the
business and financial condition of the Company and its subsidiaries, if
any, as you may reasonably request.
(xi) Neither the Company nor any of its officers or directors
will (A) take, directly or indirectly, prior to the termination of the
underwriting syndicate contemplated by this Agreement, any action designed
to cause or to result in, or that might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of any of the Shares, (B)
sell, bid for, purchase or pay anyone any compensation for soliciting
purchases of, the Shares or (C) pay or agree to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
(xii) The Company will apply the net proceeds from the offering
in the manner set forth under "Use of Proceeds" in the Prospectus.
(xiii) The Company will cause the Shares to be listed on the
Nasdaq Stock Market's National Market at each Time of Delivery and will use
its best efforts to continue such listing for at least one year from the
date hereof.
(xiv) If at any time during the period beginning on the date
the Registration Statement becomes effective and ending on the later of (A)
the date 30 days after such effective date and (B) the date that is the
earlier of (1) the date on which the Company first files with the
Commission a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K
after such effective date and (2) the date on which the Company first
issues a quarterly or annual financial report to shareholders after such
effective date, any rumor, publication or event relating to
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or affecting the Company shall occur as a result of which in your
reasonable opinion the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such rumor,
publication or event necessitates an amendment of or supplement to the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, consult with you in good faith
concerning the substance and dissemination of a press release or other
public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(xv) The Company will file timely and accurate reports on Form
SR with the Commission in accordance with Rule 463 of the Commission under
the Act or any successor provision or requirement.
(xvi) During the initial two-year term of the Employment
Agreement between the Company and Shmuel BenTov described in the Prospectus
and filed as an exhibit to the Registration Statement (the "Employment
Agreement"), the Company and Mr. BenTov each agree not to (i) pay or cause
to be paid a cash bonus to Mr. BenTov in 1997, (ii) increase Mr. BenTov's
compensation as set forth in the Employment Agreement, or (iii) otherwise
amend Mr. BenTov's Employment Agreement in order to increase any component
of his compensation (including base salary or bonus). The Board of
Directors of the Company will adopt resolutions to such effect as of the
First Time of Delivery.
(B) COVENANTS OF THE SELLING SHAREHOLDER. The Selling Shareholder
covenants and agrees with each of the Underwriters:
(i) During the period beginning on the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, such Selling
Shareholder will not, without your prior written consent, sell, offer to
sell, contract to sell, solicit an offer to buy, grant any option for the
purchase or sale of, assign, pledge, distribute or otherwise transfer,
dispose of or encumber (or make any announcement with respect to any of the
foregoing), directly or indirectly, any shares of Common Stock, or any
options, rights, warrants or other securities convertible into or
exercisable or exchangeable for Common Stock or evidencing any right to
purchase or subscribe for shares of Common Stock, whether or not
beneficially owned by the undersigned, except as provided in Section 2.
(ii) Such Selling Shareholder will not (A) take, directly or indirectly,
prior to the termination of the underwriting syndicate contemplated by this
Agreement, any action designed to cause or to result in, or that might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale
of any of the Shares,
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(B) sell, bid for, purchase or pay anyone any compensation for soliciting
purchases of, the Shares or (C) pay to or agree to pay any person any
compensation for soliciting another to purchase any other securities of the
Company.
6. EXPENSES. The Company will pay all costs and expenses incurred by it
incident to the performance of its obligations and the obligations of the
Selling Shareholder under this Agreement, whether or not the transactions
contemplated hereby are consummated or this Agreement is terminated pursuant to
Section 10 hereof, including, without limitation, all costs and expenses
incident to (i) the reasonable fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Shares under
the Act and all other expenses in connection with the preparation, printing and
filing of the Registration Statement (including all amendments thereto), any
Preliminary Prospectus, the Prospectus and, if applicable, any amendments and
supplements thereto, this Agreement and any blue sky memoranda; (ii) the
delivery of copies of the foregoing documents to the Underwriters; (iii) the
filing fees of the Commission and the NASD relating to the Shares; (iv) the
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Shares, including transfer agent's and registrar's fees; (v) the
qualification of the Shares for offering and sale under state securities and
blue sky laws, including filing fees and reasonable fees and disbursements of
counsel for the Underwriters relating thereto; (vi) any listing of the Shares on
the Nasdaq Stock Market's National Market and (vii) any reasonable expenses for
travel, lodging and meals incurred by the Company and any of its officers,
directors and employees in connection with any meetings with prospective
investors in the Shares. In addition, the Selling Shareholder will pay all
costs and expenses incident to the fees, disbursements and expenses of any
counsel for such Selling Shareholder in addition to Orrick, Herrington &
Sutcliffe, L.L.P. It is understood, however, that, except as provided in this
Section, Section 8 and Section 10 hereof, the Underwriters will pay all of their
own costs and expenses, including the fees of their counsel, stock transfer
taxes on resale of any of the Shares by them, and any advertising expenses
relating to the offer and sale of the Shares.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy of
the representations and warranties of the Company and the Selling Shareholder
contained herein as of the date hereof and as of such Time of Delivery, to the
accuracy in all material respects of the statements of Company officers made
pursuant to the provisions hereof, to the performance in all material respects
by the Company and the Selling Shareholder of their respective covenants and
agreements hereunder, and to the following additional conditions precedent:
(a) If the registration statement as amended to date has not become
effective prior to the execution of this Agreement, such registration statement
shall have
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been declared effective not later than 4:00 p.m., Atlanta time, on the day
following the date of this Agreement or such later date and/or time as shall
have been consented to by you in writing. The Prospectus and any amendment or
supplement thereto shall have been filed with the Commission pursuant to Rule
424(b) within the applicable time period prescribed for such filing and in
accordance with Section 5(a) of this Agreement; if the Company has elected to
rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have become
effective by 10:00 p.m., Washington D.C. time, on the date of this Agreement; no
stop order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceedings for that purpose shall
have been instituted, threatened or, to the knowledge of the Company and the
Representatives, contemplated by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with to your
reasonable satisfaction.
(b) Alston & Bird LLP, counsel for the Underwriters, shall have furnished
to you such opinion or opinions, dated such Time of Delivery, with respect to
the incorporation of the Company, the validity of the Shares being delivered at
such Time of Delivery, the Registration Statement, the Prospectus, and other
related matters as you may reasonably request, and the Company shall have
furnished to such counsel such documents as they may reasonably request for the
purpose of enabling them to pass upon such matters.
(c) You shall have received an opinion, dated such Time of Delivery, of
Orrick, Herrington & Sutcliffe, L.L.P., counsel for the Company, in form and
substance reasonably satisfactory to you and your counsel, to the effect that:
(i) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of New York and
has the corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement and the
Prospectus and to enter into this Agreement and perform its obligations
hereunder. The Company is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other
jurisdiction in which it owns or leases property, except where the failure
to so qualify would not have a material adverse effect on the financial
position, results of operations or business of the Company.
(ii) The Company's authorized, issued and outstanding capital stock is
as disclosed in the Prospectus. All of the issued shares of capital stock
of the Company (including the Shares to be sold by the Selling Shareholder)
have been duly authorized and validly issued, are fully paid and
nonassessable and conform in all material respects to the description of
the Common Stock contained in the Prospectus. None of the issued shares of
capital stock of the Company has been issued or is owned or held in
violation of any statutory preemptive rights of shareholders, and no person
or entity (including any holder of outstanding shares
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of capital stock of the Company) has any statutory preemptive or, to the
knowledge of such counsel, similar rights to subscribe for any of the
Shares.
(iii) Except as disclosed in the Prospectus, to the knowledge of such
counsel, there are no outstanding (A) securities or obligations of the
Company convertible into or exchangeable for any capital stock of the
Company, (B) warrants, rights or options to subscribe for or purchase from
the Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (C) obligations of the Company to issue any
shares of capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(iv) The Shares to be issued and sold by the Company have been duly
authorized and, when issued and delivered against payment therefor as
provided herein, will be validly issued and fully paid and nonassessable
and will conform to the description of the Common Stock contained in the
Prospectus; the form of certificate evidencing the Shares complies in all
material respects with all applicable requirements of New York law; and the
Shares have been listed on the Nasdaq Stock Market's National Market.
(v) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings known to such counsel between the Company and
any person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to
any other registration statement filed by the Company under the Act.
(vi) All offers and sales of the Company's capital stock prior to the
date hereof were at all relevant times duly registered under the Act or
exempt from the registration requirements of the Act by reason of Sections
3(b), 4(2) or 4(6) thereof, or if not registered or exempt in compliance
with the Act, any private rights of action for rescission or damages
arising from such failure to register any such securities are time barred
by applicable statutes of limitations or equitable principles, including
laches.
(vii) The Company is not, or with the giving of notice or passage of
time or both, would not be, in violation of its Certificate of
Incorporation or Bylaws.
(viii) The issue and sale of the Shares being issued at such Time of
Delivery and the performance of this Agreement and the consummation of the
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transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which the Company is a party or
to which any of its properties or assets is subject that is an exhibit to
the Registration Statement nor will such action conflict with or violate
any provision of the Certificate of Incorporation or Bylaws of the Company
or any statute, rule or regulation (assuming compliance with all applicable
state securities or blue sky laws, as to which such counsel need express no
opinion) or any order, judgment or decree of any court or governmental
agency or body having jurisdiction over the Company or any of its
respective properties or assets.
(ix) No consent, approval, authorization, order or declaration of or
from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act and such as
may be required from the NASD or under state securities or blue sky laws in
connection with the offer, sale and distribution of the Shares by the
Underwriters.
(x) All real property and buildings held by the Company under leases are
held under leases which are valid and enforceable as to the Company and, to
such counsel's knowledge, as to others, with such exceptions as are
disclosed in the Prospectus or are not material and do not interfere with
the use made of such property and buildings by the Company.
(xi) The employment agreements in effect between the Company and its
employees in New York are valid and enforceable under New York law;
provided, however, that such counsel need not render any opinion with
regard to the validity and enforceability of any non-compete provision
contained therein; and provided further, that the invalidity or
unenforceability of any such non-compete agreement shall not render the
remainder of such agreement, or any of the other provisions thereof,
invalid or unenforceable.
(xii) This Agreement has been duly authorized, executed and delivered
by the Company and, assuming that this Agreement is a valid and binding
agreement of the other parties hereto, constitutes the valid and binding
agreement of the Company enforceable against the Company in accordance with
its terms, subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws relating to
or affecting the enforcement of creditors' rights generally, to general
equitable principles and to applicable
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securities laws or principles of public policy underlying such laws with
regard to rights to indemnity and contribution.
(xiii) The Registration Statement and the Prospectus and each amendment
or supplement thereto (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion), as of
their respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the rules and
regulations thereunder. The descriptions in the Registration Statement and
the Prospectus of statutes, legal and governmental proceedings or contracts
and other documents are accurate in all material respects and fairly
present the information required to be shown; and such counsel do not know
of any contracts or documents of a character required to be described in
the Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as required.
(xiv) Such counsel has been advised by the Staff of the SEC that the
Registration Statement is effective under the Act; any required filing of
the Prospectus pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement or any part
thereof has been issued and no proceedings for that purpose have been
instituted or threatened or, to the knowledge of such counsel, are
contemplated by the Commission.
(xv) The Company is not, and will not be as a result of the consummation
of the transactions contemplated by this Agreement, an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
Such counsel shall also state that they have no reason to believe (i) that
the Registration Statement, or any further amendment thereto made prior to such
Time of Delivery, on its effective date and as of such Time of Delivery,
contained or contains any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or (ii) that the Prospectus, or any
amendment or supplement thereto made prior to such Time of Delivery, as of its
issue date and as of such Time of Delivery, contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading (provided that such counsel need
express no belief regarding the financial statements, notes and related
schedules and other financial or statistical data contained in the Registration
Statement, any amendment thereto, or the Prospectus, or any amendment or
supplement thereto).
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In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company and public officials.
(d) You shall have received an opinion, dated such Time of Delivery, of
Orrick, Herrington & Sutcliffe LLP, special counsel for the Selling Shareholder,
in form and substance reasonably satisfactory to you and your counsel, to the
effect that:
(i) A Power of Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Shareholder, and assuming that the
Custody Agreement is a valid and binding agreement of the other parties
thereto, each of the Power of Attorney and the Custody Agreement is
enforceable against such Selling Shareholder in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles.
(ii) This Agreement has been duly executed and delivered by or
on behalf of such Selling Shareholder; the sale of the Shares to be sold by
such Selling Shareholder at such Time of Delivery and the performance of
this Agreement, the Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with, or (with or without the giving of notice or the passage of
time or both) result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument known to
us to which such Selling Shareholder is a party or to which any of its
properties or assets is subject, nor will such action conflict with or
violate any statute, rule or regulation or any order, judgment or decree of
any court or governmental agency or body having jurisdiction over such
Selling Shareholder or any of such Selling Shareholder's properties or
assets.
(iii) No consent, approval, authorization, order or declaration
of or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares being sold by such Selling Shareholder or the consummation of the
transactions contemplated by this Agreement, the Power of Attorney or the
Custody Agreement, except the registration of such Shares under the Act and
such as may be required under state securities or blue sky laws in
connection with the offer, sale and distribution of such Shares by the
Underwriters.
(iv) Such Selling Shareholder has, and immediately prior to such
Time of Delivery such Selling Shareholder will have, good and valid title
to the Shares to be sold by such Selling Shareholder hereunder, free and
clear of all liens,
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security interests, pledges, charges, encumbrances, defects, shareholders'
agreements, voting trusts, equities or claims of any nature whatsoever;
and, upon delivery of such Shares against payment therefor as provided
herein, good and valid title to such Shares, free and clear of all liens,
security interests, pledges, charges, encumbrances, defects, shareholders'
agreements, voting trusts, equities or claims of any nature whatsoever,
will pass to the several Underwriters.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company, the Selling Shareholder and public officials.
(e) You shall have received from Ernst & Young LLP letters dated,
respectively, the date hereof and each Time of Delivery, in form and
substance satisfactory to you, stating that they are independent auditors
with respect to the Company within the meaning of the Act and the
applicable published rules and regulations thereunder, and to the effect
that:
(i) In their opinion, the financial statements and schedules
audited by them and included in the Registration Statement comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder with respect to registration statements on Form SB-2. With
respect to the six-month periods ended June 30, 1997 and June 30,
1996, they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in SAS No. 71, Interim Financial
Information, on the unaudited condensed balance sheet as of June 30,
1997 and the unaudited condensed statements of operations and retained
earnings and statements of cash flows for the six-month periods ended
June 30, 1997 and June 30, 1996 included in the Registration
Statement;
(ii) The unaudited summary and selected financial information
included in the Preliminary Prospectus and the Prospectus under the
captions "Prospectus Summary" and "Selected Historical and Pro Forma
Financial Data" agrees with the corresponding amounts in the audited
financial statements included in the Prospectus or previously reported
on by them;
(iii) On the basis of a reading of the latest available
unaudited interim financial statements of the Company, a reading of
the minute books of the Company, inquiries of officials of the Company
responsible for financial and accounting matters and other specified
procedures, all of
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which have been agreed to by the Representatives, nothing came to
their attention that caused them to believe that:
(A) the unaudited financial statements described in
paragraph (i) above and included in the Registration Statement do
not comply as to form in all material respects with the
accounting requirements of the Act and the related published
rules and regulations thereunder and any material modifications
should be made to such unaudited financial statements for them to
be in conformity with generally accepted accounting principles;
(B) at a specified date not more than five days prior to
the date of delivery of such respective letter, there was any
change in the capital stock, decline in stockholders' equity or
increase in long-term debt of the Company, or other items
specified by the Underwriters, in each case as compared with
amounts shown in the latest balance sheets included in the
Prospectus, except in each case for changes, decreases or
increases which the Prospectus discloses have occurred or may
occur or which are described in such letters; and
(C) for the period from the closing date of the latest
statement of operations and retained earnings included in the
Prospectus to a specified date not more than five days prior to
the date of delivery of such respective letter, there were any
decreases in revenues or net income of the Company, or other
items specified by the Underwriters, or any increases in any
items specified by the Underwriters, in each case as compared
with the corresponding period of the preceding year, except in
each case for decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter.
(iv) They have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages
and financial information specified by you which are derived from the
general accounting records of the Company, which appear in the
Prospectus and have compared and agreed such amounts, percentages and
financial information with the accounting records of the Company or to
analyses and schedules prepared by the Company from its detailed
accounting records.
In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases, it shall be a further
condition to the obligations of the Underwriters that the Underwriters
shall have determined, after
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discussions with officers of the Company responsible for financial and
accounting matters and with Ernst & Young LLP, that such changes, decreases
or increases as are set forth in such letters do not reflect a material
adverse change in the stockholder's equity or long-term debt of the Company
as compared with the amounts shown in the latest balance sheets of the
Company included in the Prospectus, or a material adverse change in
revenues or net income of the Company, in each case as compared with the
corresponding period of the prior year.
(f) Since the date of the latest audited financial statements included
in the Prospectus, the Company shall not have sustained (i) any material loss or
material interference with its business from fire, explosion, flood, hurricane
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as
disclosed in or contemplated by the Prospectus, or (ii) any material adverse
change, or any development involving a prospective material adverse change
(including without limitation a material adverse change in management or control
of the Company), in or affecting the position (financial or otherwise), results
of operations, net worth or business of the Company, otherwise than as disclosed
in or contemplated by the Prospectus, the effect of which, in either such case,
is in your reasonable judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(g) The Shares shall be listed on the Nasdaq Stock Market's National
Market, subject to notice of issuance.
(h) Subsequent to the date hereof there shall not have occurred any of
the following: (i) any suspension or limitation in trading in securities
generally on the New York Stock Exchange, or any setting of minimum prices for
trading on such exchange, or in the Common Stock by the Commission or the NASD
or the Nasdaq Stock Market's National Market; (ii) a moratorium on commercial
banking activities in New York declared by either federal or state authorities;
or (iii) any outbreak or escalation of hostilities involving the United States,
declaration by the United States of a national emergency or war or any other
national or international calamity or emergency if the effect of any such event
specified in this clause (iii) is in your reasonable judgment so material and
adverse as to make it impracticable or inadvisable to proceed with the purchase,
sale and delivery of the Shares being delivered at such Time of Delivery as
contemplated by the Registration Statement, as amended as of the date hereof.
(i) The Company shall have furnished to you at such Time of Delivery
certificates of officers of the Company and a certificate of the Selling
Shareholder, satisfactory to you, as to the accuracy of the representations and
warranties in all material respects of the Company and such Selling Shareholder
herein at and as of such Time of
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Delivery, as to the performance by the Company and such Selling Shareholder of
all of their respective obligations hereunder to be performed at or prior to
such Time of Delivery and as to such other matters as you may reasonably
request, and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and (f) of this
Section 7, and as to such other matters as you may reasonably request.
8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement made by the Company in Section
l(a) of this Agreement; (ii) any untrue statement or alleged untrue statement of
any material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Shares under the securities or blue sky laws thereof or filed with
the Commission or any securities association or securities exchange (each an
"Application"); (iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or any Application a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (iv) any failure of the Company to perform its obligations
hereunder or under law, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; provided,
---------
however, that the Company shall not be liable in any such case to the extent
- -------
that any such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
any Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you expressly for use
therein; provided further, that such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or any director,
officer, employee or agent of such Underwriter) from whom the person asserting
any such loss, claim, damage, liability or action purchased the Shares that are
the subject thereof if such person did not receive a copy of the Prospectus (or
the Prospectus as supplemented) at or prior to the confirmation of the sale of
such Shares to such person in any case where such delivery is required under the
Act and such untrue statement or omission of a material fact contained in any
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
supplemented). The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or
-30-
<PAGE>
proceeding (or related cause of action or portion thereof) in respect of which
indemnification may be sought hereunder (whether or not such Underwriter is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such Underwriter from
all liability arising out of such claim, action, suit or proceeding (or related
cause of action or portion thereof).
