SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1998
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to __________________
Commission File No. 0-17118
Mark Solutions, Inc.
-----------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2864481
-------------------------- -----------------------
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
Parkway Technical Center
1515 Broad Street, Bloomfield, New Jersey 07003
- ----------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 893-0500
-----------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------ ------------------------------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ .01 par value
(Title of class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ].
The aggregate market value of the 16,449,318 shares of Common Stock
held by non-affiliates of the Registrant on September 21, 1998 was $14,393,153
based on the closing sales price of $ .875 on September 21, 1998.
The number of shares of Common Stock outstanding as of September 21, 1998 was
19,296,674.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of Form 10-K will be incorporated by
reference to certain portions of a definitive proxy statement, which is expected
to be filed by the registrant pursuant to Regulation 14A within 120 days of the
end of the fiscal year.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business.
Mark Solutions, Inc. ("Mark") is a Delaware corporation, which operates its
various businesses through wholly owned subsidiaries and a division.
Mark is engaged in the design, manufacture, and/or installation of (i)
modular steel cells for correctional institution construction and (ii)
diagnostic support, picture archiving and communication computer systems (PACS)
marketed under the name "IntraScan".
Mark markets its modular steel products by responding to public bids and
by pursuing joint ventures and affiliations with other companies to solicit
design build and/or operate correctional facilities both domestically and
internationally.
Mark markets its IntraScan II PACS systems to radiology departments,
large healthcare facilities, hospitals, and outpatient imaging group practices,
primarily through a marketing agreement with Data General Corporation.
Mark discontinued marketing its treatment booth for communicable
diseases in fiscal 1998.
Mark was incorporated under the laws of the State of Delaware on September
29, 1986 under the name "Showcase Cosmetics, Inc."
(b) Financial Information about Industry Segments
The following table sets forth information regarding Mark's industry
segments and classes of products.
Fiscal Year Ended June 30,
--------------------------
1998 1997 1996
---- ---- ----
Sales to unaffiliated
customers:
Mark Correctional Systems:
Modular Cells ........... $ 12,713,508 $ 6,114,195 $ 3,256,574
------------ ------------- ------------
MarkCare Medical Systems:
IntraScan ............... 150,482 224,125 41,946
Other ......... 57,820 111,424 156,095
------------ ---------- ----------
208,302 335,549 198,041
------------ ---------- ----------
$ 12,921,810 $ 6,449,744 $ 3,454,615
============= ============ ===========
Operating Profit:
Mark Correctional Systems ... $ 73,434 $ (2,706,272) $(4,508,406)
MarkCare Medical Systems ... (2,064,256) (1,035,934) (555,462)
Identifiable Assets:
Mark Correctional Systems ... $ 4,258,021 $ 5,002,432 $ 1,317,620
MarkCare Medical Systems ...... 916,080 429,845 1,766,143
1
<PAGE>
(c) Narrative Description of Business
Products and Services
Mark Correctional Systems Division
Mark operates its modular steel cell business through its division, Mark
Correctional Systems.
Modular Cells. Since the initial sale of its prefabricated modular steel
cells for correctional facilities in 1989, Mark has manufactured and sold
security prison cells in 14 states including Indiana, Illinois, New York, New
Jersey, Michigan, Missouri, Washington and Wisconsin. Revenues generated by the
sale of cells to correctional facilities aggregated $12,713,508 or 98.4% of
Mark's total operating revenues for the fiscal year ended June 30, 1998. These
revenues are primarily attributable to the New York State agreement described
below.
Effective March 15, 1996, Mark received a three-year agreement from the
State of New York to be the exclusive supplier of modular steel prison cells and
shower facilities. Pursuant to the agreement, Mark will provide complete,
partially complete and/or components of modular units and support services to
Corcraft (Department of Corrections-Division of Industries) for sale to State
and local governments. The agreement has a stated estimate of 2,455 cells over
the three years; however no minimum volume is guaranteed and purchase orders are
to be issued for specific projects. The State of New York reserves the right to
renegotiate the stated contract prices or solicit third party bids for any
single order of 700 or more cells. At its option, New York State may license the
manufacture of the entire cell and will not be obligated to pay additional
licensing fees after (i) Mark receives total payments of $15,000,000 under the
agreement, (ii) the total number of cells manufactured under the license exceeds
1,000 or (iii) the fifth anniversary date of the agreement. To date, Mark has
received three (3) purchase orders for approximately $15,000,000 pursuant to
this agreement.
Mark's modular cell is a prefabricated, installation-ready, lightweight
steel structure which is manufactured according to the construction and security
specifications of each correctional institution project in sizes from 60 to 200
square feet. Each modular cell can be equipped with lavatory facilities;
wall-mounted sleeping accommodations; desk and stool; lighting and ventilation
systems; and optional components such as fixed or operable windows and hinged or
sliding security doors. Each modular cell is constructed of durable low
maintenance, non-porous materials including a scratch resistant epoxy polymer
finish and is acoustically and thermally insulated.
The modular cell's lightweight construction requires less extensive and
costly foundation work than a traditional (e.g. concrete) cell, and is designed
with a self-contained exterior access panel which allows for simple ventilation,
plumbing and electrical connections.
2
<PAGE>
Each cell is load bearing to allow for multiple-story construction, and
is manufactured to tolerances of 1/16 of an inch, which results in more
efficient and faster on-site installation.
The modular cells can also be adapted for use as infectious disease
isolation units, which have a negative pressure ventilation system, and safely
discharges contaminated air. While Mark continues to have the capability to
manufacture the infectious disease isolation units, it discontinued actively
marketing such units in Fiscal 1998.
MarkCare Medical Systems, Inc.
Mark operates its PACS business through MarkCare Medical Systems, Inc., a
wholly owned Maryland subsidiary ("MarkCare-US") and MarkCare Medical Systems,
Ltd., a wholly owned United Kingdom subsidiary ("MarkCare-UK").
MarkCare-US and MarkCare-UK are collectively referred to as "MarkCare".
IntraScan II PACS System. The IntraScan II PACS system, is a "filmless"
picture, archiving and communications system marketed to radiology departments,
large healthcare facilities, hospitals and outpatient imaging group practices
primarily through a marketing agreement with Data General Corporation ("Data
General") described below.
The IntraScan II PACS system is a computer-based image, archival and
retrieval system that interfaces with medical imaging devices and can store and
recall images from imaging modalities including x-ray, computed tomography (CAT
Scan), computed radiography, nuclear medicine, ultra sound and magnetic
resonance imaging (MRI). While Mark is aware of similar systems in various
stages of development, management believes the IntraScan II PACS system is the
only system which is designed to be platform independent allowing the software
to operate with most computer hardware and operating systems.
The IntraScan II PACS system has a high resolution display capability (512
X 512 to 2000 X 2500 pixels). The high resolution allows medical providers to
make diagnoses from computer digital images without the need for radiographic
film. This capability eliminates the processing time for film development
allowing faster diagnoses and significantly reduces the costs related to film
development and patient record storage.
The IntraScan II PACS system allows image manipulation, including
simulation of the multi-image view box, which allows side-by-side comparisons of
images from different modalities (e.g. x-ray and CAT Scan).
In addition, the IntraScan II PACS system allows for networking between
departments within a healthcare facility or between institutions at different
locations by communication networks. This networking capability coupled with the
high resolution allows efficient and instant transfer of diagnostic quality
images for consultation and transportation of patient records.
3
<PAGE>
The IntraScan II PACS system includes software programs, protected by
British common law copyrights and U.S. copyrights, and standard hardware
computer equipment as to which Mark has no proprietary interests.
Effective March 18, 1996, Mark entered into a Master Supplier Agreement
with Data General pursuant to which Mark provides IntraScan II PACS system
software and related services to Data General to be incorporated into PACS sale
proposals and bids to healthcare facilities. The products and services to be
provided by Mark will be negotiated between Mark and Data General on a project
by project basis. Pursuant to this agreement, Mark is Data General's exclusive
supplier of PACS software products and Mark is permitted to market and sell the
IntraScan II PACS system software to other distributors or systems integrators.
While no assurances can be given, Mark believes that the sales related to
the IntraScan II PACS system, will generate material revenues in the fiscal year
ending June 30, 1999. Mark received its first purchase order for its IntraScan
II PACS software on August 10, 1998 from Data General.
Manufacturing and Assembly. Mark manufactures and assembles its modular
cells at its 74,000 square foot plant located in Jersey City, New Jersey, which
is equipped with a fully automated computer driven design and tooling system.
This system allows for more precise tolerances and faster production output. The
raw materials for Mark's products, including sheet metal, hardware, and other
components are supplied primarily by regional manufacturers. In addition to the
manufacture of the shell of its products, Mark purchases, assembles, and
installs the ancillary components including lavatory facilities, shower
facilities, desks, stools, and sleeping bunks. Management believes that there
are a sufficient number of national vendors to meet its raw material and
component needs, and that Mark is not dependent upon a limited number of
suppliers. With respect to the IntraScan II PACS system, Mark's primary
responsibility will be the development and loading of software programs on to
standard hardware equipment, minimal hardware modifications and networking. Mark
is able to conduct its IntraScan II PACS system assembly and modifications
activities at the offices of MarkCare-UK and its executive offices. In the event
Mark determines that additional space is necessary based on orders, management
believes that adequate space will be available on acceptable economic terms.
Delivery and On-Site Services. Mark contracts with several third-party
carriers to deliver the modular cells to the construction site. In addition,
Mark provides delivery and support services for its products including
installation assistance, operating instructions and subsequent inspections and
testing.