(b) The Selling Shareholder agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon: (i) any untrue statement or alleged untrue statement made
by such Selling Shareholder in Section l(b) of this Agreement; (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, the Power of Attorney, the
Custody Agreement or any Application, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; or (iii) any failure of such Selling
Shareholder to perform his obligations hereunder, under the Custody Agreement or
under law, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, that the
-----------------
Selling Shareholder shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any
Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you expressly for use
therein; and provided further, that such indemnity with respect to any
----------------
Preliminary Prospectus shall not inure to the benefit of any Underwriter (or any
director, officer, employee or agent of such Underwriter) from whom the person
asserting any such loss, claim, damage, liability or action purchased the Shares
that are the subject thereof if such person did not receive a copy of the
Prospectus (or the Prospectus as supplemented) at or prior to the confirmation
of the sale of such Shares to such person in any case where such delivery is
required under the Act and such untrue statement or omission of a material fact
contained in any Preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as supplemented). The Selling Shareholder will not, without the prior
written consent of each Underwriter, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit or
proceeding (or related cause of action or portion thereof) in respect of which
indemnification may be sought hereunder (whether or not such Underwriter is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such Underwriter from
all liability arising out of such claim, action, suit or proceeding (or related
cause of action or portion thereof). Notwithstanding any provision
-31-
<PAGE>
of this Section 8 to the contrary, the liability of the Selling Shareholder
pursuant to this Agreement shall not exceed the total net proceeds from the
offering (before deducting expenses) received by the Selling Shareholder
(including the net proceeds from the offering that are used by the Company to
pay the Distribution (as such term is defined in the Prospectus) to the Selling
Shareholder).
(c) Each Underwriter, severally but not jointly, agrees to indemnify
and hold harmless the Company and the Selling Shareholder against any losses,
claims, damages or liabilities to which the Company or the Selling Shareholder
may become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through you expressly for use therein; and will reimburse the Company and the
Selling Shareholder for any legal or other expenses reasonably incurred by the
Company or such Selling Shareholder in connection with investigating or
defending any such loss, claim, damage, liability or action.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party, unless and to the extent such omission results in the
forfeiture by the indemnifying party of substantial rights and defenses, shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (unless such counsel
is Orrick, Herrington & Sutcliffe LLP, in which case no consent shall be
required and who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party); provided, however, that if the defendants in
-----------------
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have been advised in writing by outside counsel
that there may be one or more legal defenses available to it or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action on behalf of such indemnified party and such
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<PAGE>
indemnified party shall have the right to select separate counsel to defend such
action on behalf of such indemnified party. After such notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence or (ii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party. Nothing in this Section 8(d) shall preclude an
indemnified party from participating at its own expense in the defense of any
such action so assumed by the indemnifying party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholder on the one
hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Shareholder on the one hand
and the Underwriters on the other in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Shareholder on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Shareholder (including, in the
case of the Selling Shareholder, the net proceeds of the offering that are used
by the Company to pay the Distribution to the Selling Shareholder) bear to the
total underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Shareholder on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Selling Shareholder and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (e) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any
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<PAGE>
other method of allocation which does not take account of the equitable
considerations referred to above in this subsection (e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this subsection
(e) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(e) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Shareholder under
this Section 8 shall be in addition to any liability which the Company or such
Selling Shareholder may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and to the Selling Shareholder and to each
person, if any, who controls the Company and such Selling Shareholder within the
meaning of the Act.
9. DEFAULT OF UNDERWRITERS. (a) If any Underwriter defaults in its
obligation to purchase Shares at a Time of Delivery, you may in your discretion
arrange for you or another party or other parties to purchase such Shares on the
terms contained herein. If within thirty-six (36) hours after such default by
any Underwriter you do not arrange for the purchase of such Shares, the Company
and the Selling Shareholder shall be entitled to a further period of thirty-six
(36) hours within which to procure another party or other parties reasonably
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company and the Selling
Shareholder that you have so arranged for the purchase of such Shares, or the
Company and the Selling Shareholder notify you that they have so arranged for
the purchase of such Shares, you or the Company and the Selling Shareholder
shall have the right to postpone a Time of Delivery for a period of not more
than seven days in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus that in your
reasonable opinion may thereby be made necessary. The cost of preparing,
printing and filing any such amendments shall be paid for by the Underwriters.
The term "Underwriter" as used
-34-
<PAGE>
in this Agreement shall include any person substituted under this Section with
like effect as if such person had originally been a party to this Agreement with
respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Shareholder as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of Shares to be purchased at such Time of Delivery, then
the Company and the Selling Shareholder shall have the right to require each
non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made, but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. TERMINATION. (a) This Agreement may be terminated with respect to
the Firm Shares or any Optional Shares in the sole discretion of the
Representatives by notice to the Company given prior to the First Time of
Delivery or any Subsequent Time of Delivery, respectively, in the event that (i)
any condition to the obligations of the Underwriters set forth in Section 7
hereof has not been satisfied in all material respects, or (ii) the Company or
the Selling Shareholder shall have failed, refused or been unable to deliver the
Shares or to perform all obligations and satisfy all conditions on their
respective parts to be performed or satisfied hereunder at or prior to such Time
of Delivery, in either case other than by reason of a default by any of the
Underwriters. If this Agreement is terminated pursuant to this Section 10(a),
the Company will reimburse the Underwriters severally upon demand for all out-
of-pocket expenses (including reasonable counsel fees and disbursements) that
shall have been incurred by them in connection with the proposed purchase and
sale of the Shares. Neither the Company nor any Selling Shareholder shall in
any event be liable to any of the Underwriters for the loss of anticipated
profits from the transactions covered by this Agreement.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Shareholder as provided in Section 9(a), the aggregate number of
such Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of Shares to be purchased at such Time of Delivery, or if the Company and
the Selling Shareholder shall not exercise the right described in Section 9(b)
to require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to a
Subsequent Time of Delivery, the obligations of the Underwriters to purchase and
of the Company to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Shareholder, except for the expenses to be borne by the Company, the
Selling Shareholder
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<PAGE>
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
11. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, the Selling
Shareholder and the several Underwriters, as set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement, shall remain
in full force and effect, regardless of any investigation (or any statement as
to the results thereof) made by or on behalf of any Underwriter or any
controlling person referred to in Section 8(e) or the Company, any Selling
Shareholder or any officer or director or controlling person of the Company or
the Selling Shareholder referred to in Section 8(e), and shall survive delivery
of and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
12. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed, delivered or sent by facsimile
transmission and confirmed in writing to you in care of The Robinson-Humphrey
Company, Inc., 3333 Peachtree Road, N.E., Atlanta, Georgia 30326, Attention:
Corporate Finance Department (with a copy to Alston & Bird LLP, One Atlantic
Center, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424, Attention: M.
Hill Jeffries); if sent to the Company, shall be mailed, delivered or sent by
facsimile transmission and confirmed in writing to the Company at The A
Consulting Team, Inc., 200 Park Avenue South, New York, New York 10003,
Attention: Chief Executive Officer (with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, 18th Floor, New York, New York 10103,
Attention: Lawrence B. Fisher); and if sent to any Selling Shareholder, shall
be mailed, delivered or sent by facsimile transmission and confirmed in writing
to the Selling Shareholder and the Attorney-in-Fact at 200 Park Avenue South,
New York, New York 10003, (with a copy to Orrick, Herrington & Sutcliffe LLP,
666 Fifth Avenue, 18th Floor, New York, New York 10103, , Attention: Lawrence
B. Fisher).
13. REPRESENTATIVES. You will act for the several Underwriters in
connection with the transactions contemplated by this Agreement, and any action
under this Agreement taken by you jointly or by The Robinson-Humphrey Company,
Inc. will be binding upon all the Underwriters.
14. BINDING EFFECT. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company and the Selling
Shareholder and, to the extent provided in Sections 8 and 10 hereof, the
officers and directors and controlling persons referred to therein and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
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<PAGE>
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to any
provisions regarding conflicts of laws.
16. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and upon
the acceptance hereof by The Robinson-Humphrey Company, Inc., on behalf of each
of the Underwriters, this letter will constitute a binding agreement among the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in the Master Agreement among Underwriters, a copy of which shall be
submitted to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
THE A CONSULTING TEAM, INC.
By:
----------------------------------------
Name: Shmuel BenTov
Title: Chairman of the Board, Chief
Executive Officer and President
SHMUEL BENTOV, as the Selling
Shareholder
By:
----------------------------------------
Name: ___________, as
Attorney-in-Fact
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<PAGE>
The foregoing Agreement is hereby confirmed and accepted as of the date first
written above at Atlanta, Georgia.
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
By: The Robinson-Humphrey Company, Inc.
By:
(Authorized Representative)
On behalf of each of the Underwriters
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<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Total Number of Firm Shares to be Purchased
Shares to be if Maximum Option
Underwriter Purchased Exercised
----------- -------------------- ----------------------
<S> <C> <C>
The Robinson-Humphrey
Company, Inc.
Wheat First Butcher Singer
_________ __________
Total 1,800,000 270,000
========= =======
</TABLE>
-40-
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Optional
Selling Party Shares to be Sold
- ------------- -----------------
<S> <C>
Company 135,000
Shmuel BenTov 135,000
Total 270,000
=======
</TABLE>
-41-
<PAGE>
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
THE A CONSULTING TEAM, INC.
(Pursuant to Section 807 of the Business Corporation Law)
THE UNDERSIGNED, being the holder of all of the outstanding shares of The A
Consulting Team, Inc. entitled to vote on the restatement of the Certificate of
Incorporation, does hereby certify as follows:
1. The name of the corporation is The A Consulting Team, Inc. (the
"Corporation"). The name under which the Corporation was originally formed was
Software Ben-Tov, Inc.
2. The certificate of incorporation of Software Ben-Tov, Inc. was filed by
the Department of State of the State of New York on February 16, 1983 and
amended on April 26, 1993.
3. The certificate of incorporation, as amended, is hereby further amended
and changed to effect certain of the amendments and changes authorized by the
Business Corporation Law, to wit:
(a) To change its corporate purpose.
(b) To increase the aggregate number of shares of capital stock
which the Corporation shall have authority to issue;
(c) To increase the number of shares of common stock which the
Corporation shall have the authority to issue, all of which are no par value,
from two hundred (200) shares, 10 of which are issued and 190 are unissued, to
10,000,000 shares at $0.01 par value, of which 10 shares are issued at a par
value of $0.01, and 9,999,990 are unissued at a par value of $0.01; the rate of
change for the issued shares will be 1 to 1; and the rate of change for the
unissued shares will be 52,632 to 1;
(d) To designate an additional class of shares which the Corporation
shall have the authority to issue, all of which are designated preferred shares,
the aggregate number of which shall be 2,000,000, each of which is $0.01 par
value;
(e) To provide that the Corporation's Board of Directors shall have
the authority to issue the preferred shares in series, to establish the number
of shares to be included
<PAGE>
in each such series, and to fix the designations, relative rights, preferences
and limitations of any shares of any series thereof;
(f) To provide for a change in the post office address to which the
Secretary of State shall mail a copy of any process against the Corporation;
(g) To provide that no holder of any of the shares of any class
of the Corporation shall have any preemptive rights; and
(h) To provide for indemnification by the Corporation and to
limit the liability of directors to the Corporation.
4. To accomplish the foregoing amendments:
(a) Article SECOND relating to the purpose of the Corporation, Article
FOURTH relating to the authorized shares of the Corporation and Article FIFTH
relating to the address for receipt of a copy of process are amended to read as
set forth in the same numbered Articles of the Certificate of Incorporation of
the Corporation as hereinafter restated; and
(b) New Article SIXTH relating to preemptive rights of shareholders,
and new Article SEVENTH relating to indemnification by the Corporation and
personal liability of directors as set forth in the same numbered Articles of
the Certificate of Incorporation of the Corporation as hereinafter restated.
5. The text of the Certificate of Incorporation, as amended, is
hereby restated as further amended and changed herein to read in its entirety as
follows:
CERTIFICATE OF INCORPORATION
OF
THE A CONSULTING TEAM, INC.
(Pursuant to Section 807 of the Business Corporation Law)
FIRST: The name of the Corporation is The A Consulting Team, Inc.
(the "Corporation").
SECOND: The purpose for which the Corporation is formed is to engage
in any lawful act or activity for which corporations may be organized under the
Business Corporation Law of the State of New York; provided, however, that the
Corporation is not
2
<PAGE>
formed to engage in any act or activity requiring the consent or approval of any
state official, department, board, agency, or other body without such consent or
approval first being obtained.
THIRD: The office of the Corporation is to be located in the City
of New York, County of New York and State of New York.
FOURTH: The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is 12,000,000 shares, all of which are
$0.01 par value, of which 10,000,000 shares shall be designated "Common Stock"
and 2,000,000 shares of which shall be designated "Preferred Stock."
(a) Common Stock.
------------
(1) Subject to the rights of any other class or series of stock, the
holders of shares of Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of the assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
(2) Subject to such rights of any other class or series of securities
as may be granted from time to time, the holders of shares of Common Stock shall
be entitled to receive all the assets of the Corporation available for
distribution to shareholders in the event of the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, ratably, in
proportion to the number of shares of Common Stock held by them. Neither the
merger or consolidation of the Corporation into or with any other corporation
nor the merger or consolidation of any other corporation into or with the
Corporation nor the sale, lease, exchange or other disposition (for cash, shares
of stock, securities or other consideration) of all or substantially all the
assets of the Corporation shall be deemed to be a dissolution, liquidation or
winding up, voluntary or involuntary, of the Corporation.
(3) Subject to such voting rights of any other class or series of
securities as may be granted from time to time pursuant to this Certificate of
Incorporation, any amendment thereto, or the provisions of the laws of the State
of New York governing business corporations, voting rights shall be vested
exclusively in the holders of Common Stock. Each holder of Common Stock shall
have one vote in respect of each share of such stock held.
(b) Preferred Stock. The Board of Directors of the Corporation is
---------------
authorized, subject to limitations prescribed by law and the provisions of this
Certificate of Incorporation, to provide for the issuance of the Preferred Stock
in series, and by filing a certificate pursuant to the New York Business
Corporation Law, to establish the number of shares to be included in each such
series, and to fix the designation, relative rights, preferences and limitations
of the shares of each such series. The authority of the Board of Directors with
respect to each series shall include, but not be limited to, determination of
the following:
3
<PAGE>
(1) The number of shares constituting that series and the distinctive
designation of that series;
(2) Whether the holders of shares of that series shall be entitled to
receive dividends and, if so, the rates of such dividends, the conditions under
which and the times such dividends may be declared or paid, any preference of
any such dividends to, and the relation to, the dividends payable on any other
class or classes of stock or any other series of the same class and whether
dividends shall be cumulative or non-cumulative and, if cumulative, from which
date or dates;
(3) Whether the holders of shares of that series have voting rights
in addition to the voting rights provided by law and, if so, the terms and
conditions of exercise of such voting rights;
(4) Whether shares of that series shall be convertible into or
exchangeable for shares of any other class, or any series of the same or any
other class, and, if so, the terms and conditions thereof, including the date or
dates when such shares shall be convertible into or exchangeable for shares of
any other class, or any series of the same or any other class, the price or
prices of or the rate or rates at which shares of such series shall be so
convertible or exchangeable, and any adjustments which shall be made, and the
circumstances in which any such adjustments shall be made, in such conversion or
exchange prices or rates;
(5) Whether the shares of the 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;
(6) Whether the shares of that series shall be subject to the
operation of a retirement or sinking fund and, if so subject, the extent to and
the manner in which it shall be applied to the purchase or redemption of the
shares of that series, and the terms and provisions relative to the operation
thereof;
(7) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation and any
presence of any such rights to, and the relation to, the rights in respect
thereto of any class or classes of stock or any other series of the same class;
and
(8) Any other relative rights, preferences and limitations of that
series; provided, however, that if the stated dividends and amounts payable on
liquidation with respect to shares of any series of the Preferred Stock are not
paid in full, the shares of all series of the Preferred Stocks shall share
ratably in the payment of dividends including accumulations, if any, in
accordance with the sums which would be payable on such shares if all dividends
were declared and paid in full, and in any distribution of assets (other than by
way of dividends) in accordance with the sums which would be payable on such
distribution if all sums payable were discharged in full.
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FIFTH: The Secretary of State is designated as the agent of the
Corporation upon whom process against the Corporation may be served. The post
office address to which the Secretary of State shall mail a copy of any process
against the Corporation served upon him or her is The A Consulting Team, Inc,
200 Park Avenue South, New York, New York 10003, Attn: Shmuel BenTov.
SIXTH: No holder of any of the shares of any class of the
Corporation shall have any preemptive rights and, as such, no holder of any of
the shares of any class of the Corporation shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any shares of any class of the
Corporation which the Corporation proposes to issue or any rights or options
which the Corporation proposes to grant for the purchase of shares of any class
of the Corporation or for the purchase of any shares, bonds, securities, or
obligations of the Corporation which are convertible into or exchangeable for,
or which carry any rights, to subscribe for, purchase, or otherwise acquire
shares of any class of the Corporation; and any and all of such shares, bonds,
securities, or obligations of the Corporation, whether now or hereafter
authorized or created, may be issued, or may be reissued or transferred if the
same have been reacquired and have treasury status, and any and all of such
rights and options may be granted by the Board of Directors to such persons,
firms, corporations, and associations, and for such lawful consideration, and on
such terms, as the Board of Directors in its discretion may determine, without
first offering the same, or any part thereof, to any said holder.
SEVENTH: (a) The Corporation shall be permitted to indemnify, and
advance expenses to, any person whom it has the power to indemnify to the
fullest extent permitted by law, and, to the extent consistent therewith, shall
indemnify or advance expenses to any such person to the fullest extent required
by or pursuant to any by-law of the Corporation, agreement, resolution of
directors, resolution of shareholders, directors' officers' liability insurance
policies, or any other form of indemnification agreement.
(b) To the fullest extent now or hereafter permitted by law,
directors of the Corporation shall not be liable to the Corporation or its
shareholders for damages for any breach of duty in their capacity as directors.
6. The amendments to, and restatement of, the Certificate of
Incorporation of the Corporation herein provided for were authorized by the
unanimous written consent of the sole member of the Board of Directors and the
sole holder of all of the outstanding shares of the Corporation entitled to vote
hereon.
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IN WITNESS WHEREOF, I have subscribed this document on the date set
forth below and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by me and are true and correct.
Executed on this 30th day of July, 1997.
/s/ Shmuel BenTov
------------------------------------------------
Shmuel BenTov, Shareholder, constituting the
holder of all of the outstanding shares entitled
to vote on the Restatement of the Certificate of
Incorporation of the Corporation
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<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BY-LAWS
OF
THE A CONSULTING TEAM, INC.
EFFECTIVE AS OF JUNE 11, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. SHAREHOLDERS' MEETINGS......................................... 1
Section 1.1.Annual Meeting........................................... 1
Section 1.2.Special Meetings......................................... 1
Section 1.3.Quorum................................................... 1
Section 1.4.Record Date.............................................. 2
Section 1.5.Voting................................................... 2
Section 1.6.Proxies.................................................. 2
Section 1.7.Conduct of Meetings...................................... 2
Section 1.8.List of Shareholders..................................... 3
ARTICLE II. DIRECTORS..................................................... 3
Section 2.1.Duties and Powers........................................ 3
Section 2.2.Qualifications and Numbers............................... 3
Section 2.3.Manner of Election....................................... 3
Section 2.4.Term of Office........................................... 3
Section 2.5.Regular and Special Meetings............................. 3
Section 2.6.Notice of Board of Directors Meetings.................... 4
Section 2.7.Place of Meeting......................................... 4
Section 2.8.Vacancies................................................ 4
Section 2.9.Quorum and Action........................................ 4
Section 2.10.Voting.................................................. 4
Section 2.11.Resignation or Removal of Directors..................... 4
Section 2.12.Committees.............................................. 5
Section 2.13.Conduct of Meetings..................................... 5
Section 2.14.Telephone Participation................................. 6
Section 2.15.Action in Lieu of Meeting............................... 6
ARTICLE III. OFFICERS...................................................... 6
Section 3.1.Officers and Qualifications.............................. 6
Section 3.2.Election................................................. 6
Section 3.3.Term of Office........................................... 6
Section 3.4.Removal of Officers...................................... 6
Section 3.5.Resignations............................................. 6
ARTICLE IV. SHARES......................................................... 7
Section 4.1.Certificates for Shares.................................. 7
Section 4.2.Lost Certificates........................................ 7
Section 4.3.Transfer of Shares....................................... 7
(i)
<PAGE>
ARTICLE V. DIVIDENDS AND DISTRIBUTIONS..................................... 7
Section 5.1.Declaration of Dividends and Resolutions................. 7
Section 5.2.Record Date.............................................. 8
ARTICLE VI. INDEMNIFICATION................................................ 8
Section 6.1.Manner of Indemnification................................ 8
ARTICLE VII. AMENDMENTS.................................................... 8
Section 7.1.Manner of Amending....................................... 8
ARTICLE VIII. MISCELLANEOUS................................................ 9
Section 8.1.Voting Securities........................................ 9
Section 8.2.Books and Records........................................ 9
Section 8.3.Record Date.............................................. 9
Section 8.4.Fiscal Year.............................................. 9
(ii)
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
THE A CONSULTING TEAM, INC.
(A New York Corporation)
Effective as of June 11, 1997
ARTICLE I. SHAREHOLDERS' MEETINGS
SECTION 1.1. ANNUAL MEETING. The annual meeting of the shareholders of the A
Consulting Team, Inc. (the "Company") for the purpose of the election of
directors and for the transaction of such other business as may be properly
brought before the meeting shall be held in the month of May of each year on a
date set by the Board of Directors that is business day and not a legal holiday.
The meeting shall be held at such time and at such place within or without the
State of New York as may be designated by the Board of Directors. The Secretary
of the Company shall give personally or by mail, not less than ten nor more than
fifty days before the date set for the meeting to each shareholder of record
entitled to vote at such meeting written notice stating the place, date, and
time of the meeting. If mailed, the notice shall be addressed to the shareholder
at his or her address as it appears on the record of shareholders of the Company
unless such shareholder shall have filed with the Secretary of the Company a
written request that notices intended for him or her be mailed to a different
address, in which case it shall be mailed to the address designated in the
request. Any and all notice of meetings may be waived by a shareholder by
submitting a signed waiver either before or after the meeting, or by attendance
at the meeting.
SECTION 1.2. SPECIAL MEETINGS. Special meetings of shareholders, other than
those regulated by statute, may be called at any time by a majority of the Board
of Directors, the Chairman of the Board or the President, and must be called by
the President or the Secretary upon written request of the holders of a majority
of the outstanding shares entitled to vote at such special meeting. Written
notice of such meetings stating the place, date and time of the meeting, the
purpose or purposes for which it is called, and the name of the person by whom
or at whose direction the meeting is called, shall be given not less than ten
nor more than fifty days before the date set for the meeting. The notice shall
be given to each shareholder of record in the same manner as notice of the
annual meeting. No business other than that specified in the notice of meeting
shall be transacted at any such special meeting. Notice of special meeting may
be waived by submitting a signed waiver before or after the meeting, or by
attendance at the meeting.
SECTION 1.3. QUORUM. The presence, in person or by proxy, of the holders of
record of a majority of the outstanding shares entitled to vote thereat, shall
be necessary to constitute a
<PAGE>
quorum for the transaction of business at each meeting of shareholders, except
as otherwise provided by law, by the Certificate of Incorporation or by these
By-Laws; provided that, when any specified action is required to be voted upon
by a class of stock voting as a class, the holders of a majority of the shares
of such class shall constitute a quorum for the transaction of such specified
action. When a quorum is once present to transact business at a meeting, it is
not broken by the subsequent withdrawal of any shareholders from the meeting.
If, however, such quorum shall not be present or represented at any meeting of
the shareholders, the shareholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting to a future
date at which a quorum shall be present or represented. At such adjourned
meeting, any business may be transacted which might have been transacted at the
meeting as originally called.
SECTION 1.4. RECORD DATE. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, the Board of Directors may fix in advance, a date as the
record date for any such determination of shareholders. Such date shall not be
less than ten nor more than fifty days before the date of such meeting. When a
determination of shareholders of record entitled to notice of or to vote at any
meeting has been made as provided by this Section 1.4, such determination shall
apply to any adjournment thereof, unless the Board of Directors fix a new record
date under this Section 1.4 for the adjourned meeting.
SECTION 1.5. VOTING. Each shareholder entitled to vote on any action proposed
at a meeting of shareholders shall be entitled to one vote in person or by proxy
for each share of voting stock held of record by him or her, unless otherwise
provided in the Certificate of Incorporation. The election of each director
shall be decided by a plurality vote of shareholders represented either in
person or by proxy at the meeting and entitled to vote thereon. Except as
otherwise provided by law, by the Certificate of Incorporation, by other
certificate filed pursuant to law or by these By-Laws, votes on any other
matters coming before any meeting of shareholders shall be decided by the vote
of the holders of a majority of the shares represented at such meeting, in
person or by proxy, and entitled to vote on the specific matter.
SECTION 1.6. PROXIES. Every shareholder may authorize another person or
persons to act for him by proxy in all matters in which a shareholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting or expressing consent or dissent without a meeting.
Every proxy must be in writing and signed by the shareholder or his or her
attorney-in-fact. No proxy shall be valid after the expiration of eleven months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the shareholder executing it, except as
otherwise provided by law.
SECTION 1.7. CONDUCT OF MEETINGS. Meetings of the shareholders shall be
presided over by the Chairman of the Board, or in his or her absence, by another
officer or director of the Company as directed by the Chairman of the Board.
Such person shall be designated as the Chairman of the meeting. Except as
required by law, by the Certificate of Incorporation, by other certificate filed
pursuant to law or by these By-Laws, the chairman presiding at any meeting of
shareholders may rule on questions of order or procedure coming before the
meeting. At each
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annual meeting of the shareholders and at such other times as may be required,
the Chairman of the Board or his or her delegatee shall render a report on the
financial condition of the Company. The Secretary of the Company shall act as
secretary of all meetings of the shareholders. In the absence of the Secretary,
any Assistant Secretary or other person selected by the presiding chairman at
any such meeting shall serve as secretary to such meeting.
SECTION 1.8. LIST OF SHAREHOLDERS. It shall be the duty of the Secretary or
any Assistant Secretary or a Transfer Agent of the Corporation to prepare and
certify a list of shareholders as of the record date set for any meeting or
action. Such list shall be produced at any meeting of shareholders upon request
thereat or prior thereto of any shareholder.
ARTICLE II. DIRECTORS
SECTION 2.1. DUTIES AND POWERS. The business of the Company shall be managed
under the direction of the Board of Directors. The Directors shall in all cases
act as a board, regularly convened, and, in the transaction of business, the act
of a majority present at a meeting, except as otherwise provided by law or the
Certificate of Incorporation shall be the act of the Board, provided a quorum is
present. The Directors may adopt such rules and regulations for the conduct of
their meetings and the management of the Company as they may deem proper, and as
permitted by law and these By-laws.
SECTION 2.2. QUALIFICATIONS AND NUMBERS. The number of directors constituting
the entire Board of Directors shall consist of not less than three (3) nor more
than twelve (12) directors (except that where all the shares are owned
beneficially and of record by less than three (3) shareholders, the number of
directors may be less than (3) but not less than the number of shareholders),
the exact number to be determined from time to time by resolution of the Board
of Directors. A director need not be a shareholder of the Company, a citizen of
the United States, or a resident of the State of New York. The Board of
Directors shall elect among their members a Chairman of the Board of the Board
of Directors
SECTION 2.3. MANNER OF ELECTION. The Directors shall be elected at the annual
meeting of shareholders by a plurality vote except as otherwise prescribed by
law.
SECTION 2.4. TERM OF OFFICE. The term of office of each Director shall be
until the next annual meeting of the shareholders and until his or her successor
has been duly elected and has qualified.
SECTION 2.5. REGULAR AND SPECIAL MEETINGS. The Board of Directors shall meet
for the election or appointment of officers and for the transaction of any other
business as soon as practicable after the adjournment of the annual meeting of
the shareholders, and other regular meetings of the Board of Directors shall be
held at such times as the Board of Directors may from time to time determine.
Special Meetings of the Board of Directors may be called by the Chairman of the
Board, the President, or by the Secretary on written request of two directors.
3
<PAGE>
SECTION 2.6. NOTICE OF BOARD OF DIRECTORS MEETINGS. No notice shall be
required for the annual or any regular meetings for which the time and place
have been fixed. Except as otherwise provided by law, notice of each special
meeting of the Board of Directors shall be mailed to each director, addressed to
him or her at his or her residence or usual place of business, at least five
days before the day on which such meeting is to be held, or shall be sent
addressed to him or her at such place by telegraph, cable or wireless, or be
delivered personally or by telephone, not later than 48 hours before the time on
which such meeting is to be held. The notice of any meeting need not specify
the purpose of the meeting. Any requirement of furnishing a notice shall be
waived by any director who signs a waiver of notice before or after the meeting,
or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him or her.
SECTION 2.7. PLACE OF MEETING. The Board of Directors may hold its meeting
either within or without the State of New York, at such place as may be
designated in the notice of any such meeting, or when the dates for the meetings
or meeting were fixed.
SECTION 2.8. VACANCIES. Any vacancy in the Board of Directors, whether caused
by resignation, death, increase in the number of directors, disqualification or
otherwise, may be filled by a majority of the directors then in office after the
vacancy has occurred, although less than a quorum (except that a vacancy created
by the removal of a director by shareholders for cause or without cause may be
filled by the shareholders at the meeting at which the director is removed or,
if not so filled, then by the remaining directors) and provided that any
vacancies with respect to directors elected by holders of any Preferred Stock of
the Company voting as a separate class or series under any provisions of the
Certificates of Incorporation shall be filled as provided in the provisions of
the Certificate of Incorporation relating to any such Preferred Stock. Any
director elected by the Board of Directors to fill a vacancy shall hold office
until the next annual meeting of shareholders at which the election of directors
is in the regular order of business, and until his or her successor has been
elected and qualified.
SECTION 2.9. QUORUM AND ACTION. A majority of the entire Board of Directors
shall constitute a quorum except when a vacancy or vacancies prevent such
majority, whereupon a majority of the directors then in office shall constitute
a quorum, provided such majority shall constitute at least one-third of the
entire Board of Directors. A majority of the directors present, whether or not
a quorum is present, may adjourn a meeting to another time and place. Notice
need not be given of any adjourned meeting. Except as otherwise provided
herein, the act of the Board of Directors shall be the act, at a meeting duly
assembled, by vote of a majority of the directors present at the time of the
vote, a quorum being present at such time.
SECTION 2.10. VOTING. At all meetings of the Board of Directors, each Director
shall have one vote irrespective of the number of shares that he or she may
hold.
SECTION 2.11. RESIGNATION OR REMOVAL OF DIRECTORS. Any director may resign at
any time and such resignation shall take effect upon receipt of written notice
by the Chairman of the Board, the President or the Secretary unless otherwise
specified in the written resignation. No director of the Company shall be
removed form office as a director except (i) for cause by the vote of
4
<PAGE>
(A) the holders of at least a majority of the outstanding shares of the Company
entitled to vote at an election of directors (considered for this purpose as one
class) or (B) a majority of the entire Board of Directors or (ii) without cause
by the vote of the holders of at least a majority of the outstanding shares of
the Company entitled to vote at an election of directors (considered for this
purpose as one class), provided that this provision shall not apply to any
directors elected by holders of any Preferred Stock voting as a separate class
or series under any provisions of the Certificate of Incorporation, which
directors may be removed only by the vote of the holders of at least a majority
of the outstanding shares of such Preferred Stock.
SECTION 2.12. COMMITTEES. By resolution adopted by a majority of the entire
Board of Directors, the directors may designate from their number three or more
directors, to constitute an Executive Committee and other committees, each of
which, to the extent provided in the resolution designating it, shall have the
authority of the Board of Directors with the exception of any authority the
delegation of which is prohibited by law, including the following matters:
(1) The submission to shareholders of any action that needs
shareholders' approval as required by law.
(2) The filing of vacancies in the board of directors or in any
committee.
(3) The fixing of compensation of the directors for serving on the
board or on any committee.
(4) The amendment or repeal of these By-laws, or the adoption of new
By-laws.
(5) The amendment or repeal of any resolution of the Board of
Directors which by its terms shall not be so amendable or repealable.
The Board of Directors shall designate among the members of a
committee so appointed a Chairman. The Board of Directors may designate one or
more directors as alternate members of any such committee, who may replace any
absent member or members at any meeting of such committee. All committees so
appointed shall keep regular minutes of the business transacted at their
meetings. Each committee established by the Board of Directors shall serve at
the pleasure of the Board of Directors, which may fill vacancies in any such
committee.
SECTION 2.13. CONDUCT OF MEETINGS. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by another
director as directed by the Chairman of the Board. Meetings of any committee of
the board of Directors shall be presided over by the chairman of such committee,
or in his or her absence, by another member of the committee as directed by the
chairman of such committee. The Secretary of the Company shall act as secretary
of all meetings of the Board of Directors and its committee. In the absence of
the Secretary, any Assistant Secretary or other person selected by the presiding
chairman of any such meeting shall serve as secretary to that meeting.
5
<PAGE>
SECTION 2.14. TELEPHONE PARTICIPATION. One or more members of the Board of
Directors or any committee thereof may participate in a meeting of the Board of
Directors or its committee by means of a telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence in
person at a meeting.
SECTION 2.15. ACTION IN LIEU OF MEETING. Any action required or permitted to
be taken by the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board of Directors or the committee unanimously
consent in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto shall be filed with the minutes of
the proceedings of the Board of committee.
ARTICLE III. OFFICERS
SECTION 3.1. OFFICERS AND QUALIFICATIONS. The officers of the Company shall
consist of a President, a Treasurer and a Secretary. The Board of Directors
from time to time may appoint such other officers, including but not limited to,
a Chief Executive Officer, a Chief Financial Officer, a Chief Operating Officer,
a Controller and one or more Vice Presidents, Senior Vice Presidents, Assistant
Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant
Controller. If so appointed, each officer shall perform all duties and have
such powers incident to the office so appointed and shall have such other powers
and perform such other duties as may from time to time be assigned to such
officer under these By-Laws, by the Board of Directors of the Chief Executive
Officer of the President. No officer [,OTHER THAN THE CHIEF EXECUTIVE OFFICER,]
is required to be a director of the Company. Any of the aforesaid offices,
except those of President and Secretary, may be held by the same person.
SECTION 3.2. ELECTION. All officers of the Corporation shall be elected
annually by the Board of Directors at its meeting held after the annual meeting
of shareholders.
SECTION 3.3. TERM OF OFFICE. Each officer shall hold office at the pleasure
of the board of Directors. All officers shall hold office until their
successors have been duly elected and have qualified, or until removed or
resigned as hereinafter provided. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors at its
election.
SECTION 3.4. REMOVAL OF OFFICERS. Any officer may be removed either with or
without cause by the Board of Directors vote of a majority of the directors
constituting a quorum or by unanimous written consent of the directors.
SECTION 3.5. RESIGNATIONS. Any officer appointed by the Board of Directors
may resign his or her office at any time by giving written notice of his or her
resignation to the Chairman of the Board, the Chief Executive Officer, the
President or the Secretary. Any such resignation shall take effect at any time
specified therein or, if no time is specified, by receipt by the persons
identified above, and acceptance shall not be necessary to make the resignation
effective.
6
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ARTICLE IV. SHARES
SECTION 4.1. CERTIFICATES FOR SHARES. Certificates for the shares of capital
stock of the Company shall be in such form consistent with law and the
Certificate of Incorporation and as approved by the Board of Directors. All
certificates shall be signed by the President and Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
or by facsimile signatures thereof. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate for shares of the Company
who shall have ceased to be such officer of the Corporation before such
certificate is issued by the Company, the certificate may nevertheless be issued
by the Company with the same effect as if he were such officer at the date of
issue.
SECTION 4.2. LOST CERTIFICATES. The Company may issue or cause to be issued
new or duplicate certificates for lost, stolen or destroyed certificates of the
Company upon written notification of the facts of such loss, theft or
destruction and subject, in the discretion of the Company, to the deposit of a
bond or other indemnity by the shareholder seeking the new certificate in such
form and with such sureties and in such sum as the Company may require.
SECTION 4.3. TRANSFER OF SHARES. The shares of the Company shall be
assignable and transferable only on the books and records of the Company by the
registered owner, or by his or her duly authorized attorney, upon surrender of
the certificate duly and properly endorsed with proper evidence of authority to
transfer, and, except in the case of any such certificate which has been lost,
stolen or destroyed, such transfer shall only be made upon surrender to the
Company of a certificate for shares for cancellation duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon the issue of a new certificate for the shares to the person or
persons entitled thereto, the Company shall cancel the old certificate and
record the transaction upon its books.
ARTICLE V. DIVIDENDS AND DISTRIBUTIONS
SECTION 5.1. DECLARATION OF DIVIDENDS AND RESOLUTIONS. The Board of
Directors, at any regular or special meeting, may declare and pay dividends or
make other distributions on its outstanding shares, as permitted by law and the
Certificate of Incorporation, to the holders of record of shares upon which such
dividends or distributions have been declared. The Company may declare and pay
dividends or make other distributions on its outstanding shares, except when
currently the Company is insolvent or would thereby be made insolvent, or when
the declaration, payment or distribution would be contrary to any restrictions
contained in the Certificate of Incorporation. Dividends may be declared or
paid and other distributions may be made out of surplus only, so that the net
assets of the Company remaining after such declaration, payment or distribution
shall at least equal the amount of its stated capital. When any dividend is
paid or any other distribution is made, in whole or in part, from sources other
than earned surplus, it shall be accompanied by a written notice (1) disclosing
the amounts by which such dividend or distribution affects stated capital,
capital surplus, and earned surplus or (2) if such amounts are not determinable
at the time of such notice, disclosing the approximate effect of
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<PAGE>
such dividend or distribution upon stated capital, capital surplus and earned
surplus and stating that such amounts are not yet determinable.
SECTION 5.2. RECORD DATE. The record date for holders of shares entitled to
receive any dividends or distributions as may be declared by the Board of
Directors from time to time shall be not more than fifty days prior to the date
such dividend or distribution is declared.
ARTICLE VI. INDEMNIFICATION
SECTION 6.1. MANNER OF INDEMNIFICATION. In accordance with the Certificate of
Incorporation and to the fullest extent permitted by applicable law, the Company
may indemnify any person made, or threatened to be made, a party to an action or
proceeding by reason of the fact that he or she was or is a director, officer,
employee agent or trustee of the Company, or served or is serving in any
capacity at the request of the Company as a director, officer, employee, agent
or trustee of another corporation, business, partnership, joint venture, trust,
employee benefit plan or other entity, against expenses, judgments, fines, and
amounts paid in settlement in connection with such suit and reasonable expenses,
including attorney's fees actually and necessarily incurred as a result of such
action or proceeding, or any appeal therein, if such person acted in good faith,
for a purpose he or she reasonably believed to be in, or, in the case of service
for another entity, not opposed to, the best interests of the Company and, in
criminal actions or proceedings, in addition had no reasonable cause to believe
that his or her conduct was unlawful. The Company may pay in advance of a final
disposition of such action or proceeding the expenses incurred in defending such
action or proceeding upon receipt of an undertaking by or on behalf of such
person to repay such amount as, and to the extent required by law. The
indemnification and advancement of expense provisions herein shall not be deemed
exclusive of any rights to which such person seeking indemnification or
advancement of expenses may be entitled.
ARTICLE VII. AMENDMENTS
SECTION 7.1. MANNER OF AMENDING. The By-laws of the Company may also be
altered, amended, repealed, or added to by the affirmative vote of the holders
of a majority of the shareholders entitled to vote in the election of any
director at an annual meeting or at a special meeting called for that purpose,
provided that a written notice shall have been sent to each shareholder of
record entitled to vote at such meeting, which notice shall state the
alterations, amendments, additions, or changes which are proposed to be made in
such bylaws. Only such changes shall be made as have been specified in the
notice. The By-laws may also be altered, amended, repealed, or new bylaws
adopted by a majority of the entire Board of Directors at a regular or special
meeting of the Board. However, any bylaws so adopted by the Board of Directors
may be altered, amended, or repealed by the shareholders.