4
<PAGE>
Marketing and Sales
Modular Cells. The market for Mark's modular cell is primarily federal,
state and local governmental agencies responsible for the construction and
maintenance of correctional institutions. While Mark believes its modular cell
technology has other applications such as temporary emergency housing, for the
foreseeable future the correctional institutions market will represent the
substantial majority of its modular products business. No assurances can be
given that any other markets will develop to any significant degree.
Mark designs prototypes of its modular cells for marketing, sales and
trade show demonstrations. Mark's marketing and sales efforts are managed by its
Vice President of Sales and Marketing and include in- person solicitations,
direct mail campaigns and participation in industry trade shows. Mark presently
markets and sells its modular cells directly and through independent
manufacturers' representatives. Mark's network consists of 10 outside sales
representatives servicing eighteen (18) states and eleven (11) foreign countries
including Canada, Italy, France and Latin America. Each representative generally
enters into an agreement with Mark, which contains certain non-disclosure
restrictions and provides for payment on a commission basis. Mark has also
signed a licensing agreement covering the continent of Africa and several
surrounding islands.
As a result of the New York State agreement, Mark has identified State
prison industries, which operate as job training and rehabilitative programs for
inmates, as a potential market for its modular cells. Mark is soliciting
interest in the integration of its cells into other prison industries programs
based on the New York State model.
IntraScan II PACS System. The IntraScan II PACS system is primarily
marketed jointly with Data General as the prime contractor to its existing
healthcare client base and to other healthcare institutions. Mark personnel
participate in systems demonstrations, site visits, and assist in the
solicitation of and response to request for proposals. Mark has entered into
other strategic alliances with established medical equipment providers to gain
access to existing clients and to benefit from such companies' marketing and
sales forces. Mark has signed licensing/marketing agreements with: Santax A/S, a
Norwegian company; Konica, a multi-national company; Worldcare, a United Kingdom
company; Avantec, an Indian company; AIS, a Swiss company, and Medilink, an
Australian company.
Bid Process, Subcontracting and Bonding Requirements
Mark has derived the substantial majority of its revenues from state and
local government correctional projects and is consequently required to prepare
and submit bid proposals based on the design and specifications prepared by the
supervising architectural or engineering firm. Mark prepares and submits a
formal bid proposal, which includes price quotations and estimates, selected
5
<PAGE>
material options and construction time estimates. Depending on the nature of the
project, Mark itself may bid, or provide bidding data regarding Mark's products
to a firm which is bidding to become the general contractor for the project. In
the latter case, the Mark data is incorporated into the bid made by the
prospective general contractor. After receipt and review of all accepted bids
the governmental agency awards the contract based on numerous factors including
costs, reputation, completion estimates and subcontracting arrangements. In
those instances where Mark is not the direct bidder but provides bid information
to a general contractor who is ultimately awarded the project, there is no
guarantee that Mark will receive the subcontract business.
The typical time period from submission of bids to awarding of the contract
to the direct bidder (whether Mark or a general contractor) is 60 to 120 days.
In those instances, where Mark is not the direct bidder, subcontracts are
generally awarded within an additional 60 to 120 days.
In connection with some government construction projects, Mark is required
to provide performance and completion bonds as a condition to submission or
participation in a bid. Due to Mark's financial condition, it has generally been
unable to obtain bonds without the assistance and guarantee of third parties
including Mark's President and/or another business entity owned by an outside
director. See "Item 13. Certain Relationships and Related Transactions". To
date, Mark has not limited its bidding activity nor lost any projects due to its
limited bonding capacity. However, as Mark is awarded multiple projects, the
inability to obtain bonds may limit the number of additional projects Mark can
pursue and would have a material adverse effect on operations.
Regulation
Mark modular cells are subject to various state building codes including
BOCA, UBC, the Southern Building Codes and criteria established by the American
National Standards Institute. In addition, these products are subject to the
guidelines and regulations of OSHA, NIOSH and Centers for Disease Control and
Prevention. The modular cells comply with such codes and regulations in all
material respects.
IntraScan II PACS system is a "Class II medical device", classified by
the Federal Food and Drug Administration ("FDA") subject to the pre-market
notification and approval process. Accordingly, the products are regulated by
The Federal Food, Drug and Cosmetic Act and The Safe Medical Devices Act of 1990
regarding the (i) effectiveness and safety of the product, (ii) condition of the
manufacturing facilities and procedures and, (iii) labeling of devices. Mark has
received a letter from the FDA for the IntraScan II PACS system, authorizing
commercial distribution.
Certain aspects of Mark's manufacturing process are regulated by state and
Federal environmental laws. Mark has obtained all necessary licenses and permits
in this regard and is in compliance in all material respects with applicable
environmental laws.
6
<PAGE>
Competition
Modular Cells. The construction industry in general and the governmental
construction industry in particular are highly competitive. Due to the use of
concrete and other traditional construction methods in the substantial majority
(approximately 90%) of correctional facility construction, Mark competes for
market share with a number of major construction companies. Such competition is
not with respect to any particular project, but in persuading the purchasing
agency to utilize steel cell construction rather than traditional methods.
With respect to those projects which incorporate modular cell
specifications in its design criteria, Mark competes with several other steel
product manufacturers, some of which have greater financial resources than Mark.
In addition, a number of manufacturers, which have greater financial and
marketing resources than Mark, and which currently produce sheet metal products,
could ultimately manufacture modular cells in competition with Mark.
Although competition in the construction industry is intense, Mark believes
it can compete for market share of correctional facility construction business
by promoting the viability and construction advantages of its technology to the
architectural, engineering and construction industries. In this regard
management emphasizes the uniqueness of its modular cell design which can be
manufactured and installed more efficiently than traditional concrete
construction by virtue of lower labor and construction costs and shorter
installation time and the life cycle cost savings. Mark also believes its
modular cell design has advantages are over other manufacturers' steel cells.
IntraScan II PACS System. Other companies, which are larger and better
established than Mark, provide PACS systems for radiology departments. In
addition, large film and medical equipment manufacturers may enter into the PACS
business as the potential market is recognized. Mark believes the effectiveness
of a PACS system features and post-installation support, are significant factors
for its market. Mark believes it can compete by focusing its product development
on platform independent software applications, which broadens the market base,
continually updating the features of its software, and forming strategic
alliances with established healthcare computer systems providers, such as Data
General.
Employees
As of September 30, 1998, Mark had four (4) management employees, two (2)
sales employees, nine (9) engineering employees and seven (7) office and
clerical employees. Mark also employs hourly employees in its manufacturing
facilities who are subject to a collective bargaining agreement, which expired
on August 31, 1998. Mark is currently in negotiations on a new three (3) year
collective bargaining agreement. Management believes its employee relations to
be good.
As of September 30, 1998, MarkCare-UK had twelve (12) clerical/software
programming employees and two (2) sales employees.
7
<PAGE>
Copyrights, Patents and Trade Secrets
Mark does not presently own any patents on its modular cells or
manufacturing assembly process. However, Mark attempts to protect its
proprietary trade secrets regarding the design and manufacture of its products
through non-disclosure agreements between Mark, its employees and most
third-party suppliers and manufacturers' representatives.
The IntraScan II PACS system software programs are protected by British
common law copyright and United States copyright. Mark has applied for patents
on several aspects of the IntraScan II PACS system. Mark believes the protection
afforded by the copyrights and the granting of any patents for the IntraScan II
PACS System will allow Mark to maintain its competitiveness in the PACS market.
Item 2. Property
Mark leases its executive offices at 1515 Broad Street, Bloomfield, New
Jersey 07003, which consist of 6,500 square feet of space. Mark's lease expires
on December 31, 1998 and provides for monthly rent of $7,200. In addition, Mark
leases 74,000 square feet of manufacturing space in Jersey City, New Jersey
pursuant to a triple net lease expiring on November 15, 2004 at an annual rental
of $174,240 for the initial five years. The rent for the remaining three years
is subject to increases based on the consumer price index at that time.
MarkCare-UK leases its offices, which consist of 1,750 square feet of space
on a month to month basis at a monthly rent of $2,063.
Management believes its present manufacturing facilities and additional
available facilities are sufficient for Mark's current and anticipated needs.
Item 3. Legal Proceedings
On August 28, 1998, Evergreen Mobile Company filed a demand for
arbitration against Mark in San Francisco, California with the American
Arbitration Association alleging delay and warranty claims of $1,333,000 related
to a contract under which Mark provided modular steel cells for $432,000. Mark
believes the alleged damages are excessive and intends to vigorously defend this
action.
In September 1997, the Pulaski County Board of Indiana filed a lawsuit
against Mark and Calumet Construction Corporation, the general contractor
("Calumet"), related to a project where Mark provided modular steel cells for
$913,731. The County alleges delay claims, and other damages caused by, among
other things, delays in delivery of the cells and requests a declaratory
judgment for the allocation of the remaining balance of $313,700 the County
believes it owes Mark and Calumet under the project. The parties attempted to
resolve the dispute through mediation, during which Calumet asserted backcharges
against Mark of $399,000. Mark believes the delay claims and backcharges are
excessive and is vigorously defending this action.
8
<PAGE>
In August 1997, Mark filed a demand for arbitration against Demien
Construction Company ("Demien") in Missouri with the American Arbitration
Association alleging nonpayment of approximately $200,000 related to a contract
under which Mark provided modular steel cells for $407,000. Demien has asserted
delay claims and backcharges for remedial work of approximately $244,000 against
Mark. Mark believes the alleged damages are excessive and intends to vigorously
pursue this action.