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ARTICLE VIII. MISCELLANEOUS
SECTION 8.1. VOTING SECURITIES. The Chief Executive Officer, the President,
or any Vice President of the Company shall have full power and authority on
behalf of the Company to attend and to act and to vote, or to execute in the
name or on behalf of the Company a proxy authorizing an agent or attorney-in-
fact for the Company to attend and vote at any meetings of security holders of
corporations in which the Company may hold securities, and at such meetings he
or she or his or her duly authorized agent or attorney-in-fact shall possess and
may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Company might have possessed and
exercised if present. The Board of Directors by resolution from time to time
may confer like power upon any other person or persons.
SECTION 8.2. BOOKS AND RECORDS. The Company shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of the
shareholders, the Board of Directors, and any committee which the directors may
appoint, and shall keep at the office of the company in the State of New York or
at the office of the transfer agent or registrar, if any, in said State, a
record containing the names and addresses of all shareholders, the number of
shares held by each, and the dates when they respectively became the owners of
record thereof. Any of the foregoing books, minutes, or records may be in
written form or in any other form capable of being converted into written form
within a reasonable time.
SECTION 8.3. RECORD DATE. The Board of Directors shall set the record date to
determine shareholders of record entitled to notice of and voting at any annual
or special meeting of shareholders or any adjournment thereof or to any other
action involving shareholders of record; provided that such date shall not be
less than ten nor more than fifty days prior to such meeting, nor fifty days
prior to any action.
SECTION 8.4. FISCAL YEAR. The fiscal year of the Company shall end on such
date and shall consist of such accounting periods as may be fixed by the Board
of Directors.
9
<PAGE>
EXHIBIT 5.1
August 6, 1997
The A Consulting Team, Inc.
400 Park Avenue South
New York, New York 10003
Re: The A Consulting Team, Inc.
Registration Statement on Form SB-2
Ladies and Gentlemen:
At your request, we are rendering this opinion in connection with
a proposed sale by The A Consulting Team, Inc., a New York corporation (the
"Company"), of up to 1,935,000 shares of common stock, $0.01 par value (the
"Common Stock"), and the sale by the Company's sole shareholder of up to 135,000
shares of Common Stock.
We have examined instruments, documents, and records which we
deemed relevant and necessary for the basis of our opinion hereinafter
expressed. In such examination, we have assumed the following: (a) the
authenticity of original documents and the genuineness of all signatures; (b)
the conformity to the originals of all documents submitted to us as copies; and
(c) the truth, accuracy, and completeness of the information, representations,
and warranties contained in the records, documents, instruments, and
certificates we have reviewed.
Based on such examination, we are of the opinion that the
1,935,000 shares of Common Stock to be issued and sold by the Company (of which
up to 135,000 shares are to be issued to cover over-allotments, if any), are
duly authorized and will be, when issued against payment of the purchase price
therefor, legally issued, fully paid and nonassessable. We are of the further
opinion that 135,000 shares of Common Stock to be sold by the selling
shareholder (to cover overallotments, if any) identified in the above-referenced
Registration Statement are, as of the date hereof, duly authorized shares of
Common Stock, and have been legally issued, fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to
the above-referenced Registration Statement and to the use of our name wherever
it appears in said Registration Statement, including the Prospectus constituting
a part thereof, as originally filed or as subsequently amended or supplemented.
In giving such consent, we do not consider that we are "experts" within the
meaning of such term as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission issued
thereunder, with respect to any part of the Registration Statement, including
this opinion as an exhibit or otherwise.
Very truly yours,
ORRICK, HERRINGTON & SUTCLIFFE LLP
<PAGE>
EXHIBIT 10.1
THE A CONSULTING TEAM, INC.
1997 STOCK OPTION AND AWARD PLAN
<PAGE>
Page
SECTION 1 BACKGROUND, PURPOSE AND DURATION
1.1 Background and Effective Date
1.2 Purpose of the Plan............................................ 1
SECTION 2 DEFINITIONS..................................................... 1
2.1 "1934 Act"...................................................... 1
2.2 "Affiliate".................................................... 1
2.3 "Affiliated SAR"................................................ 1
2.3 "Award"........................................................ 2
2.4 "Award Agreement".............................................. 2
2.5 "Board"........................................................ 2
2.6 "Code"......................................................... 2
2.7 "Committee".................................................... 2
2.8 "Company"...................................................... 2
2.9 "Consultant"................................................... 2
2.10 "Director"..................................................... 2
2.11 "Disability"................................................... 2
2.12 "Employee"..................................................... 2
2.13 "Exercise Price"............................................... 2
2.14 "Fair Market Value"............................................ 2
2.15 "Fiscal Year".................................................. 3
2.16 "Freestanding SAR"............................................. 3
2.17 "Grant Date"................................................... 3
2.18 "Incentive Stock Option"....................................... 3
2.19 "Nonemployee Director"......................................... 3
2.20 "Nonqualified Stock Option".................................... 3
2.21 "Option"....................................................... 3
2.22 "Participant".................................................. 3
2.23 "Performance Share"............................................. 3
2.24 "Performance Unit".............................................. 3
2.25 "Period of Restriction"........................................ 3
2.26 "Plan"......................................................... 3
2.27 "Restricted Stock"............................................. 3
2.28 "Retirement"................................................... 3
2.29 "Rule 16b-3"................................................... 4
2.30 "Section 16 Person"............................................ 4
2.31 "Shares"....................................................... 4
2.32 "Stock Appreciation Right"...................................... 4
2.33 "Subsidiary"................................................... 4
2.34 "Tandem SAR".................................................... 4
2.35 "Termination of Service"....................................... 4
SECTION 3 ADMINISTRATION.................................................. 4
3.1 The Committee.................................................. 4
3.2 Authority of the Committee..................................... 5
3.3 Delegation by the Committee.................................... 5
3.4 Nonemployee Directors.......................................... 5
3.5 Decisions Binding.............................................. 5
SECTION 4 SHARES SUBJECT TO THE PLAN...................................... 5
4.1 Number of Shares............................................... 5
4.2 Lapsed Awards.................................................. 6
4.3 Adjustments in Awards and Authorized Shares.................... 6
i
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Page
SECTION 5 STOCK OPTIONS................................................... 6
5.1 Grant of Options............................................... 6
5.2 Award Agreement................................................ 6
5.3 Exercise Price................................................. 6
5.3.1 Nonqualified Stock Options.............................. 6
5.3.2 Incentive Stock Options................................. 7
5.3.3 Substitute Options...................................... 7
5.4 Expiration of Options.......................................... 7
5.4.1 Expiration Dates........................................ 7
5.4.2 Death of Participant.................................... 7
5.4.3 Committee Discretion.................................... 8
5.5 Exercisability of Options...................................... 8
5.6 Payment........................................................ 8
5.7 Restrictions on Share Transferability.......................... 8
5.8 Certain Additional Provisions for Incentive Stock
Options........................................................ 9
5.8.1 Exercisability.......................................... 9
5.8.2 Termination of Service.................................. 9
5.8.3 Company and Subsidiaries Only........................... 9
5.8.4 Expiration.............................................. 9
5.9 Grant of Reload Options........................................ 9
SECTION 6 STOCK APPRECIATION RIGHTS....................................... 9
6.1 Grant of SARs.................................................. 9
6.1.1 Exercise Price and Other Terms.......................... 10
6.2 Exercise of Tandem SARs........................................ 10
6.3 Exercise of Freestanding SARs.................................. 10
6.4 SAR Agreement.................................................. 10
6.5 Expiration of SARs............................................. 10
6.6 Payment of SAR Amount.......................................... 11
SECTION 7 RESTRICTED STOCK................................................ 11
7.1 Grant of Restricted Stock...................................... 11
7.2 Restricted Stock Agreement..................................... 11
7.3 Transferability................................................ 11
7.4 Other Restrictions............................................. 11
7.5 Removal of Restrictions........................................ 12
7.6 Voting Rights.................................................. 12
7.7 Dividends and Other Distributions.............................. 12
7.8 Return of Restricted Stock to Company.......................... 12
SECTION 8 PERFORMANCE UNITS AND PERFORMANCE SHARES........................ 12
8.1 Grant of Performance Units/Shares.............................. 12
8.2 Initial Value.................................................. 13
8.3 Performance Objectives and Other Terms......................... 13
8.4 Earning of Performance Units and Performance
Shares......................................................... 13
8.5 Form and Timing of Payment..................................... 13
8.6 Cancellation................................................... 13
SECTION 9 NONEMPLOYEE DIRECTORS........................................... 14
9.1 Granting of Options............................................ 14
ii
<PAGE>
Page
9.1.1 New Nonemployee Directors.......................... 14
9.1.2 Continuing Nonemployee Directors................... 14
9.2 Terms of Options............................................... 14
9.2.1 Option Agreement........................................ 14
9.2.2 Exercise Price.......................................... 14
9.2.3 Exercisability.......................................... 14
9.2.4 Expiration of Options................................... 14
9.2.5 Death of Director....................................... 15
9.2.6 Special Rule for Retirement............................. 15
9.2.7 Not Incentive Stock Options............................. 15
9.2.8 Other Terms............................................. 15
9.3 Elections by Nonemployee Directors............................. 15
SECTION 10 MISCELLANEOUS.................................................. 16
10.1 No Effect on Employment or Service............................. 16
10.2 Participation.................................................. 16
10.3 Indemnification................................................ 16
10.4 Successors..................................................... 16
10.5 Beneficiary Designations....................................... 16
10.6 Nontransferability of Awards................................... 17
10.7 No Rights as Stockholder....................................... 17
10.8 Withholding Requirements....................................... 17
10.9 Withholding Arrangements....................................... 17
10.10 Deferrals..................................................... 17
SECTION 11 AMENDMENT, TERMINATION, AND DURATION........................... 18
11.1 Amendment, Suspension, or Termination.......................... 18
11.2 Duration of the Plan........................................... 18
SECTION 12 LEGAL CONSTRUCTION............................................. 18
12.1 Gender and Number.............................................. 18
12.2 Severability................................................... 18
12.3 Requirements of Law............................................ 18
12.4 Compliance with Rule 16b-3..................................... 18
12.5 Governing Law.................................................. 19
12.6 Captions....................................................... 19
iii
<PAGE>
THE A CONSULTING TEAM, INC.
1997 STOCK OPTION AND AWARD PLAN
THE A CONSULTING TEAM, INC., hereby adopts The A Consulting Team, Inc. 1997
Stock Option and Award Plan, as follows:
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 Background and Effective Date. The Plan permits the grant of Nonqualified
-----------------------------
Stock Options, Incentive Stock Options, SARs, Restricted Stock, Performance
Units, and Performance Shares. The Plan is effective as of June 11, 1997.
1.2 Purpose of the Plan. The Plan is intended to increase incentive and to
-------------------
encourage Share ownership on the part of (1) employees of the Company and its
Affiliates, (2) consultants who provide significant services to the Company and
its Affiliates, and (3) directors of the Company who are employees of neither
the Company nor any Affiliate. The Plan also is intended to further the growth
and profitability of the Company.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
2.1 "1934 Act" means the Securities Exchange Act of 1934, as amended.
--------
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
2.2 "Affiliate" means any corporation or any other entity (including, but not
---------
limited to, partnerships and joint ventures) controlling, controlled by, or
under common control with the Company.
2.3 "Affiliated SAR" means a SAR that is granted in connection with a
--------------
related Option, and which automatically will be deemed to be exercised at the
same time that the related Option is exercised. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option.
2.3 "Award" means, individually or collectively, a grant under the Plan of
-----
Nonqualified Stock Options, Incentive
1
<PAGE>
Stock Options, SARs, Restricted Stock, Performance Units, or Performance Shares.
2.4 "Award Agreement" means the written agreement setting forth the terms and
---------------
provisions applicable to each Award granted under the Plan.
2.5 "Board" means the Board of Directors of the Company.
-----
2.6 "Code" means the Internal Revenue Code of 1986, as amended. Reference to a
----
specific section of the Code or regulation thereunder shall include such section
or regulation, any valid regulation promulgated under such section, and any
comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
2.7 "Committee" means the committee appointed by the Board (pursuant to
---------
Section 3.1) to administer the Plan.
2.8 "Company" means The A Consulting Team, a New York corporation, or any
-------
successor thereto.
2.9 "Consultant" means any consultant, independent contractor, or other person
----------
who provides significant services to the Company or its Affiliates, but who is
neither an Employee nor a Director.
2.10 "Director" means any individual who is a member of the Board.
--------
2.11 "Disability" means a permanent and total disability within the meaning of
----------
Code section 22(e)(3), provided that in the case of Awards other than Incentive
Stock Options, the Committee in its discretion may determine whether a permanent
and total disability exists in accordance with uniform and non-discriminatory
standards adopted by the Committee from time to time.
2.12 "Employee" means any employee of the Company or of an Affiliate, whether
--------
such employee is so employed at the time the Plan is adopted or becomes so
employed subsequent to the adoption of the Plan.
2.13 "Exercise Price" means the price at which a Share may be purchased by a
--------------
Participant pursuant to the exercise of an Option.
12.14 "Fair Market Value" means the last quoted per share selling price for
-----------------
Shares on the relevant date, or if there were no sales on such date, the
arithmetic mean of the highest and lowest quoted selling prices on the nearest
day after the relevant date, as determined by the Committee. Notwithstanding
the preceding, with respect to Options granted on the date of the
2
<PAGE>
initial public offering of Shares, fair market value means the price at which
each Share is sold in such offering, as determined by the Committee.
2.15 "Freestanding SAR" means a SAR that is granted independently of any
----------------
Option.
2.16 "Grant Date" means, with respect to an Award, the date that the Award was
----------
granted.
2.17 "Incentive Stock Option" means an Option to purchase Shares which is
----------------------
designated as an Incentive Stock Option and is intended to meet the requirements
of section 422 of the Code.
2.18 "Nonemployee Director" means a Director who is an employee of neither the
--------------------
Company nor of any Affiliate.
2.19 "Nonqualified Stock Option" means an option to purchase Shares which is
-------------------------
not intended to be an Incentive Stock Option.
2.20 "Option" means an Incentive Stock Option or a Nonqualified Stock Option.
------
2.21" Participant" means an Employee, Consultant, or Nonemployee Director who
-----------
has an outstanding Award.
2.22 "Performance Share" means a Performance Share granted to a Participant
-----------------
pursuant to Section 8.
2.23 "Performance Unit" means a Performance Unit granted to a Participant
----------------
pursuant to Section 8.
2.24 "Period of Restriction" means the period during which shares of
---------------------
Restricted Stock are subject to forfeiture and/or restrictions on
transferability.
2.25 "Plan" means The A Consulting Team, Inc. 1997 Stock Option and Award
----
Plan, as set forth in this instrument and as hereafter amended from time to
time.
2.26 "Restricted Stock" means an Award granted to a Participant pursuant to
----------------
Section 7.
2.27 "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, as amended,
----------
and any future regulation amending, supplementing or superseding such
regulation.
2.28 "Section 16 Person" means a person who, with respect to the Shares, is
-----------------
subject to section 16 of the 1934 Act.
2.29 "Shares" means the shares of the Company's common stock, $0.01 par value.
------
3
<PAGE>
2.30 "Stock Appreciation Right" or "SAR" means an Award, granted alone or in
------------------------
connection with a related Option, that pursuant to Section 6 is designated as a
SAR.
2.31 "Subsidiary" means any corporation in an unbroken chain of corporations
----------
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
2.32 "Tandem SAR" means a SAR that is granted in connection with a related
----------
Option, the exercise of which shall require forfeiture of the right to purchase
an equal number of Shares under the related Option (and when a Share is
purchased under the Option, the SAR shall be canceled to the same extent).
2.33 "Termination of Service" means (a) in the case of an Employee, a
----------------------
cessation of the employee-employer relationship between an Employee and the
Company or an Affiliate for any reason, including, but not by way of limitation,
a termination by resignation, discharge, death, Disability, retirement, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous reemployment by the Company or an Affiliate; (b) in the case
of a Consultant, a cessation of the service relationship between a Consultant
and the Company or an Affiliate for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous re-engagement of the consultant by the Company or an
Affiliate; and (c) in the case of a Nonemployee Director, a cessation of the
Nonemployee Director's service on the Board for any reason.
SECTION 3
ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Committee. The
-------------
members of the Committee shall be appointed from time to time by, and shall
serve at the pleasure of, the Board.
3.2 Authority of the Committee. It shall be the duty of the Committee to
--------------------------
administer the Plan in accordance with the Plan's provisions. The Committee
shall have all powers and discretion necessary or appropriate to administer the
Plan and to control its operation, including, but not limited to, the power to
(a) determine which Employees and Consultants shall be granted Awards, (b)
prescribe the terms and conditions of the Awards (other than the Options granted
to Nonemployee Directors pursuant to Section 9), (c) interpret the Plan and the
Awards, (d) adopt rules for the administration, interpretation and application
of the Plan as are consistent therewith, and (e) interpret, amend or revoke any
such rules.
4
<PAGE>
3.3 Delegation by the Committee. The Committee, in its sole discretion and on
---------------------------
such terms and conditions as it may provide, may delegate all or any part of its
authority and powers under the Plan to one or more directors or officers of the
Company; provided, however, that unless otherwise determined by the Board, the
Committee may not delegate its authority and powers in any way which would
jeopardize the Plan's qualifications under Rule 16b-3.
3.4 Nonemployee Directors. Notwithstanding any contrary provision of this
---------------------
Section 3, the Board shall administer Section 9 of the Plan, and the Committee
shall exercise no discretion with respect to Section 9. In the Board's
administration of Section 9 and the Options and any Shares granted to
Nonemployee Directors, the Board shall have all of the authority and discretion
otherwise granted to the Committee with respect to the administration of the
Plan.
3.5 Decisions Binding. All determinations and decisions made by the Committee,
-----------------
the Board, and any delegate of the Committee pursuant to the provisions of the
Plan shall be final, conclusive, and binding on all persons, and shall be given
the maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3, the
----------------
total number of Shares available for grant under the Plan shall not exceed
600,000. Shares granted under the Plan may be either authorized but unissued
Shares or treasury Shares.
4.2 Lapsed Awards. If an Award terminates, expires, or lapses for any reason,
-------------
any Shares subject to such Award again shall be available to be the subject of
an Award.
4.3 Adjustments in Awards and Authorized Shares. In the event of any merger,
-------------------------------------------
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, the Committee shall adjust the
number and class of Shares which may be delivered under the Plan, the number,
class, and price of Shares subject to outstanding Awards, and the numerical
limit of Section 5.1 in such manner as the Committee (in its sole discretion)
shall determine to be appropriate to prevent the dilution or diminution of such
Awards. In the case of Options granted to Nonemployee Directors pursuant to
Section 9, the foregoing adjustments shall be made by the Board, and any such
adjustments also shall apply to the future grants provided by Section 9.
Notwithstanding the preceding, the number of Shares subject to any Award always
shall be a whole number.
5
<PAGE>
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions of the Plan, Options
----------------
may be granted to Employees and Consultants at any time and from time to time as
determined by the Committee in its sole discretion. The Committee, in its sole
discretion, shall determine the number of Shares subject to each Option. The
Committee may grant Incentive Stock Options, Nonqualified Stock Options, or a
combination thereof.
5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement that
---------------
shall specify the Exercise Price, the expiration date of the Option, the number
of Shares to which the Option pertains, any conditions to exercise of the
Option, and such other terms and conditions as the Committee, in its discretion,
shall determine. The Award Agreement shall specify whether the Option is
intended to be an Incentive Stock Option or a Nonqualified Stock Option.
5.3 Exercise Price. Subject to the provisions of this Section 5.3, the
--------------
Exercise Price for each Option shall be determined by the Committee in its sole
discretion.
5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock Option,
--------------------------
the Exercise Price shall be not less than one hundred percent (100%) of the Fair
Market Value of a Share on the Grant Date.
5.3 2 Incentive Stock Options. In the case of an Incentive Stock Option, the
-----------------------
Exercise Price shall be not less than one hundred percent (100%) of the Fair
Market Value of a Share on the Grant Date; provided, however, that if on the
Grant Date, the Employee (together with persons whose stock ownership is
attributed to the Employee pursuant to section 424(d) of the Code) owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries, the Exercise Price shall be not
less than one hundred and ten percent (110%) of the Fair Market Value of a Share
on the Grant Date.
5.3.3 Substitute Options. Notwithstanding the provisions of Sections 5.3.1 and
------------------
5.3.2, in the event that the Company or an Affiliate consummates a transaction
described in section 424(a) of the Code (e.g., the acquisition of property or
---
stock from an unrelated corporation), persons who become Employees or
Consultants on account of such transaction may be granted Options in
substitution for options granted by their former employer. If such substitute
Options are granted, the Committee, in its sole discretion and consistent with
section 424(a) of the Code, shall determine the exercise price of such
substitute Options.
6
<PAGE>
5.4 Expiration of Options.
---------------------
5.4.1 Expiration Dates. Each Option shall terminate no later than the first to
----------------
occur of the following events:
(a) The date for termination of the Option set forth in the written Award
Agreement; or
(b) The expiration of ten (10) years from the Grant Date; or
(c) The expiration of three (3) months from the date of the Participant's
Termination of Service for a reason other than the Participant's death or
Disability; or
(d) The expiration of one (1) year from the date of the Participant's
Termination of Service by reason of Disability.
5.4.2 Death of Participant. Notwithstanding Section 5.4.1, if a Participant
--------------------
dies prior to the expiration of his or her options, the Committee, in its
discretion, may provide that his or her options shall be exercisable for up to
one (1) year after the date of death.
5.4.3 Committee Discretion. Subject to the limits of Sections 5.4.1 and
--------------------
5.4.2, the Committee, in its sole discretion, (a) shall provide in each Award
Agreement when each Option expires and becomes unexercisable, and (b) may, after
an Option is granted, extend the maximum term of the Option (subject to Section
5.8.4 regarding Incentive Stock Options).
5.5 Exercisability of Options. Options granted under the Plan shall be
-------------------------
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in its sole discretion. After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option.
5.6 Payment. Options shall be exercised by the Participant's delivery of a
-------
written notice of exercise to the Secretary of the Company (or its designee),
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be payable to the
Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price, or (b) by any other means which the Committee, in its sole
discretion, determines to both provide legal consideration for the Shares, and
to be consistent with the purposes of the Plan.
7
<PAGE>
As soon as practicable after receipt of a written notification of exercise
and full payment for the Shares purchased, the Company shall deliver to the
Participant (or the Participant's designated broker), Share certificates (which
may be in book entry form) representing such Shares.
5.7 Restrictions on Share Transferability. The Committee may impose such
-------------------------------------
restrictions on any Shares acquired pursuant to the exercise of an Option as it
may deem advisable, including, but not limited to, restrictions related to
applicable Federal securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded, or any blue sky
or state securities laws.
5.8 Certain Additional Provisions for Incentive Stock Options.
---------------------------------------------------------
5.8.1 Exercisability. The aggregate Fair Market Value (determined on the
--------------
Grant Date(s)) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by any Employee during any calendar year (under
all plans of the Company and its Subsidiaries) shall not exceed $100,000.
5.8.2 Termination of Service. No Incentive Stock Option may be exercised
----------------------
more than three (3) months after the Participant's Termination of Service for
any reason other than Disability or death, unless (a) the Participant dies
during such three-month period, and (b) the Award Agreement or the Committee
permits later exercise.
5.8.3 Company and Subsidiaries Only. Incentive Stock Options may be
-----------------------------
granted only to persons who are employees of the Company or a Subsidiary on the
Grant Date.
5.8.4 Expiration. No Incentive Stock Option may be exercised after the
----------
expiration of ten (10) years from the Grant Date; provided, however, that if the
Option is granted to an Employee who, together with persons whose stock
ownership is attributed to the Employee pursuant to section 424(d) of the Code,
owns stock possessing more than 10% of the total combined voting power of all
classes of the stock of the Company or any of its Subsidiaries, the Option may
not be exercised after the expiration of five (5) years from the Grant Date.
5.9 Grant of Reload Options. The Committee may provide in an Award
-----------------------
Agreement that a Participant who exercises all or part of an Option by payment
of the Exercise Price with already-owned Shares, shall be granted an additional
option (a "Reload Option") for a number of shares of stock equal to the number
of Shares tendered to exercise the previously granted Option plus, if the
Committee so determines, any Shares withheld or delivered in satisfaction of any
tax withholding requirements. As determined by the Committee, each Reload
Option shall: (a) have a Grant Date which is the date as of which the previously
granted
8
<PAGE>
Option is exercised, and (b) be exercisable on the same terms and conditions as
the previously granted Option, except that the Exercise Price shall be
determined as of the Grant Date.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 Grant of SARs. Subject to the terms and conditions of the Plan, a SAR
-------------
may be granted to Employees and Consultants at any time and from time to time as
shall be determined by the Committee, in its sole discretion. The Committee may
grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination
thereof. The Committee shall have complete discretion to determine the number of
SARs granted to any Participant.
6.1.1 Exercise Price and Other Terms. The Committee, subject to the
------------------------------
provisions of the Plan, shall have complete discretion to determine the terms
and conditions of SARs granted under the Plan. However, the exercise price of a
Freestanding SAR shall be not less than one hundred percent (100%) of the Fair
Market Value of a Share on the Grant Date. The exercise price of Tandem or
Affiliated SARs shall equal the Exercise Price of the related Option.
6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
-----------------------
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. With respect to a Tandem SAR granted in connection with an
Incentive Stock Option: (a) the Tandem SAR shall expire no later than the
expiration of the underlying Incentive Stock Option; (b) the value of the payout
with respect to the Tandem SAR shall be for no more than one hundred percent
(100%) of the difference between the Exercise Price of the underlying Incentive
Stock Option and the Fair Market Value of the Shares subject to the underlying
Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the
Tandem SAR shall be exercisable only when the Fair Market Value of the Shares
subject to the Incentive Stock Option exceeds the Exercise Price of the
Incentive Stock Option.
6.3 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable
-----------------------------
on such terms and conditions as the Committee, in its sole discretion, shall
determine.
6.4 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement
-------------
that shall specify the exercise price, the term of the SAR, the conditions of
exercise, and such other terms and conditions as the Committee, in its sole
discretion, shall determine.
9
<PAGE>
6.5 Expiration of SARs. A SAR granted under the Plan shall expire upon the
------------------
date determined by the Committee, in its sole discretion, and set forth in the
Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4 also
shall apply to SARs.
6.6 Payment of SAR Amount. Upon exercise of a SAR, a Participant shall be
---------------------
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the date of
exercise over the exercise price; times
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, payment for a SAR may be in cash,
Shares or a combination thereof.
SECTION 7
RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
-------------------------
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees and Consultants in such amounts as the Committee,
in its sole discretion, shall determine. The Committee, in its sole discretion,
shall determine the number of Shares to be granted to each Participant.
7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be
--------------------------
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, any price to be paid for the Shares, and such
other terms and conditions as the Committee, in its sole discretion, shall
determine. Unless the Committee determines otherwise, Shares of Restricted
Stock shall be held by the Company as escrow agent until the restrictions on
such Shares have lapsed.
7.3 Transferability. Shares of Restricted Stock may not be sold,
---------------
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction. In no event may the restrictions on
Restricted Stock granted to a Section 16 Person lapse prior to six (6) months
following the Grant Date.
7.4 Other Restrictions. The Committee, in its sole discretion, may impose
------------------
such other restrictions on Shares of Restricted Stock as it may deem advisable
or appropriate, in accordance with this Section 7.4. For example, the Committee
may set restrictions based upon the achievement of specific performance
objectives (Company-wide, divisional, or individual), applicable Federal or
state securities laws, or any other basis determined by the Committee in its
discretion. The Committee, in
10
<PAGE>
its discretion, may legend the certificates representing Restricted Stock to
give appropriate notice of the restrictions applicable to such Shares.
7.5 Removal of Restrictions. Shares of Restricted Stock covered by each
-----------------------
Restricted Stock grant made under the Plan shall be released from escrow as soon
as practicable after the last day of the Period of Restriction. The Committee,
in its discretion, may accelerate the time at which any restrictions shall
lapse, and remove any restrictions. After the restrictions have lapsed, the
Participant shall be entitled to have any legend or legends under Section 7.4
removed from his or her Share certificate, and the Shares shall be freely
transferable by the Participant.
7.6 Voting Rights. During the Period of Restriction, Participants holding
-------------
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares, unless otherwise provided in the Award Agreement.
7.7 Dividends and Other Distributions. During the Period of Restriction,
---------------------------------
Participants holding Shares of Restricted Stock shall be entitled to receive all
dividends and other distributions paid with respect to such Shares unless
otherwise provided in the Award Agreement. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
7.8 Return of Restricted Stock to Company. On the date set forth in the
-------------------------------------
Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and again shall become available for grant under the
Plan.
SECTION 8
PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 Grant of Performance Units/Shares. Performance Units and Performance
---------------------------------
Shares may be granted to Employees and Consultants at any time and from time to
time, as shall be determined by the Committee, in its sole discretion. The
Committee shall have complete discretion in determining the number of
Performance Units and Performance Shares granted to any Participant.
8.2 Initial Value. Each Performance Unit shall have an initial value that
-------------
is established by the Committee on or before the Grant Date. Each Performance
Share shall have an initial value equal to the Fair Market Value of a Share on
the Grant Date.
8.3 Performance Objectives and Other Terms. The Committee shall set
--------------------------------------
performance objectives in its discretion
11
<PAGE>
which, depending on the extent to which they are met, will determine the number
or value of Performance Units or Shares that will be paid out to the
Participants. The Committee may set performance objectives based upon the
achievement of Company-wide, divisional, or individual goals, or any other basis
determined by the Committee in its discretion. The time period during which the
performance objectives must be met shall be called the "Performance Period".
Each Award of Performance Units/Shares shall be evidenced by an Award Agreement
that shall specify the Performance Period, and such other terms and conditions
as the Committee, in its sole discretion, shall determine.
8.4 Earning of Performance Units and Performance Shares. After the
---------------------------------------------------
applicable Performance Period has ended, the Participant shall be entitled to
receive a payout of the number of Performance Units or Shares earned during the
Performance Period, depending upon the extent to which the applicable
performance objectives have been achieved. After the grant of a Performance Unit
or Share, the Committee, in its sole discretion, may reduce or waive any
performance objectives for Award; provided that Performance Periods of Awards
granted to Section 16 Persons shall not be less than six (6) months (or such
shorter period as may be permissible while maintaining compliance with Rule 16b-
3).
8.5 Form and Timing of Payment. Payment of earned Performance Units or
--------------------------
Performance Shares shall be made as soon as practicable after the expiration of
the applicable Performance Period. The Committee, in its sole discretion, may
pay earned such Awards in cash, Shares or a combination thereof.
8.6 Cancellation. On the date set forth in the Award Agreement, all
------------
unearned or unvested Performance Units or Performance Shares shall be forfeited
to the Company, and again shall be available for grant under the Plan.
SECTION 9
NONEMPLOYEE DIRECTORS
9.1 Granting of Options.
-------------------
9.1.1 New Nonemployee Directors. Each Nonemployee Director who first
-------------------------
becomes a Nonemployee Director on or after the effective date of the Plan
automatically shall be granted, as of the date that the individual first is
appointed or elected as a Nonemployee Director, an Option to purchase 1,000
Shares.
9.1.2 Continuing Nonemployee Directors. Each Nonemployee Director who is
--------------------------------
re-elected to serve as a Nonemployee Director automatically shall be granted, as
of the date that the individual is re-elected as a Nonemployee Director, an
Option to purchase 1,000 Shares.
12
<PAGE>
9.2 Terms of Options.
----------------
9.2.1 Option Agreement. Each Option granted pursuant to this Section 9
----------------
shall be evidenced by a written stock option agreement which shall be executed
by the Participant and the Company.
9.2.2 Exercise Price. The Exercise Price for the Shares subject to each
--------------
Option granted pursuant to this Section 9 shall be 100% of the Fair Market Value
of such Shares on the Grant Date.
9.2.3 Exercisability. Each Option granted pursuant to this Section 9
--------------
shall become exercisable in full on the first anniversary of the Grant Date.
Notwithstanding the preceding, once an Optionee ceases to be a Director, his or
her Options which are not exercisable shall not become exercisable.
9.2.4 Expiration of Options. Each Option shall terminate upon the first
---------------------
to occur of the following events:
(a) The expiration of five (5) years from the Grant Date; or
(b) The expiration of three (3) months from the date of the Participant's
Termination of Service for a reason other the Participant's death or Disability;
or
(c) The expiration of one (1) year from the date of the Participant's
Termination of Service by reason of Disability.
9.2.5 Death of Director. Notwithstanding Section 9.2.4, if a Director
-----------------
dies prior to the expiration of his or her options in accordance with Section
9.2.4, his or her options shall terminate one (1) year after the date of death.
9.2.6 Not Incentive Stock Options. Options granted pursuant to this
---------------------------
Section 9 shall not be designated as Incentive Stock Options.
9.2.7 Other Terms. All provisions of the Plan not inconsistent with this
-----------
Section 9 shall apply to Options granted to Nonemployee Directors; provided,
however, that Section 5.2 (relating to the Committee's discretion to set the
terms and conditions of Options) shall be inapplicable with respect to
Nonemployee Directors.
SECTION 10
MISCELLANEOUS
10.1 No Effect on Employment or Service. Nothing in the Plan shall
----------------------------------
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of the Plan,
13
<PAGE>
transfer of employment of a Participant between the Company and any one of its
Affiliates (or between Affiliates) shall not be deemed a Termination of Service.
Employment with the Company and its Affiliates is on an at-will basis only.
10.2 Participation. No Employee or Consultant shall have the right to be
-------------
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
10.3 Indemnification. Each person who is or shall have been a member of the
---------------
Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Award Agreement, and (b) from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. 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 Bylaws, by contract, as a matter of law, or
otherwise, or under any power that the Company may have to indemnify them or
hold them harmless.
10.4 Successors. All obligations of the Company under the Plan, with
----------
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business or assets of the Company.
10.5 Beneficiary Designations. If permitted by the Committee, a Participant
------------------------
under the Plan may name a beneficiary or beneficiaries to whom any vested but
unpaid Award shall be paid in the event of the Participant's death. Each such
designation shall revoke all prior designations by the Participant and shall be
effective only if given in a form and manner acceptable to the Committee. In the
absence of any such designation, any vested benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate and, subject to
the terms of the Plan and of the applicable Award Agreement, any unexercised
vested Award may be exercised by the administrator or executor of the
Participant's estate.
10.6 Nontransferability of Awards. No Award granted under the Plan may be
----------------------------
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will, by the
14
<PAGE>
laws of descent and distribution, or to the limited extent provided in Section
10.5. All rights with respect to an Award granted to a Participant shall be
available during his or her lifetime only to the Participant.
10.7 No Rights as Stockholder. Except to the limited extent provided in
------------------------
Sections 7.6 and 7.7, no Participant (nor any beneficiary) shall have any of the
rights or privileges of a stockholder of the Company with respect to any Shares
issuable pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant (or beneficiary).
10.8 Withholding Requirements. Prior to the delivery of any Shares or cash
------------------------
pursuant to an Award (or exercise thereof), the Company shall have the power and
the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required to be withheld with
respect to such Award (or exercise thereof).
10.9 Withholding Arrangements. The Committee, in its sole discretion and
------------------------
pursuant to such procedures as it may specify from time to time, may permit or
require a Participant to satisfy all or part of the tax withholding obligations
in connection with an Award by (a) having the Company withhold otherwise
deliverable Shares, or (b) delivering to the Company already-owned Shares having
a Fair Market Value equal to the amount required to be withheld. The amount of
the withholding requirement shall be deemed to include any amount which the
Committee determines, not to exceed the amount determined by using the maximum
federal, state or local marginal income tax rates applicable to the Participant
with respect to the Award on the date that the amount of tax to be withheld is
to be determined. The Fair Market Value of the Shares to be withheld or
delivered shall be determined as of the date that the taxes are required to be
withheld.
10.10 Deferrals. The Committee, in its sole discretion, may permit a
---------
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be delivered to a Participant under the Plan. Any such
deferral elections shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.
SECTION 11
AMENDMENT, TERMINATION, AND DURATION
11.1 Amendment, Suspension, or Termination. The Board, in its sole
-------------------------------------
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason. The amendment, suspension, or termination of the Plan shall
not, without the consent of the Participant, alter or impair any rights or
obligations under any Award theretofore granted to such
15
<PAGE>
Participant. No Award may be granted during any period of suspension or after
termination of the Plan.
11.2 Duration of the Plan. The Plan shall commence on the date specified
--------------------
herein, and subject to Section 11.1 (regarding the Board's right to amend or
terminate the Plan), shall remain in effect thereafter. However, without
further stockholder approval, no Incentive Stock Option may be granted under the
Plan after June 11, 2007.
SECTION 12
LEGAL CONSTRUCTION
12.1 Gender and Number. Except where otherwise indicated by the context,
-----------------
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
12.2 Severability. In the event any provision of the Plan shall be held
------------
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
12.3 Requirements of Law. The granting of Awards and the issuance of Shares
-------------------
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
12.4 Compliance with Rule 16b-3. Transactions under this Plan with respect
--------------------------
to Section 16 Persons are intended to comply with all applicable conditions of
Rule 16b-3. To the extent any provision of the Plan, Award Agreement or action
by the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee. Notwithstanding
any contrary provision of the Plan, if the Committee specifically determines
that compliance with Rule 16b-3 no longer is required, all references in the
Plan to Rule 16b-3 shall be null and void.
12.5 Governing Law. The Plan and all Award Agreements shall be construed in
-------------
accordance with and governed by the laws of the State of New York.
12.6 Captions. Captions are provided herein for convenience only, and shall
--------
not serve as a basis for interpretation or construction of the Plan.
16
<PAGE>
EXECUTION
IN WITNESS WHEREOF, The A Consulting Team, Inc., by its duly authorized
officer, has executed the Plan on the date indicated below.
THE A CONSULTING TEAM, INC.
Dated as of: June 11, 1997 By /s/ Shmuel BenTov
-------------------------
Title:
17
<PAGE>
THE A CONSULTING TEAM, INC.
1997 STOCK OPTION AND AWARD PLAN
FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
1. Grant of Option. The A Consulting Team, Inc. (the "Company")
hereby grants to (the "Participant") under The A
Consulting Team, Inc. 1997 Stock Option and Award Plan (the "Plan"), as a
separate incentive in connection with his or her employment or service with the
Company or a Subsidiary and not in lieu of any fees or other compensation for
his or her services, a nonqualified stock option to purchase, on the terms and
conditions set forth in this Agreement and the Plan, all or any part of an
aggregate of _________ shares of authorized but unissued or treasury shares of
the Company's common stock, $ 0.01 par value ("Shares"), at the purchase price
set forth in Paragraph 2 of this Agreement. The option granted hereby is not
intended to be an incentive stock option (within the meaning of section 422 of
the Internal Revenue Code of 1986, as amended).
2. Option Price. The purchase price per Share for this option (the
"Option Price") shall be $ , which is one hundred percent (100%) of
the Fair Market Value per Share on , the effective date of this
Agreement (the "Grant Date").
3. Number of Shares. The number and class of Shares
1
<PAGE>
specified in Paragraph 1 of this Agreement, and/or the Option Price, are subject
to appropriate adjustment by the Committee in the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, Share combination or other change in the corporate structure
of the Company affecting the Shares; provided, however, that the number of
Shares subject to this option shall always be a whole number. Subject to any
required action of the stockholders of the Company, if the Company is the
surviving corporation in any merger or consolidation, this option (to the extent
that it is still outstanding) shall pertain to and apply to the securities to
which a holder of the same number of Shares that are then subject to the option
would have been entitled.
4. Vesting Schedule. The right to exercise this option shall accrue
as to one hundred percent (100%) of the Shares subject thereto on the first
anniversary date of the Grant Date, provided that the right to exercise this
option shall occur only if the Participant has not incurred a Termination of
Service between the Grant Date and such anniversary date.