Item 4. Submission of Matters to a Vote of Security-Holders
Not Applicable
9
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
(a) Market Information.
The following table sets forth for the calendar quarters indicated the high
and low bid prices of Mark's Common Stock. The Common Stock trades on the Nasdaq
SmallCap Market under the symbol "MCSI".
Common Stock
-----------------------------------------
High Low
----------------- ------------------
1996
1st Quarter 8-1/4 5-1/2
2nd Quarter 8-3/8 5-1/4
3rd Quarter 6-5/8 5
4th Quarter 5-7/8 1-3/8
1997
1st Quarter 2-3/4 15/16
2nd Quarter 4-1/2 1-31/32
3rd Quarter 4-1/2 1-15/16
4th Quarter 4-3/8 2- 3/16
1998
1st Quarter 2-7/16 1-21/32
2nd Quarter 2 1
3rd Quarter 1-15/16 7/16
- -----------------------------------------------------------------------
Over-the-counter quotations reflect inter-dealer prices without retail
mark-up, mark-down or commission and do not necessarily represent actual
transaction.
(b) Holders.
As of October 1, 1998, there were 184 holders of record of the Common
Stock. Mark estimates the number of beneficial holders of its Common Stock to
be in excess of 530. There are 22 market makers in the Common Stock. On June
30, 1998, Mark's publicly traded Class A Warrants expired.
(c) Dividends.
Mark has never paid and does not intend to pay in the foreseeable future, cash
dividends on its Common Stock.
10
<PAGE>
(d) Sales of Unregistered Securities in Fiscal Year 1998.
The following sets forth information regarding private placement of
equity securities by Mark during the fiscal year ended June 30, 1998.
Mark issued the following warrants to three (3) individuals for
business consulting or legal services. Each of the transactions were effected in
reliance on the registration exemption provided by Section 4(2) of the
Securities Act as not involving a public offering due to the limited nature of
the offering and the investor sophistication of the individuals.
Number of Shares Per Share Exercise Warrant Grant
Purchasable Price Term Date
- --------------- ------------------ --------- ---------
100,000 $1.125 2 Years 06/25/98
30,000 $1.125 3 Years 06/25/98
5,000 $2.375 3 Years 02/12/98
On May 19, 1998, Mark granted three-year options to purchase 35,000 shares
of Common Stock at between $2.00 and $2.875 per share to three employees as
incentive compensation. Each of the grants was effected in reliance on the
registration exemption provided by Section 4(2) of the Securities Act as not
involving a public offering due to the limited nature of the offering and the
individual's relationship with Mark.
On May 19, 1998, Mark granted five-year warrants to purchase 75,000 shares
of Common Stock at $1.50 per share to a holder of $200,000 in Mark's convertible
debentures as an inducement to convert the debentures. This transaction was
effected in reliance on the registration exemption provided by Section 4(2) of
the Securities Act as not involving a public offering due to the limited nature
of the offering and the investor sophistication of the individuals.
On June 25, 1998 Mark cancelled options granted to its four outside
directors to purchase an aggregate of 400,000 shares of Common Stock at between
$2.875 and $3.375 per share and granted each outside director five-year options
to purchase 100,000 shares of Common Stock at $1.125 per share, the closing
sales price on the date of grant. Each of the grants was effected in reliance on
the registration exemption provided by Section 4(2) of the Securities Act as not
involving a public offering due to the limited nature of the offering, the
investor sophistication of the individuals and the individuals' relationship
with Mark.
On June 25, 1998 Mark cancelled options granted to two of its officers to
purchase an aggregate of 400,000 shares of Common Stock at $2.875 per share and
granted to these officers three-year options to purchase 400,000 shares of
Common Stock at $1.125 per share, the closing sales price on the date of grant.
Each of the grants was effected in reliance on the registration exemption
11
<PAGE>
provided by Section 4(2) of the Securities Act as not involving a public
offering due to the limited nature of the offering, the investor sophistication
of the individuals and the individuals' relationship with Mark.
On June 25, 1998, Mark extended the expiration date of outstanding warrants
to purchase an aggregate of 140,000 shares of Common Stock at $2.00 per share
from June 30, 1998, to December 31, 1998. These warrants were previously granted
to three individuals pursuant to a private placement financing in 1995. The
transaction was effected in reliance on the registration exemption provided by
Section 4(2) of the Securities Act as not involving a public offering due to the
limited nature of the offering, the investor sophistication of the individuals
and the individuals' relationship with Mark.
In June 1998, Mark completed a $2,750,000 private placement of equity and
debt units (the "Private Placement") pursuant to which Mark issued 1,220,000
shares of Common Stock (the "Private Placement Common Stock"), (i) $1,530,000
principal amount convertible debentures due December 28, 1999, (the "Convertible
Debentures"), (ii) warrants to purchase 1,375,000 shares of Common Stock, (iii)
and an option exercisable by the investors to purchase an additional $2,550,000
principal amount convertible debentures with warrants to purchase 1,275,000
shares of Common Stock (the "Debt Unit Option"). This transaction was effected
in reliance on the registration exemption provided by Section 4(2) of the
Securities Act as not involving a public offering due to the limited nature of
the offering and the investor sophistication of the individuals.
The holders of the Private Placement Common Stock are entitled to
additional shares of Common Stock to the extent the net proceeds from the sale
of the Private Placement Common Stock is less than $1.30 per share (the "Share
Adjustment"). The Convertible Debentures are convertible into shares of Common
Stock at the lesser of (i) $1.50 per share or (ii) 75% of the average closing
bid price of the Common Stock for the five trading days immediately preceding
the conversion. The Warrants are exercisable for a four-year period at $1.50 per
share. The Debt Unit Option entitles the investors to purchase up to an
additional $2,550,000 in 18-month principal amount convertible debentures with
terms identical to the Convertible Debentures with four-year warrants to
purchase an aggregate of 1,250,000 shares of Common Stock at $1.50 per share.
Issuance of shares of Common Stock in excess of 3,615,334 pursuant to the
Private Placement including the (i) Share Adjustment, (ii) conversion of the
Convertible Debentures, (iii) exercise of Warrants and (iv) exercise of the Debt
Unit Option is subject to the approval of Mark's shareholders at Mark's annual
meeting of shareholders scheduled for December 1998. In the absence of
shareholder approval of issuance's for the above 3,615,334, the holders of the
Private Placement Common Stock and Convertible Debentures will have the right to
demand cash payment equal to the value of the Share Adjustment and the
redemption of the Convertible Debentures at 125% of the principal amount plus
accrued interest.
12
<PAGE>
Item 6. Selected Financial Data
The following Selected Financial Data are based upon financial
statements appearing elsewhere herein and such information should be read in
conjunction with such financial statements and notes thereto.
<TABLE>
<CAPTION>
Income Statement Data:
Fiscal Years Ended June 30
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- --------------- ------------------------------ ---------------
<S> <C> <C> <C> <C> <C>
Revenues $ 12,921,810 $ 6,449,744 $ 3,454,615 $ 6,125,573 $ 3,183,073
Costs and Expenses:
Costs of Sales 10,972,291 6,091,773 4,022,102 5,975,973 2,370,971
Selling, general and administrative 3,940,341 4,100,177 3,718,886 3,876,330 3,592,081
Research and development - - - - - - - - - - - - 270,322
Reduction of carrying value of assets - - - - - - 777,495 - - - - - -
------------ ------------ ------------ ------------ ------------
Total Costs and Expenses 14,912,632 10,191,950 8,518,483 9,852,303 6,233,374
------------ ------------ ------------ ------------ ------------
Operating (Loss) (1,990,822) (3,742,206) (5,063,868) (3,726,730) (3,050,301)
Net Other Income (Expense) (397,277) (1,697,059) (46,691) (85,905) (64,749)
Income Tax - - - - - - - - - - - - (29,460)
------------ ------------ ------------ ------------ ------------
(Loss) From Continuing Operations (2,388,099) (5,439,265) (5,110,559) (3,812,635) (3,144,510)
(Loss) From Discontinued Operations - - - - - - (104,503) (1,377,438) (993,620)
----------- ----------- ----------- ------------ ------------
Net (Loss) ($2,388,099) ($5,439,265) ($5,215,062) ($5,190,073) ($4,138,130)
=========== =========== =========== =========== ===========
(Loss) per Share: (.14) (.38) (.41) (.48) (.47)
=========== =========== =========== =========== ===========
Weighted Average Shares Outstanding
16,580,402 14,221,606 12,732,022 10,726,204 8,802,543
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
At June 30
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Working Capital (Deficit) $ 3,078,217 $ 923,457 $ 675,864 $ (48,112) $ 216,635
Net Property and Equipment 438,612 347,259 376,504 318,491 369,939
Total Assets 5,174,101 5,432,277 3,083,763 3,978,383 4,953,651
Current Liabilities 998,186 3,244,963 954,065 2,169,657 909,693
Other Liabilities 1,060,416 2,340,467 50,297 19,665 8,313
Stockholders' Equity (Deficiency) 3,115,499 (153,153) 2,079,401 1,789,061 4,035,645
</TABLE>
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
Mark's results of operations, liquidity, and working capital position have
been historically impacted by sporadic sales of its principal product, modular
steel cells. This sales pattern is primarily the result of the construction
industry's unfamiliarity with Mark's products and the emergence of competition.