5. Expiration of Option. In the event of the
Participant's Termination of Service for any reason other than death or
Disability, the Participant may, within three (3) months after the date of the
Termination, or within ten (10) years from the Grant Date, whichever shall first
occur, exercise any vested but unexercised portion of this option. In the event
of the Participant's Termination of Service due to Disability,
2
<PAGE>
the Participant may, within one (1) year after the date of the Termination, or
within ten (10) years from the Grant Date, whichever shall first occur, exercise
any vested but unexercised portion of this option.
6. Death of the Participant. In the event that the Participant dies while in
the employ or service of the Company or a Subsidiary, or during the three (3)
month or one (1) year periods referred to in Paragraph 5 of this Agreement, the
Participant's designated beneficiary or beneficiaries, or if no beneficiary
survives the Participant, the administrator or executor of the Participant's
estate, may, within one (1) year after the date of the Participant's death,
exercise any vested but unexercised portion of this option. Any such transferee
must furnish the Company (a) written notice of his or her status as a
transferee, (b) evidence satisfactory to the Company to establish the validity
of the transfer of this option and compliance with any laws or regulations
pertaining to such transfer, and (c) written acceptance of the terms and
conditions of this option as set forth in this Agreement.
7. Persons Eligible to Exercise. This option shall be exercisable during the
Participant's lifetime only by the Participant. This option is not transferable,
except that the Participant may transfer this option (a) by a valid beneficiary
designation made in a form and manner acceptable to the Committee, or (b) by
will or the applicable laws of descent and distribution.
8. Exercise of Option. This option may be exercised by the person then
entitled to do so as to any Shares which may then be purchased (a) by giving
written notice of exercise to the Secretary of the Company (or his or her
designee), specifying
3
<PAGE>
the number of full Shares to be purchased and accompanied by full payment of the
Option Price thereof (and the amount of any income tax the Company is required
by law to withhold by reason of such exercise), and (b) by giving satisfactory
assurances in writing if requested by the Company, signed by the person
exercising the option, that the Shares to be purchased upon such exercise are
being purchased for investment and not with a view to the distribution thereof.
The Option Price shall be payable in the legal tender of the United States or,
in the discretion of the Committee, in Shares or in a combination of such legal
tender or Shares.
9. Suspension of Exercisability. If at any time the Committee shall determine,
in its discretion, that (a) the listing, registration or qualification of the
Shares upon any securities exchange or under any domestic or foreign law, or (b)
the consent or approval of any governmental regulatory authority, is necessary
or desirable as a condition of the purchase of Shares hereunder, this option may
not be exercised, in whole or in part, unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee. The Company
shall make reasonable efforts to meet the requirements of any such domestic or
foreign law or securities exchange and to obtain any such consent or approval of
any such governmental authority.
10. No Rights of Stockholder. Neither the Participant nor any person claiming
under or through the Participant shall be or have any of the rights or
privileges of a stockholder of the Company in respect of any of the Shares
issuable pursuant to the exercise of this option, unless and until certificates
4
<PAGE>
representing such Shares shall have been issued, recorded on the records of the
Company or its transfer agents or registrars, and delivered to the Participant
(or such other person).
11. No Effect on Employment or Service. Nothing in this Agreement or the Plan
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate the Participant's employment or service at any time,
with or without cause.
12. Withholding. Whenever Shares are to be issued to the Participant (or any
transferee) in satisfaction of the rights conferred hereby, the Company shall
have the right to require the Participant (or transferee) to remit to the
Company an amount sufficient to satisfy applicable federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such Shares.
13. Addresses for Notices. Any notice to be given to the Company under the
terms of this Agreement shall be addressed to the Company, in care of its
Secretary, at 200 Park Avenue South, New York, New York, 10003, or at such other
address as the Company may hereafter designate in writing. Any notice to be
given to the Participant shall be addressed to the Participant at the address
set forth beneath the Participant's signature hereto, or at such other address
as the Participant may hereafter designate in writing.
14. Option is Not Transferable. Except as otherwise provided herein, this
option and the rights and privileges conferred hereby shall not be transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or
5
<PAGE>
otherwise) and shall not be subject to sale under execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of this option, or of any right or privilege conferred hereby,
or upon any attempted sale under any execution, attachment or similar process,
this option and the rights and privileges conferred hereby immediately shall
become null and void.
15. Maximum Term of Option. Notwithstanding any contrary provision of this
Agreement, except Paragraph 6 above relating to the death of the Participant (in
which case this option is exercisable to the extent set forth therein), this
option is not exercisable after the expiration of ten (10) years from the Grant
Date.
16. Binding Agreement. Subject to the limitation on the transferability of
this option contained herein, this Agreement shall be binding upon and inure to
the benefit of the heirs, legatees, legal representatives, successors and
assigns of the parties hereto.
17. Plan Governs. This Agreement is subject to all of the terms and provisions
of the Plan. In the event of a conflict between one or more provisions of this
Agreement and one or more provisions of the Plan, the provisions of the Plan
shall govern. Capitalized terms and phrases used and not defined in this
Agreement shall have the meaning set forth in the Plan.
18. Committee Authority. The Committee shall have the power to interpret the
Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith. All
actions taken and
6
<PAGE>
all interpretations and determinations made by the Committee in such connection
shall be final and binding upon the Participant, the Company and all other
interested persons, and shall be given the maximum deference permitted by law.
No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
this Agreement.
19. Captions. The captions provided herein are for convenience only and are
not to serve as a basis for interpretation or construction of this Agreement.
20. Agreement Severable. In the event that any provision in this Agreement
shall be held invalid or unenforceable, such provision shall be severable from,
and such invalidity or unenforceability shall not be construed to have any
effect on, the remaining provisions of this Agreement.
21. Modifications to the Agreement. This Agreement constitutes the entire
understanding of the parties on the subjects covered. The Participant expressly
warrants that he or she is not executing this Agreement in reliance on any
promises, representations, or inducements other than those contained herein.
Modifications to this Agreement or the Plan can be made only in an express
written contract executed by a duly authorized officer of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate, effective as of the Grant Date.
THE A CONSULTING TEAM, INC.
7
<PAGE>
By ______________________________
Title:
____________________________
Participant Signature
____________________________
____________________________
Address
____________________________
Social Security Number
8
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This agreement ("Agreement") is made effective the date set forth at
the end of this Agreement by and between THE A CONSULTING TEAM, INC., a New York
corporation (the "Corporation") and Shmuel Bentov, an individual residing at
130 Carthage Road, Scarsdale, NY 10583 (the "Executive").
WHEREAS, the Executive currently serves as the Chief Executive Officer
and President of the Corporation; and
WHEREAS, the Corporation believes that the services performed to date
by Executive have been of substantial value to the Corporation and that
Executive's continued service would be of great value to the Corporation.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and of the mutual benefits herein provided, the Corporation and
Executive hereby agree as follows:
1. Position and Responsibilities.
-----------------------------
1.1 The Executive agrees to serve as Chief Executive Officer and
President of the Corporation on the terms and conditions hereinafter set forth.
1.2 The Executive shall devote his entire time, energy and skill
during regular business hours (other than during periods of illness, vacation
and other approved absences) to the affairs of the Corporation and to the
promotion of its interests.
1.3 The Executive shall be accountable to the Board of Directors, or
any of its committees, whichever is appropriate.
<PAGE>
1.4 The Executive shall abide by the policies, standards and rules
established from time to time by the Board of Directors for the conduct of the
business of the Corporation. The Executive will not intentionally or
negligently act in any manner to cause financial or other damage to the
Corporation or the Corporation's reputation in the community in which its
business is located. The Board of Directors reserves the right to change,
interpret, withdraw or add to any of the policies, standards and rules of the
Corporation at any time as it deems appropriate.
1.5 In the operations of the Corporation, the Executive will continue
to cooperate in allowing information from key employees of the Corporation to be
communicated to the Board of Directors. The Executive will not interfere with
members of the Board of Directors making reasonable inquiry into the affairs of
the Corporation and will not stifle free flow of information to them.
2. Employment Term.
---------------
2.1 The initial term of employment shall be for a period of two
years, commencing with the effective date of this Agreement and ending on the
second anniversary date thereof, unless earlier terminated as provided in this
Agreement.
2.2 Notwithstanding the provisions of Section 2.1 above, the
Corporation shall have the right to terminate the Executive's employment for
Cause. For purposes of this
2
<PAGE>
Agreement, the term "Cause" shall mean: (a) a finding by the Board of Directors
of the Corporation that the Executive has willfully and materially failed,
refused or neglected to perform and discharge his duties and responsibilities
hereunder for at least 15 business days after written notice from the
Corporation setting forth the actions or omissions, as the case may be, which
constitute such failure, refusal or neglect, (b) the Executive's violation of
any of the covenants set forth in Sections 6 and 7 hereof, (c) a material breach
of the Executive's fiduciary duties to the Corporation which results in a
material detriment to the Corporation, (d) the Executive's engagement in gross
misconduct materially injurious to the Corporation, (e) the Executive's
intentional misappropriation of property or corporate opportunity of the
Corporation for use by the Executive or third parties, (f) the Executive's
commission of an act of fraud or embezzlement, or (g) the Executive's conviction
for a crime (excluding minor traffic offenses).
2.3 Any purported termination of the Executive's employment by the
Corporation hereunder shall be communicated by a Notice of Termination to the
Executive in accordance with Section 13 hereof. For purposes of this Agreement,
a "Notice of Termination" shall mean a written notice which shall indicate those
specific termination provisions in this Agreement relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provisions so
indicated.
2.4 For purposes of this Agreement the "Termination Date" shall be:
(a) if this Agreement is terminated by the Corporation for any reason (other
than death), the date of the Notice of Termination, (b) if the Executive's
employment is terminated by reason of the Executive's death, then the date on
death, or (c) if the Executive terminates his employment for any reason, the
date on which the Executive delivers to the Corporation a Notice of Termination.
3
<PAGE>
3. Compensation.
------------
3.1 For all services rendered by the Executive for each contract
year, the Executive shall receive a salary of Two Hundred Fifty Thousand Dollars
($250,000) per year. Subject to the approval of the non-employee members of the
Corporation's Executive Compensation Committee and further subject to the
Corporation meeting certain financial performance criteria to be determined by
such members of the committee, the Executive shall also be entitled to receive a
cash bonus with respect to each whole fiscal year of the Corporation during
which he is employed hereunder, commencing with the year ending December 31,
1998, in an amount to be determined by the non-employee members of the Committee
not to exceed one percent (1%) of the Corporation's total revenues for the year
in question. It is agreed by the Executive and the Corporation that no cash
bonus will be paid to the Executive for the year ending December 31, 1997.
3.2 The Executive, shall be entitled to participate in the employee
benefit and insurance plans, policies and programs which are available generally
to the Corporation's employees.
3.3 The Executive shall be entitled to twenty (20) days of vacation
which may be used as long as such vacation time does not interfere with normal
business operations and the Executive's duties as Chief Executive Officer and
President.
3.4 The Executive shall be entitled to such sick days and personal
days as may be established by the Corporation for officers of the Corporation.
3.5 During the term of this Agreement, the Executive will participate
in the Corporation's annual and long term incentive compensation programs at a
level commensurate with his position at the Corporation and consistent with then
current policies and practices.
4
<PAGE>
4. Incapacity; Death
-----------------
4.1 If, during the Employment Term hereunder, because of illness or
other incapacity (other than death), the Executive shall fail for a period of
three (3) consecutive months ("Incapacity"), to render the services contemplated
hereunder, then the Corporation, at its option, may terminate the Employment
Term hereunder by notice to the Executive, effective on the giving of such
notice; provided, however, that the Executive shall be entitled to continue to
receive 100% of his then annual salary hereunder for a period of one year
from the Termination Date and payable in equal monthly installments commencing
on the 30th day of the month following the Termination Date.
4.2 In the event of the death of the Executive during the Employment
Term, the Employment Term hereunder shall terminate on the date of death of the
Executive; provided, however, that the Executive's estate shall be entitled to
any benefits accrued under the Corporation's death, disability or other benefit
plan and shall be entitled to receive a lump sum payment equal to his annual
salary and payable within 90 days of the Termination Date.
5. Severance Compensation Upon Termination of Employment.
-----------------------------------------------------
5.1 If the Executive's employment with the Corporation shall be
terminated (a) by the Corporation other than pursuant to Sections 2 or 4, or (b)
by the Executive for Good Reason (as defined in Paragraph 5.3 below), then the
Corporation shall pay to Executive as severance pay an amount equal to two times
his then annual salary and payable within 30 days of the termination
date.
5.2 For purposes of this Agreement, the term "Good Reason" shall mean
any of the following:
5
<PAGE>
(i) the assignment to the Executive by the Corporation of
duties inconsistent with, or a substantial reduction in the nature or status of,
Executive's responsibilities as President and Chief Executive Officer;
(ii) any material breach by the Corporation of any material
provision of this Agreement; provided, however, that the Executive shall give
written notice to the Corporation which shall indicate those specific provisions
in this Agreement relied upon and which shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for such termination.
6
<PAGE>
6. Non-competition, Non-Solicitation.
---------------------------------
6.1 During the term of this Agreement and for a period of two (2)
year after the Termination Date of this Agreement, the Executive shall not (i)
directly or indirectly, as an employee, agent, manager, director, officer,
controlling stockholder, partner or otherwise, engage or participate in any
business engaged in the continental United States in activities competitive with
any activities in which the Corporation is engaged during the term of the
Executive's employment with the Corporation, (ii) solicit from any client or
division, department or subsidiary of any client of the Corporation, or any
individual employed by any of the foregoing, for whom the Executive performed
services while he was employed by the Corporation, any business relating to
services similar to the services which were so performed by the Executive for
such clients during his employment with the Corporation. In addition, the
Executive shall not during such time request or cause any client of the
Corporation to cancel or terminate any business relationship with the
Corporation or any of its subsidiaries, or directly or indirectly solicit or
otherwise cause any employee to terminate such employee's relationship with the
Corporation.
6.2 If any portion of the restrictions set forth in this Paragraph 6
should, for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
7
<PAGE>
6.3 The Executive declares that the foregoing scope, territorial and
time limitations are reasonable and properly required for the adequate
protection of the business of the Corporation. In the event any such scope,
territorial or time limitation is deemed to be unreasonable by a court of
competent jurisdiction, the Executive agrees to the reduction of said scope,
territorial or time limitation to such scope, area or period which said court
shall have deemed reasonable.
6.4 The existence of any claim or cause of action by the Executive
against the Corporation other than under this Agreement shall not constitute a
defense to the enforcement by the Corporation of the foregoing restrictive
covenants, but such claim or cause of action shall be litigated separately.
6.5 The Executive recognizes that the employees of the Corporation
are a valuable resource of each such member. Executive agrees that Executive
shall not, for a period of one (1) year following the Termination Date, either
alone or in conjunction with any other person or entity solicit, induce or
recruit any employee to leave the employ of the Corporation.
7. Confidentiality. It is understood that in the course of
---------------
Executive's employment with the Corporation, the Executive has become and will
continue to become acquainted with Confidential Information (as defined below).
The Executive recognizes that Confidential Information has been developed by the
Corporation at great expense, is confidential and proprietary to the
Corporation, and is and shall remain the exclusive property of the Corporation.
"Confidential Information" shall mean all proprietary and other information
concerning the Corporation and its business, including but not limited to
information concerning the Corporation's customers, vendors and others with whom
it transacts business, its methods of operation and other trade secrets, its
future plans and strategies, and any financial information
8
<PAGE>
concerning the Corporation. The Executive agrees that all Confidential
Information is the exclusive property of the Corporation and that Executive will
not remove the originals or make copies of any Confidential Information without
the Corporation's prior written consent. The Executive shall not use
Confidential Information for any purposes other than to carry out his
obligations under this Agreement and will not divulge Confidential Information
to any other person or entity during or after the term of this Agreement without
the Corporation's prior written consent, unless required by law or judicial or
other process. The provisions of this Section 7 shall continue to apply to the
parties after this Agreement is terminated. As of the Termination Date, the
Executive shall promptly return to the Corporation originals or copies of any
and all materials, documents, notes, manuals or lists containing or embodying
Confidential Information, or relating directly or indirectly to the business of
the Corporation, in the possession or control of Executive.
8. Applicable Law and Forum
------------------------
The Agreement shall be governed by and construed in all respects under
the laws of the State of New York, without reference to its conflict of laws
rules or principles. Any suit, action, proceeding or litigation arising out of
or relating to the Agreement shall be brought and prosecuted in such federal
or state court or courts located within the State of New York as provided by
law. The parties hereby irrevocably and unconditionally consent to the
jurisdiction of each such court or courts located within the State of New York
and to service of process by registered or certified mail, return receipt
requested, or by any other manner provided by applicable law, and hereby
irrevocably and unconditionally waive any right to claim that any suit, action,
proceeding or litigation so commenced has been commenced in an inconvenient
forum.
9
<PAGE>
9. Successor to the Corporation. (a) The Corporation will require
----------------------------
any successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Corporation, by agreement expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Corporation would be required to perform it if
no such succession or assignment had taken place. As used in this Agreement,
"Corporation" shall mean the Corporation as hereinabove defined and any
successor or assign to its business and/or assets as aforesaid which executes
and delivers the agreement provided for in this paragraph 9 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
heirs, distributees, devises and legatees. If the Executive should die while
any amounts are still payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's estate. This Agreement shall not otherwise be
assignable by the Executive.
10
<PAGE>
10. No Third Party Beneficiaries. This Agreement does not create,
----------------------------
and shall not be construed as creating, any rights enforceable by any person not
a party to this Agreement, except as provided in Section 9 hereof.
11. Headings. The headings of the paragraphs hereof are inserted for
--------
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
12. Interpretation. In case any one or more of the provisions
--------------
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. If, moreover, any one or more of the
provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, geographical scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be enforceable to the
extent compatible with the applicable law as it shall then appear.
13. Notices. All notices under this Agreement shall be in writing
-------
and shall be deemed to have been given at the time when delivered personally or
by facsimile transmission, sent by recognized overnight courier service, or
mailed by registered or certified mail, addressed to the address set forth at
the end of this Agreement, or to such changed address as such party may have
fixed by notice; provided, however, that any notice of change of address shall
be effective only upon receipt.
14. Waivers. If either party should waive any breach of any
-------
provision of this Agreement, he or it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.
11
<PAGE>
15. Complete Agreement; Amendments. The foregoing is the entire
------------------------------
agreement of the parties with respect to the subject matter hereof and
supersedes in its entirety any letter agreements or other writings by and among
the Executive and the Corporation. This Agreement may not be amended,
supplemented, cancelled or discharged except by written instrument executed by
both parties hereto.
16. Governing Law. This Agreement is to be governed by and construed
-------------
in accordance with the laws of New York, without giving effect to principles of
conflicts of law.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date set forth below, and the parties acknowledge that this Agreement
memorializes their agreement since the effective date set forth below.
THE A CONSULTING TEAM, INC. EXECUTIVE
By: By:
------------------------------- ------------------------------
Authorized Representative Shmuel BenTov
Address for Notices: Address for Notices:
200 Park Avenue South 130 Carthage Road
New York, NY 10003 Scardale, NY 10583
(212) 979-8228
(212) 979-8272 (fax)
Effective Date of Agreement:
----------------------------------
Execution Date:
----------------------------------
Name of Executive: Shmuel BenTov
13
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This agreement ("Agreement") is made effective the date set forth at
the end of this Agreement by and between THE A CONSULTING TEAM, INC., a New York
corporation (the "Corporation") and Frank T. Thoelen, an individual residing at
201 Country Club Drive, Manhassett, NY 11030 (the "Executive").
WHEREAS, the Executive currently serves as the Chief Financial Officer
of the Corporation; and
WHEREAS, the Corporation believes that the services performed to date
by Executive have been of substantial value to the Corporation and that
Executive's continued service would be of great value to the Corporation.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and of the mutual benefits herein provided, the Corporation and
Executive hereby agree as follows:
1. Position and Responsibilities.
-----------------------------
1.1 The Executive agrees to serve as Chief Financial Officer of the
Corporation on the terms and conditions hereinafter set forth.