Mark's modular steel cell is an alternative to traditional construction
methods, and penetration into the construction market has met resistance
typically associated with an unfamiliar product. Accordingly, Mark has been, and
will continue to be, subject to significant sales fluctuations until its modular
cell technology receives greater acceptance in the construction market, which
management believes will occur as new projects are awarded and completed. In an
attempt to achieve greater acceptance in the architectural, engineering, and
construction communities, Mark's internal sales and engineering personnel and
its nationwide network of independent sales representatives conduct sales
presentations and participate in trade shows and other promotional activities.
Mark has expanded its marketing efforts to more aggressively pursue
domestic and international joint venture and design/build development
opportunities to obtain projects and improve its results of operations in
efforts to achieve profitability. In addition, Mark is promoting the
incorporation of its modular cell products to state prison industries programs
to capitalize on the New York State agreement. See "Item 1. Business (c)
Narrative Description of Business-Marketing and Sales." Mark will continue to
review its overhead and personnel expenses based on operating results and
prospects.
Mark is continually bidding on and soliciting joint venture
opportunities regarding construction projects. The anticipated revenues from any
major project would substantially improve Mark's operating results and cash
flow, although no assurances can be given that any of these projects will be
awarded to Mark.
Under a three-year contract expiring in December 1999 with the State of
New York, Mark provides modular steel cells and components to the State's prison
industry program for the final assembly. In fiscal year ended June 30, 1998,
revenues from this contract were approximately $12,000,000.
Mark currently has bids pending on approximately $16,030,000 in modular
cell projects. In addition to the New York State orders of $12,000,000, Mark bid
on $51,000,000 in correctional cell projects in the fiscal year ended June 30,
1998, was warded $3,000,000 of the projects and remains under consideration for
14
<PAGE>
$13,000,000 of these projects. For the fiscal year ended June 30, 1998 modular
steel cells represented $22,000,000 or 43% of all domestic correctional cell
projects awarded and Mark received 68% of these modular steel cell awards.
Through its subsidiaries, MarkCare Medical Systems, Inc. and MarkCare
Medical Systems, Ltd., (collectively "MarkCare"), Mark continues to market its
IntraScan II PACS and teleradiology systems and is forming strategic alliance
with other companies with related medical products. Mark has a master supplier
agreement with Data General Corporation, a large computer hardware and systems
integration provider with a client base of over 1,000 applications to which Data
General will include the IntraScan II PACS system and teleradiology software
applications in proposals to healthcare institutions. Mark has recently signed
licensing/marketing agreements with six (6) companies including SANTAX A/S,
WorldCare UK, Ltd. and Konica U.K., Ltd. Management anticipates that sales of
the IntraScan II PACS system will begin to generate material revenues in the
fiscal year ending June 30, 1999 although no assurances can be given in this
regard. If the IntraScan marketing plan is successful, management believes that
the revenues from resulting sales will be more constant then those of the
modular steel products presently, and will reduce fluctuations in Mark's results
of operations and financial condition.
The following table sets forth Mark's segmented results of operations
of continuing operations for the fiscal year ended June 30, 1998.
Mark Correctional
Systems MarkCare Medical Total
Revenues $ 12,713,508 $ 208,302 $ 12,921,810
Cost of Sales 10,272,206 700,085 10,972,291
Selling, General
and Administrative 2,287,832 1,652,509 3,940,341
Operating Income (Loss) 73,434 (2,064,256) (1,990,822)
Results of Operations
Substantially all of Mark's operating revenues for the reported periods
were derived from the sale of its modular cells to correctional institutions.
Management believes that the sale of these modular steel products will continue
to represent a majority of Mark's operating revenues through June 30, 1999.
15
<PAGE>
The following table sets forth, for the periods indicated, the
percentages, which certain items bear to revenues and the percentage increases
(decrease) from period to period:
<TABLE>
<CAPTION>
Percentage of Revenues
Year Ended June 30 Increase (Decrease)
------------------ -------------------
1998 1997 1996 1998-1997 1997-1996
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue 100.0 100.0 100.0 100.3 86.7
Cost of sales 84.9 94.4 116.4 80.1 51.5
Selling, general & administrative 30.5 63.5 107.7 3.9 10.3
Reduction of carrying value of assets - - - - 22.5 - - (100.0)
------ ------ ------ ------ -------
Operating income (loss) (15.4) (58.0) (146.6) (46.8) 26.1
Net other income (expenses) (3.1) (26.3) (1.4) (76.6) 353.5
------ ------ ------- ------ -------
(Loss) from continuing operations (18.5) (84.3) (147.9) (56.1) 3.2
(Loss) from discontinued operations - - - - (3.0) - - (100.0)
------ ------ ------- ------ -------
Net (loss) (18.5) (84.3) (151.0) (56.1) 5.2
====== ====== ====== ====== ======
</TABLE>
Fiscal Year Ended June 30, 1998 Compared to
Fiscal Year Ended June 30, 1997
Revenues from sales for the fiscal year ended June 30, 1998, increased
100.3% to $12,921,810 from $6,449,744 for the comparable period. This increase
is primarily attributable to the awarding of a $12,000,000 project under the New
York State agreement.