1.2 The Executive shall devote his entire time, energy and skill
during regular business hours (other than during periods of illness, vacation
and other approved absences) to the affairs of the Corporation and to the
promotion of its interests.
1.3 The Executive shall be accountable to the Board of Directors, or
any of its committees, whichever is appropriate.
<PAGE>
1.4 The Executive shall abide by the policies, standards and rules
established from time to time by the Board of Directors for the conduct of the
business of the Corporation. The Executive will not intentionally or
negligently act in any manner to cause financial or other damage to the
Corporation or the Corporation's reputation in the community in which its
business is located. The Board of Directors reserves the right to change,
interpret, withdraw or add to any of the policies, standards and rules of the
Corporation at any time as it deems appropriate.
1.5 In the operations of the Corporation, the Executive will continue
to cooperate in allowing information from key employees of the Corporation to be
communicated to the Board of Directors. The Executive will not interfere with
members of the Board of Directors making reasonable inquiry into the affairs of
the Corporation and will not stifle free flow of information to them.
2. Employment Term.
---------------
2.1 The initial term of employment shall be for a period of three
years, commencing with the effective date of this Agreement and ending on the
third anniversary date thereof, unless earlier terminated as provided in this
Agreement, and shall automatically be successively renewed thereafter for a term
of one year unless the Corporation or the Executive gives notice to the other of
termination at least 60 days prior to the expiration of the initial term, or any
successive term, as the case may be (the "Employment Term"). The Executive and
the Corporation, at his or its sole discretion and without any reason, may elect
not to renew this Agreement at the end of the initial term or any successive
term.
2.2 Notwithstanding the provisions of Section 2.1 above, the
Corporation shall have the right to terminate the Executive's employment for
Cause. For purposes of this
2
<PAGE>
Agreement, the term "Cause" shall mean: (a) a finding by the Board of Directors
of the Corporation that the Executive has willfully and materially failed,
refused or neglected to perform and discharge his duties and responsibilities
hereunder for at least 15 business days after written notice from the
Corporation setting forth the actions or omissions, as the case may be, which
constitute such failure, refusal or neglect, (b) the Executive's violation of
any of the covenants set forth in Sections 6 and 7 hereof, (c) a material breach
of the Executive's fiduciary duties to the Corporation which results in a
material detriment to the Corporation, (d) the Executive's engagement in gross
misconduct materially injurious to the Corporation, (e) the Executive's
intentional misappropriation of property or corporate opportunity of the
Corporation for use by the Executive or third parties, (f) the Executive's
commission of an act of fraud or embezzlement, or (g) the Executive's conviction
for a crime (excluding minor traffic offenses).
2.3 Any purported termination of the Executive's employment by the
Corporation hereunder shall be communicated by a Notice of Termination to the
Executive in accordance with Section 13 hereof. For purposes of this Agreement,
a "Notice of Termination" shall mean a written notice which shall indicate those
specific termination provisions in this Agreement relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provisions so
indicated.
2.4 For purposes of this Agreement the "Termination Date" shall be:
(a) if this Agreement is terminated by the Corporation for any reason (other
than death), the date of the Notice of Termination, (b) if the Executive's
employment is terminated by reason of the Executive's death, then the date on
death, or (c) if the Executive terminates his employment for any reason, the
date on which the Executive delivers to the Corporation a Notice of Termination.
3
<PAGE>
3. Compensation.
------------
3.1 For all services rendered by the Executive for each contract
year, the Executive shall receive a base salary of not less than One Hundred
Fifty Thousand Dollars ($150,000) per year.
3.2 The Executive, shall be entitled to participate in the employee
benefit and insurance plans, policies and programs which are available generally
to the Corporation's employees.
3.3 The Executive shall be entitled to twenty (20) days of vacation
which may be used as long as such vacation time does not interfere with normal
business operations and the Executive's duties as Chief Financial Officer.
3.4 The Executive shall be entitled to such sick days and personal
days as may be established by the Corporation for officers of the Corporation.
3.5 During the term of this Agreement, the Executive will participate
in the Corporation's annual and long term incentive compensation programs at a
level commensurate with his position at the Corporation and consistent with then
current policies and practices.
3.6 In consideration of and prior to entering into this Agreement, the
Executive shall have received a one-time bonus of $25,000.
3.7 In consideration for entering into this Agreement, on the date
the Corporation commences a public offering of its common stock, the Executive
shall be awarded, pursuant to the Corporation's Stock Option and Award Plan
("Plan"), options to purchase 50,000 shares of the Corporation's common stock,
of which options to purchase 20,000 shares shall vest on the first anniversary
of the date of grant and the balance of the options shall vest ratably over
4
<PAGE>
the three anniversary dates following the first anniversary of the date of
grant. All options shall have such termination and other terms as are provided
in the Plan.
4. Incapacity; Death
-----------------
4.1 If, during the Employment Term hereunder, because of illness or
other incapacity (other than death), the Executive shall fail for a period of
three (3) consecutive months ("Incapacity"), to render the services contemplated
hereunder, then the Corporation, at its option, may terminate the Employment
Term hereunder by notice to the Executive, effective on the giving of such
notice; provided, however, that the Executive shall be entitled to continue to
receive 50% of his salary hereunder for a period of six months from the
Termination Date and such amount shall be payable in equal monthly installments
commencing on the 30th day of the month following the Termination date.
4.2 In the event of the death of the Executive during the Employment
Term, the Employment Term hereunder shall terminate on the date of death of the
Executive; provided, however, that the Executive's estate shall be entitled to
any benefits accrued under the Corporation's death, disability or other benefit
plan and shall be entitled to receive a lump sum payment equal to 50% of his
then base annual salary and payable within 90 days of the Termination Date.
5. Severance Compensation Upon Termination of Employment.
-----------------------------------------------------
5.1 If the Executive's employment with the Corporation shall be
terminated (a) by the Corporation other than pursuant to Sections 2 or 4, or (b)
by the Executive for Good Reason (as defined in Paragraph 5.3 below), then the
Corporation shall pay to Executive as severance pay an amount equal to his then
base annual salary and payable within 30 days of termination.
5.2 For purposes of this Agreement, the term "Good Reason" shall mean
any of the following:
5
<PAGE>
(i) a Major Event (as defined in Paragraph 5.3 below);
(ii) the assignment to the Executive by the Corporation of
duties inconsistent with, or a substantial reduction in the nature or status of,
Executive's responsibilities as Chief Financial Officer;
(iii) any material breach by the Corporation of any material
provision of this Agreement; provided, however, that the Executive shall give
written notice to the Corporation which shall indicate those specific provisions
in this Agreement relied upon and which shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for such termination.
5.3 For purposes of this Agreement, a "Major Event" shall be deemed
to have occurred if (i) there shall be consummated any consolidation or merger
of the Corporation in which the Corporation is not the continuing or surviving
corporation or pursuant to which shares of the Corporation's common stock would
be converted into cash, securities or other property, other than a merger of the
Corporation in which the holders of the Corporation's common stock immediately
prior to the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger; (ii) there shall be
consummated any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the assets of
the Corporation; (iii) proceedings or actions for the liquidation or dissolution
of the Corporation are initiated by the Corporation; or (iv) any "person" (as
defined in Sections 13(d) and 14(d) of the Exchange Act) (other than persons who
beneficially own more than 30% of the capital stock of the Corporation on a
fully diluted and as converted basis outstanding as of the date hereof) becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended ("Exchange Act")),
6
<PAGE>
directly or indirectly, of 50% or more of the Corporation's outstanding capital
stock on a fully diluted and as converted basis at such time; provided, however,
that a "Major Event" shall not be deemed to have occurred solely by reason of
the consummation of public offering(s) by the Corporation.
6. Non-competition, Non-Solicitation.
---------------------------------
6.1 During the term of this Agreement and for a period of one (1)
year after the Termination Date of this Agreement, the Executive shall not (i)
directly or indirectly, as an employee, agent, manager, director, officer,
controlling stockholder, partner or otherwise, engage or participate in any
business engaged in the States of New York, New Jersey and/or Connecticut and
in any other jurisdiction in which the Corporation conducts a comparable amount
of business in activities competitive with any activities in which the
Corporation is engaged during the term of the Executive's employment with the
Corporation, (ii) solicit from any client or division, department or subsidiary
of any client of the Corporation, or any individual employed by any of the
foregoing, for whom the Executive performed services while he was employed by
the Corporation, any business relating to services similar to the services which
were so performed by the Executive for such clients during his employment with
the Corporation. In addition, the Executive shall not during such time request
or cause any client of the Corporation to cancel or terminate any business
relationship with the Corporation or any of its subsidiaries, or directly or
indirectly solicit or otherwise cause any employee to terminate such employee's
relationship with the Corporation.
6.2 If any portion of the restrictions set forth in this Paragraph 6
should, for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
7
<PAGE>
6.3 The Executive declares that the foregoing scope, territorial and
time limitations are reasonable and properly required for the adequate
protection of the business of the Corporation. In the event any such scope,
territorial or time limitation is deemed to be unreasonable by a court of
competent jurisdiction, the Executive agrees to the reduction of said scope,
territorial or time limitation to such scope, area or period which said court
shall have deemed reasonable.
6.4 The existence of any claim or cause of action by the Executive
against the Corporation other than under this Agreement shall not constitute a
defense to the enforcement by the Corporation of the foregoing restrictive
covenants, but such claim or cause of action shall be litigated separately.
6.5 The Executive recognizes that the employees of the Corporation
are a valuable resource of each such member. Executive agrees that Executive
shall not, for a period of one (1) year following the Termination Date, either
alone or in conjunction with any other person or entity solicit, induce or
recruit any employee to leave the employ of the Corporation.
7. Confidentiality. It is understood that in the course of
---------------
Executive's employment with the Corporation, the Executive has become and will
continue to become acquainted with Confidential Information (as defined below).
The Executive recognizes that Confidential Information has been developed by the
Corporation at great expense, is confidential and proprietary to the
Corporation, and is and shall remain the exclusive property of the Corporation.
"Confidential Information" shall mean all proprietary and other information
concerning the Corporation and its business, including but not limited to
information concerning the Corporation's customers, vendors and others with whom
it transacts business, its methods of operation and other trade secrets, its
future plans and strategies, and any financial information
8
<PAGE>
concerning the Corporation. The Executive agrees that all Confidential
Information is the exclusive property of the Corporation and that Executive will
not remove the originals or make copies of any Confidential Information without
the Corporation's prior written consent. The Executive shall not use
Confidential Information for any purposes other than to carry out his
obligations under this Agreement and will not divulge Confidential Information
to any other person or entity during or after the term of this Agreement without
the Corporation's prior written consent, unless required by law or judicial or
other process. The provisions of this Section 7 shall continue to apply to the
parties after this Agreement is terminated. As of the Termination Date, the
Executive shall promptly return to the Corporation originals or copies of any
and all materials, documents, notes, manuals or lists containing or embodying
Confidential Information, or relating directly or indirectly to the business of
the Corporation, in the possession or control of Executive.
8. Applicable Law and Forum.
------------------------
The Agreement shall be governed by and construed in all respects under
the laws of the State of New York, without reference to its conflict of laws,
rules or principles. Any suit, action, proceeding or litigation arising out of
or relating to the Agreement shall be brought and prosecuted in such federal or
state court or courts located within the State of New York as provided by law.
The parties hereby irrevocably and unconditionally consent to the jurisdiction
of each such court or courts located within the State of New York and to service
of process by registered or certified mail, return receipt requested, or by any
other manner provided by applicable law, and hereby irrevocably and
unconditionally waive any right to claim that any suit, action, proceeding or
litigation so commenced has been commenced in an inconvenient forum.
9
<PAGE>
9. Successor to the Corporation. (a) The Corporation will require
----------------------------
any successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Corporation, by agreement expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Corporation would be required to perform it if
no such succession or assignment had taken place. As used in this Agreement,
"Corporation" shall mean the Corporation as hereinabove defined and any
successor or assign to its business and/or assets as aforesaid which executes
and delivers the agreement provided for in this paragraph 9 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
heirs, distributees, devises and legatees. If the Executive should die while
any amounts are still payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's estate. This Agreement shall not otherwise be
assignable by the Executive.
10
<PAGE>
10. No Third Party Beneficiaries. This Agreement does not create,
----------------------------
and shall not be construed as creating, any rights enforceable by any person not
a party to this Agreement, except as provided in Section 9 hereof.
11. Headings. The headings of the paragraphs hereof are inserted for
--------
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
12. Interpretation. In case any one or more of the provisions
--------------
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. If, moreover, any one or more of the
provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, geographical scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be enforceable to the
extent compatible with the applicable law as it shall then appear.
13. Notices. All notices under this Agreement shall be in writing
-------
and shall be deemed to have been given at the time when delivered personally or
by facsimile transmission, sent by recognized overnight courier service, or
mailed by registered or certified mail, addressed to the address set forth at
the end of this Agreement, or to such changed address as such party may have
fixed by notice; provided, however, that any notice of change of address shall
be effective only upon receipt.
14. Waivers. If either party should waive any breach of any
-------
provision of this Agreement, he or it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.
11
<PAGE>
15. Complete Agreement; Amendments. The foregoing is the entire
------------------------------
agreement of the parties with respect to the subject matter hereof and
supersedes in its entirety any letter agreements or other writings by and among
the Executive and the Corporation. This Agreement may not be amended,
supplemented, cancelled or discharged except by written instrument executed by
both parties hereto.
16. Governing Law. This Agreement is to be governed by and construed
-------------
in accordance with the laws of New York, without giving effect to principles of
conflicts of law.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date set forth below, and the parties acknowledge that this Agreement
memorializes their agreement since the effective date set forth below.
THE A CONSULTING TEAM, INC. EXECUTIVE
By: By:
------------------------------- --------------------------------
Authorized Representative Frank T. Thoelen
Address for Notices: Address for Notices:
200 Park Avenue South 201 Country Club Drive
New York, NY 10003 Manhasset, NY 11030
(212) 979-8228
(212) 979-8272 (fax)
Effective Date of Agreement as of: June 30, 1997
----------------------------------
Execution Date:
----------------------------------
Name of Executive: Frank T. Thoelen
13
<PAGE>
EXHIBIT 10.4
S CORPORATION TERMINATION, TAX ALLOCATION
AND INDEMNIFICATION AGREEMENT
August __, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - THE TERMINATION: S TERMINATION YEAR........................... 1
1.1 Termination of S Status........................................ 1
1.2 Effective Date................................................. 2
1.3 S Termination Year............................................. 2
1.4 S Short Year................................................... 2
1.5 C Short Year................................................... 2
ARTICLE II - ALLOCATION OF INCOME.......................................... 2
2.1 Allocation Election............................................ 2
ARTICLE III - TAXES........................................................ 2
3.1 Liability For Taxes Incurred During S Year..................... 2
3.2 Returns and Defense Against Tax Liability...................... 3
ARTICLE IV - DISTRIBUTIONS................................................. 3
4.1 Distribution of Undistributed S Corporation Income............. 3
4.2 Post Termination Date Adjustments to Undistributed
S Corporation Income......................................... 4
4.3 Subsequent Adjustment to S Corporation Income.................. 4
ARTICLE V - MISCELLANEOUS.................................................. 4
5.1 Counterparts................................................... 4
5.2 Construction of Terms.......................................... 5
5.3 Governing Law.................................................. 5
5.4 Amendment and Modification..................................... 5
5.5 Assignment..................................................... 5
5.6 Interpretation................................................. 5
5.7 Severability................................................... 5
5.8 Entire Agreement............................................... 5
i
<PAGE>
S CORPORATION TERMINATION AND TAX ALLOCATION
AGREEMENT
This S CORPORATION TERMINATION AND TAX ALLOCATION AGREEMENT (this
"Agreement"), is made this ___ day of August, 1997 between the A Consulting
Team, Inc., a New York corporation (the "Company"), and Shmuel BenTov (the
Company and Shmuel BenTov are hereinafter referred to individually as a "party"
and collectively as the "parties").
WHEREAS, the Company contemplates a public offering of its stock in
order to raise additional equity capital which will be used to repay borrowings
of the Company and be used for general corporate purposes (the "Public
Offering");
WHEREAS, prior to such Public Offering the Company plans to make a
distribution to Shmuel BenTov in an aggregate amount determined by the Company
to be equal to a reasonable estimate of the Company's undistributed S
corporation income as of the day immediately prior to the Termination Date (as
hereinafter defined) subject to federal income taxation by Shmuel BenTov;
WHEREAS, the Company and Shmuel BenTov have entered into this
Agreement as a condition to the foregoing distribution and the contemplated
Public Offering;
WHEREAS, from its inception through December 31, 1994 the Company was
a C corporation as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), and the Company became an S corporation as defined in Section 1361 of
the Code on January 1, 1995 and will continue to be an S corporation until the
Termination Date, upon which it will again be a C corporation; and
WHEREAS, Shmuel BenTov has been the only shareholder of the Company
from the time it became an S corporation, and will continue to be so until
immediately before the closing of the Public Offering (the "Closing").
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
THE TERMINATION: S TERMINATION YEAR
------------------------------------
1.1 Termination of S Status. The Company will terminate its status as
------------------------
an S corporation by revoking its election to be an S corporation under Section
1362(d) of the Code.
<PAGE>
1.2 Effective Date. Pursuant to Section 1362(d)(1)(D) of the Code,
--------------
the termination of the Company's S corporation status shall be effective on the
date immediately preceding the Closing (the "Termination Date").
1.3 S Termination Year. The calendar year in which the S corporation
----------------
status of the Company is terminated will be the S termination year (the "S
Termination Year") for federal tax purposes, as defined in Section 1362(e)(4) of
the Code.
1.4 S Short Year. As provided in Section 1362(e)(1)(A) of the Code,
------------
the S Short Year of the Company shall be that portion of the Company's S
Termination Year ending on the day immediately preceding the Termination Date.
1.5 C Short Year. Pursuant to Section 1362(e)(1)(B) of the Code, that
-----------
portion of the S Termination Year of the Company beginning on the Termination
Date and ending on the last day of the calendar year shall be the C Short Year
of the Company.
ARTICLE II
ALLOCATION OF INCOME
--------------------
2.1 Allocation Election. The Company shall elect to allocate tax items
-------------------
to its S Short Year and C Short Year pursuant to the normal tax accounting
method (rather than the pro rata allocation method) contained in Section
1362(e)(3) of the Code.
ARTICLE III
TAXES AND INDEMNIFICATION
-------------------------
3.1 Liability For Taxes Incurred During S Year. Shmuel BenTov
------------------------------------------
covenants and agrees that: (i) he has duly included, or will duly include, in
his own federal, state and local income tax returns all items of income, gain,
loss, deduction, or credit of the Company that were required to be included in
his federal, state and local income tax returns with respect to any period
during which the Company reported its income as an S corporation and (ii) he has
paid, or will pay, any and all taxes required to be paid by him on such income
for all such taxable periods. Shmuel BenTov shall pay or reimburse the Company
for any and all federal, state or local corporate income taxes (plus interest
and penalties) the Company is required to pay as a result of the Company's
failure to qualify as an S corporation with respect to tax returns in which the
Company reported its income as an S corporation. Shmuel BenTov's
2
<PAGE>
liability under this Section 3.1 is limited to the aggregate amount of all
distributions received by Shmuel BenTov from the Company during such S
corporation reporting period, net of taxes paid or payable by Shmuel BenTov with
respect to such distributions. Any payments obligated to be made pursuant to
this Section 3.1 shall be due and payable within ten (10) business days of the
Company's request.
3.2 Returns and Defense Against Tax Liability. The Company shall be
-----------------------------------------
responsible for and shall effect the filing of all required federal, state, and
local tax returns for the Company with respect to any and all taxable periods;
provided, however, that Shmuel BenTov shall have the option to prepare and
- -------- -------
effect the filing of any or all tax returns with respect to the S Termination
Year. The Company shall have full responsibility and discretion in the handling
of any tax controversy, including an audit, a protest to the Appeals Division of
the Internal Revenue Service, any other administrative proceeding and litigation
in Tax Court or any other court of competent jurisdiction (a "Tax Controversy"),
involving a tax return of the Company. However, at Shmuel BenTov's option,
Shmuel BenTov shall have full responsibility and discretion in the handling, at
Shmuel BenTov's expense, of any Tax Controversy with respect to any period in
which the Company reported its income as an S corporation. With respect to Tax
Controversies in which Shmuel BenTov does not elect to control, Shmuel BenTov
shall be entitled to participate in all matters of the Tax Controversy, shall be
consulted, kept informed, and entitled to attend settlement discussions and
other conferences and meetings. Without the written consent of Shmuel BenTov,
the Company shall not agree to any tax adjustment for any period commencing on
or after the Termination Date which results in a corresponding increase in the
federal, state or local taxable income of Shmuel BenTov with respect to taxable
periods ending prior to the Termination Date (including the short taxable period
ending the day before the Termination Date).
ARTICLE IV
DISTRIBUTIONS
-------------
4.1 Distribution of Undistributed S Corporation Income. Prior to
--------------------------------------------------
or on the date of the Closing of the Public Offering, the Company shall
distribute to Shmuel BenTov an amount equal to a reasonable estimate of the
amount of the Company's undistributed S corporation income as of the day
immediately prior to the Termination Date subject to federal income taxation by
Shmuel BenTov ("Estimated Income"); provided, however that any such distribution
-------- -------
shall be subject to the limitations set forth in Section 510 of the New York
Business Corporation Law and any other similar legal limitations.
3
<PAGE>
4.2 Post Termination Date Adjustments to Undistributed S Corporation
----------------------------------------------------------------
Income. Before the end of the "post-termination transition period" (within the
- ------
meaning of Section 1377(b)(1)(A) of the Code), the Company shall determine the
amount of the actual amount of undistributed S corporation income as of the day
immediately prior to the Termination Date subject to federal income taxation by
Shmuel BenTov ("Actual Income"). The final S corporation federal income tax
return shall reflect the Actual Income and the distribution or repayments, as
the case may be, required to be made pursuant to this Article IV. If the Actual
Income is greater than the Estimated Income, subject to the proviso set forth in
Section 4.1 above, the Company shall make an additional distribution to Shmuel
BenTov in an amount equal to such excess. If the Estimated Income exceeds the
Actual Income, then Shmuel BenTov shall return to the Company any such excess.
Any payments obligated to be made pursuant to this Section 4.2 shall be due and
payable within ten (10) business days of the determination by the Company of the
Actual Income.
4.3 Subsequent Adjustment to S Corporation Income. If after the end
---------------------------------------------
of the "post-termination transition period" items of income, gain, loss,
deduction, or credit of the Company are adjusted (by audit or otherwise) with
respect to any tax return in which the Company reported its income as an S
corporation, then an appropriate payment described in (a) or (b) of this Section
4.3 shall be made. Any payments obligated to be made pursuant to this Section
4.3 shall be due and payable within ten (10) business days of the applicable
parties' request.
(a) If the adjustment has the effect of increasing the undistributed S
corporation income of the Company subject to taxation by Shmuel BenTov,
then the Company shall pay to Shmuel BenTov an amount of money equal to all
federal, state or local income taxes (plus interest and penalties) paid or
required to be paid by Shmuel BenTov as a result of such adjustment,
increased as necessary to take into account the tax consequences to Shmuel
BenTov from such payment.
(b) If the adjustment has the effect of decreasing the undistributed S
corporation income of the Company subject to taxation by Shmuel BenTov,
then Shmuel BenTov shall pay to the Company an amount of money equal to all
refunds of federal, state or local income taxes (including interest
received thereon) received by (or credited to) Shmuel BenTov as a result of
such decrease, net of any taxes imposed upon Shmuel BenTov by reason of the
receipt of such refund or credit.
ARTICLE V
MISCELLANEOUS
-------------
5.1 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original,
4
<PAGE>
but all of which counterparts collectively shall constitute an instrument
representing the Agreement between the parties hereto.
5.2 Construction of Terms. Nothing herein expressed or implied
---------------------
is intended, or shall be construed, to confer upon or give any person, firm
or corporation, other than the parties hereto or their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
5.3 Governing Law. This Agreement and the legal relations
-------------
between the parties hereto shall be governed by and construed in accordance
with the substantive laws of the State of New York without regard to New
York choice of law rules.
5.4 Amendment and Modification. This Agreement may be amended,
--------------------------
modified or supplemented only by a written agreement executed by the
parties at any time prior to the Termination Date with respect to any of
the terms contained herein.
5.5 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto without the prior written consent
of the other parties, nor is this Agreement intended to confer upon any
other person except the parties any rights or remedies hereunder.
5.6 Interpretation. The title, article and section headings
--------------
contained in this Agreement are solely for the purpose of reference, are
not part of the agreement of the parties and shall not in any way affect
the meaning or interpretation of this Agreement.
5.7 Severability. In the event that any one or more of the
------------
provisions of this Agreement shall be held to be illegal, invalid or
unenforceable in any respect, the same shall not in any respect affect the
validity, legality or enforceability of the remainder of this Agreement,
and the parties shall use their best efforts to replace such illegal,
invalid or unenforceable provisions with an enforceable provision
approximating, to the extent possible, the original intent of the parties.
5.8 Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no representations, promises,
warranties, covenants, or undertakings, other than those expressly set
forth or referred to herein. This Agreement supersedes all prior
agreements and the understandings between the parties with respect to such
subject matter.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in
New York, New York as of the date written above.
THE A CONSULTING TEAM, INC.
By: __________________________
Its:_________________
STOCKHOLDER:
______________________________
Shmuel BenTov
6
<PAGE>
EXHIBIT 10.6
PROMISSORY NOTE
---------------
$1,111,000 New York, New York
December 1, 1995
ON DEMAND, FOR VALUE RECEIVED, the undersigned, THE A CONSULTING TEAM, INC., a
New York corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
SHMUEL BENTOV (the "Lender") the principal amount of One Million One Hundred and
Eleven Thousand Dollars ($1,111,000) in lawful money of the United States of
America and in immediately available funds, commencing December 1, 1995 and due
upon demand of the Lender, and to pay interest on the unpaid principal amount
accrued from the date of this Promissory Promissory Note until such principal
amount becomes due or is paid in full, payable upon demand, at a rate per annum
equal at all times to the Prime Rate. Any change in the interest rate resulting
from a change in the Prime Rate shall be effective at the beginning of the day
on which such change in the Prime Rate Becomes effective.
This Promissory Note shall become at once due and payable without notice,
presentment or demand of payment by the Lender, and may be prepaid at any time
without penalty.
1
<PAGE>
The indebtedness evidenced by this Promissory Note is subordinate and subject in
right of payment as to principal and interest to the prior payment in full of
all principal, premium, if any, and interest on all indebtedness of the
Borrower, regardless of when incurred, including indebtedness incurred after the
date hereof, for money owed by the Borrower pursuant to its line of Credit with
Citibank, N.A. ("Senior Debt"). Upon maturity of any Senior Debt, payment in
full must be made on such Senior Debt before any payment is made on or in
respect of this Promissory Note. During the continuance of any default with
respect to any Senior Debt entitling the holder thereof to accelerate the
maturity thereof, or if any such default would be caused by any payment upon or
in respect of this Promissory Note, no payment may be made by the Company upon
or in respect of this Promissory Note. Upon any distribution of assets of the
Company in any dissolution, winding up, liquidation or reorganization of the
Company, payment of the principal of and premium, if any, and interest on this
Promissory Note shall be subordinated to the prior payment in full of all Senior
Debt.
This Promissory Note shall be governed by and construed in all respects under
the laws of the State of New York, without reference to its conflict of laws
rules or principles. Any suit, action, proceeding or litigation arising out of
or relating to this Promissory Note shall be brought and prosecuted in such
federal or state court or courts located within the State of New York as
provided by law. The parties hereby irrevocably and unconditionally consent to
the jurisdiction of each such court or courts located within the State of New
York and to service of process by registered or certified mail, return receipt
requested, or by any other manner provided by applicable law, and hereby
irrevocably and unconditionally waive any right to claim that any suit, action,
proceeding or litigation so
2
<PAGE>
commenced has been commenced in an inconvenient forum.
This Promissory Note shall be binding upon the Borrower and its successors and
assigns and shall inure to the benefit of the Lender, his heirs, administrators,
executors and successors.
IN WITNESS WHEREOF, the undersigned Borrower has executed this Promissory Note
on the day and year first above written.
THE A CONSULTING TEAM, INC.
By:
Name:
Title:
<PAGE>
CROSS-RECEIPT
THE A CONSULTING TEAM, INC. (the "Borrower") hereby submits to SHMUEL BENTOV
(the "Lender") the aggregate amount of One Million Dollars ($1,000,000)
representing payment in full of the principal amount of the promissory note
entered into between the Lender and the Borrower on December 1, 1995 (the
"Promissory Note"), plus all interest accrued thereon and under the terms
thereof.
SHMUEL BENTOV (the "Lender"), hereby acknowledges receipt from THE A CONSULTING
TEAM, INC. (the "Borrower") of the aggregate amount of One Million Dollars
($1,000,000) representing full satisfaction of the Borrower's obligations
pursuant to the terms of the Promissory Note.
June 13, 1997
New York, NY
THE A CONSULTING TEAM, INC.,
By:
SHMUEL BENTOV,
4
<PAGE>
EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of the
th day of August, 1993, by and between The A Consulting Team, Inc., a New York
corporation (the "Company") and ______________________ ("Indemnitee").
W I T N E S S E T H:
WHEREAS, the Company, in order to induce Indemnitee to serve or to
continue to serve the Company, has agreed to provide Indemnitee with the
benefits contemplated by this Agreement; and
WHEREAS, as a result of the provision of such benefits, Indemnitee has
agreed to serve or to continue to serve as an officer and/or director of the
Company or any of its wholly owned subsidiaries.
WHEREAS, the Company has been advised that there can be no assurance
that directors' and officers' liability insurance will continue to be available
to the Company and Indemnitee, and believes that it is possible that the cost of
such insurance, if obtainable, may not be acceptable to the Company; and
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, the Company and Indemnitee
hereby agree as follows:
1. DEFINITIONS. The following terms, as used herein, shall have the
following respective meanings:
"Covered Amount" means Losses and Expenses which, in type or amount, are
not insured under any directors' and officers' liability insurance
maintained by the Company from time to time.
"Covered Act" means any past, present or future breach of duty, neglect,
error, misstatement, misleading statement, omission or other act done or
wrongfully attempted by
<PAGE>
Indemnitee or any of the foregoing alleged by any claimant or any claim
against Indemnitee by reason of him at any time being a director or officer
or other agent of the Company or any of its wholly owned subsidiaries or a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise at the request of the Company.
"Determination" means a determination, based on the facts known at the
time, made by:
(i) An award of a neutral arbitrator selected by the parties; or
(ii) A final adjudication by a court of competent jurisdiction.
"Determined" shall have a correlative meaning.
"Excluded Claim" means any payment for Losses or Expenses in connection
with any claim:
(i) Based upon or attributable to Indemnitee gaining in fact any
personal profit or advantage to which Indemnitee is not entitled;
or
(ii) For an accounting of profits in fact made from the purchase or
sale by Indemnitee of securities of the Company within the
meaning of Section 16 of the Securities Exchange Act of 1934 as
amended, or similar provisions of any state law; or
(iii) Resulting from Indemnitee's knowingly fraudulent, deliberately
dishonest or willful misconduct unless Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company as determined by
(i) the Board of Directors of the Company by majority vote of a
quorum consisting of directors who were not parties to the
proceeding for which indemnification is sought, (ii) if a quorum
of disinterested directors so directs or if such quorum is not
obtainable, by independent legal counsel in a written opinion, or
(iii) by a vote of the holders of a majority of the Company's
common stock, excluding the shares held by Indemnitee; or
(iv) The payment of which by the Company
<PAGE>
under this Agreement is not permitted by applicable law; or
(v) Which are not within the Covered Amount, i.e., which are insured
in type and amount under any directors' and officers' liability
insurance maintained by the Company from time to time.
"Expenses" means any reasonable expenses incurred by Indemnitee as a result
of a claim or claims made or threatened against him for Covered Acts
including, without limitation, counsel fees and costs of investigative,
judicial or administrative proceedings (including an action by or in the
right of the Company), whether civil or criminal, or appeals and costs of
attachment or similar bonds.
"Loss" means any amount which Indemnitee is legally obligated to pay as a
result of a claim or claims made against him for Covered Acts including,
without limitation, damages, judgments, fines and other sums paid in
settlement of a claim or claims.
2. INDEMNIFICATION. The Company shall indemnify, defend Indemnitee
and hold him harmless from the Covered Amount of any and all Losses and Expenses
subject, in each case, to the further provisions of this Agreement; provided,
however, in connection with any such indemnification the Indemnitee undertakes
in writing to repay all amounts advanced or reimbursed hereunder as and to the
extent required by law..
3. EXCLUDED COVERAGE. The Company shall have no obligation to
indemnify Indemnitee for and defend and hold him harmless from any Loss or
Expense which has been Determined to constitute an Excluded Claim.
4. INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by Indemnitee of notice of the commencement
of or the threat of commencement of any action, suit or proceeding, Indemnitee
shall, if indemnification with respect thereto may be sought from the Company
under this Agreement, notify the Company of the commencement thereof.
(b) If, at the time of the receipt of such notice, the Company has
directors' and officers' liability insurance in effect, the Company shall give
prompt notice of the commencement of such action, suit or proceeding to the
insurers in accordance with the procedures set forth in the respective policies
in favor of Indemnitee. The Company shall thereafter take all necessary or
desirable action to cause such insurers to
3
<PAGE>
pay, on behalf of Indemnitee, all Losses and Expenses payable as a result of
such action, suit or proceeding in accordance with the terms of such policies.
(c) To the extent the Company does not, at the time of the
commencement of or the threat of commencement of such action, suit or
proceeding, have applicable directors' and officers' liability insurance, or if
a Determination is made that any Expenses arising out of such action, suit or
proceeding will not be payable under the directors' and officers' liability
insurance then in effect, the Company shall be obligated to pay the Expenses of
any such action, suit or proceeding in advance of the final disposition thereof;
and the Company, if appropriate, shall be entitled to assume the defense of such
action, suit or proceeding with counsel satisfactory to Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, the Company will not be liable to Indemnitee under this
Agreement for any legal or other Expenses subsequently incurred by Indemnitee in
connection with such defense other than reasonable Expenses of investigation,
provided that Indemnitee shall have the right to employ its counsel in any such
action, suit or proceeding, but the fees and expenses of such counsel incurred
after delivery of notice from the Company of its assumption of such defense
shall be at Indemnitee's expense, provided further that if (i) the employment of
counsel by Indemnitee has been previously authorized by the Company, (ii)
Indemnitee shall have reasonably concluded, based upon a written opinion of
independent legal counsel, that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, (iii) the Company
shall not, in fact, have employed counsel to assume the defense of such action,
or (iv) Indemnitee necessarily had to consult with counsel or counsel had to act
on Indemnitee's behalf prior to the time that Company-retained outside counsel
was able to act, in each of which cases the fees and expenses of counsel shall
be at the expense of the Company. The Company will not be entitled to assume
the defense of any such action, suit or proceedings brought by or on behalf of
the Company or as to which Indemnitee shall have made the conclusion described
in (ii) above.
(d) All payments on account of the Company's indemnification
obligations under this Agreement shall be made within thirty (30) days of
Indemnitee's written request therefor unless a Determination is made that the
claims giving rise to Indemnitee's request are Excluded Claims or otherwise not
payable under this Agreement, provided that all payments on account of the
Company's obligations to pay Expenses under Paragraph 4(c) of this Agreement
prior to the final disposition of an action, suit or proceeding shall be made
within ten (10) days of Indemnitee's written request therefor and such
obligation shall not be subject to any such Determination but shall be subject
to Paragraph 4(e) of this Agreement.
4
<PAGE>
(e) Indemnitee agrees that he will reimburse the Company for all
Losses and Expenses paid by the Company in connection with any action, suit or
proceeding against Indemnitee in the event and only to the extent that a
Determination shall have been made by a court in a final adjudication or by
final and binding arbitration from which there is no further right of appeal
that the Indemnitee is not entitled to be indemnified by the Company for such
Expenses because the claim is an Excluded Claim or because Indemnitee is
otherwise not entitled to payment under this Agreement pursuant to the Company's
bylaws or otherwise, including the New York Business Corporation Law.
5. SETTLEMENT. The Company shall have no obligation to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any
action, suit or proceeding effected without the Company's prior written consent.
The Company shall not settle any claim in any manner which would impose any
obligation on Indemnitee without Indemnitee's written consent. Neither the
Company nor Indemnitee shall unreasonably withhold or delay their consent to any
proposed settlement.
6. RIGHTS NOT EXCLUSIVE. The rights provided hereunder shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
under any bylaw, agreement, vote of stockholders or of disinterested directors
or otherwise, both as to action in his official capacity and as to action in any
other capacity by holding such office, and shall continue after the Indemnitee
ceases to serve the Company as an officer and/or director.
7. ENFORCEMENT.
(a) In any action for indemnification, the burden of proving that
indemnification is not required under this Agreement shall be on the Company.
(b) In the event that any action is instituted by Indemnitee under
this Agreement, or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court and arbitrator's costs and
expenses, including reasonable counsel fees, incurred by Indemnitee with respect
to such action, unless the court or an arbitrator determines that each of the
material assertions made by Indemnitee as a basis for such action were not made
in good faith or were frivolous.
(c) Indemnitee may elect to submit any action under this Agreement to
final and binding arbitration. Any reference to arbitration herein shall include
the rights of the parties to move to vacate or confirm an arbitrator's award
under California law.
8. SEVERABILITY. In the event that any provision of this Agreement
is determined by a court to require the Company to
5
<PAGE>
do or to fail to do any act which is in violation of applicable law, such
provision shall be limited or modified in its application to the minimum extent
necessary to avoid a violation of law, and, as so limited or modified, such
provision and the balance of this Agreement shall be enforceable in accordance
with their terms.
9. CHOICE OF LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York.
10. CONTINUATION OF INDEMNIFICATION. All agreements and obligations
of the Company contained herein shall continue during the period that Indemnitee
is an officer, and/or director or other Agent of the Company (or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise)
and shall continue thereafter so long as Indemnitee shall be subject to any
possible Loss or Expense by reason of the fact that Indemnitee was an officer
and/or director of the Company or serving in any other capacity referred to
above.
11. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents and take all actions
reasonably requested by the Company to implement such right of subrogation.
12. SUCCESSOR AND ASSIGNS. This Agreement shall be (i) binding upon
all successors and assigns of the Company (including any transferee of all or
substantially all of its assets and any successor by merger or otherwise by
operation of law), and (ii) shall be binding on and inure to the benefit of the
heirs, personal representatives and estate of Indemnitee. In the event that the
Company or any of its assets are sold or in the event that Company is merged
with any other entity, the Company shall insure that a term and condition of the
sale or merger shall be that all of Company's obligations under this Agreement
shall be assumed by the buyer or successor.
13. AMENDMENT. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless made in writing signed
by each of the parties hereto.
14. AUTHORIZATION AND APPROVAL. The Company confirms and agrees that
it has entered into this Agreement and assumed the obligations imposed on it
under this Agreement to induce Indemnitee to continue as a director and/or
officer of the Company, and acknowledges that Indemnitee is relying upon the
full enforcement and binding nature of this Agreement in continuing in such
capacity. The Company represents and warrants to Indemnitee that all requisite
corporate action has or will be
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taken promptly to authorize and approve this Agreement, including obtaining
Board and/or shareholder approval of this Agreement.
IN WITNESS WHEREOF, the Company and Indemnitee have executed this
Agreement as of the day and year first above written.
THE A CONSULTING TEAM, INC.
By: _______________________________
Title:
INDEMNITEE
___________________________________
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Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Historical and Pro Forma Financial Data" and "Experts" and to the use of
our report dated January 31, 1997, except for Note 1, as to which the
date is August 4, 1997, in Amendment No. 2 to the Registration Statement
(Form SB-2 No. 333-29233) and related Prospectus of The A Consulting
Team, Inc. for the registration of 1,800,000 shares of its common
stock.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
August 6, 1997