Cost of sales for the fiscal year ended June 30, 1998, consists of
materials, labor and fixed factory overhead expense and increased by 80.1% to
$10,972,291 from $6,091,773 for the comparable period. Cost of sales as a
percentage of revenues was 84.9% for the year ended June 30, 1998 as compared to
94.4% for the comparable period. Management expects continued gross profit
improvement as sales become less sporadic and as the plant achieves additional
operating efficiencies. For the year ended June 30, 1998 fixed factory overhead
expenses were $264,381 as compared to $272,936 for the comparable 1997 period.
Management believes that the substantial majority of the revenues of the
MarkCare line will be attributable to software sales and support services, which
have higher gross profits.
Selling, general and administrative expenses for the fiscal year ended
June 30, 1998, decreased 3.9% to $3,940,341 from $4,100,177 for the comparable
1997 period. Stabilization of these expenses is attributable to management's
focus on cost controls.
Mark reduced its operating losses 46.8% to $1,990,822 in the fiscal year
ended June 30, 1998 from $3,742,206 in the comparable period. For the same
period, Mark's net loss decreased by 56.1%.
16
<PAGE>
Fiscal Year Ended June 30, 1997 Compared to
Fiscal Year Ended June 30, 1996
Revenues from sales for the fiscal year ended June 30, 1997 increased 86.7%
to $6,449,744 from $3,454,615 for the comparable 1996 period. This increase is
primarily attributable to the awarding of nine projects, including $3,000,000
under the New York State agreement.
Cost of sales for the fiscal year ended June 30, 1997, consists primarily
of materials, labor and fixed factory overhead expense and increased 51.5% to
$6,091,773 from $4,022,102 for the comparable 1996. Cost of sales as a
percentage of revenues was 94.4% for the year ended June 30, 1997 as compared to
116.4% for the comparable 1996 period. Despite losses incurred in connection
with the outsourcing of projects for the three months ended September 30, 1996,
factory start up costs incurred in the quarter ended December 31, 1996 and cost
overruns on several projects, Mark reduced its cost of sales as a percentage of
revenues. Management expects continued gross profit improvement due to the
completed relocation of its factory and improved operating efficiencies. For the
year ended June 30, 1997 fixed factory overhead expenses were $272,066 as
compared to $155,987 for the comparable 1996 period due to an increase in
repairs and maintenance. Management believes that the substantial majority of
the revenues of the MarkCare line will be attributable to software sales and
support services, which have higher gross profit.
Selling, general and administrative expenses for the fiscal year ended June
30, 1997 increased 10.3% to $4,100,177 from $3,718,886 for the comparable 1996
period. Stabilization of these expenses is attributable to reduction of office
staff expenses, trade show expenses and professional fees partially offset by
the inclusion of $877,269 of selling, general and administrative expenses of
MarkCare-UK, which was acquired in May, 1996.
Mark reduced its operating losses 26.1% to $3,742,206 in the fiscal year
ended June 30, 1997 from $5,063,868 in the comparable 1996 period. However, due
to a non-cash imputed interest expense of $1,422,813 in connection with the
issuance of $4,500,000 in principal amount 7% convertible debentures for working
capital purposes, Mark's Net Loss for fiscal year 1997 increased 5.2% from
fiscal year 1996.
Liquidity and Capital Resources
Mark's working capital requirements result principally from staff and
management overhead, office expense and marketing efforts. Mark's working
capital requirements have historically exceeded its working capital from
operations due to sporadic sales. Accordingly, Mark has been dependent and,
absent continued improvements in operations, will continue to be dependent on
the infusion of new capital in the form of equity or debt financing to meet its
working capital deficiencies, although no assurance can be given that such
financing will be available. Mark believes its present available working capital
17
<PAGE>
and anticipated cash from its existing contracts is sufficient to meet its
operating requirements through June 30, 1999. Mark obtained a $400,000 revolving
line of credit collateralized by substantially all of its assets and has no
outstanding borrowings at September 30, 1998. To the extent it requires
additional capital, Mark will continue to principally look to private sources.
On June 29, 1998, Mark completed a $2,750,000 private placement of debt
and equity units (the "Private Placement") pursuant to which Mark sold (i)
1,220,000 in Common Stock, (ii) $1,530,000 in convertible debentures due
December 28, 1999, (iii) warrants to purchase 1,375,000 shares of Common Stock
and (iv) an option to purchase an additional $2,550,000 principal amount
debentures with warrants to purchase 1,275,000 shares of Common Stock. See "
Part II, Item 5(d)- "Sales of Unregistered Securities in Fiscal 1998" for a
description of the terms of the Private Placement.
In the fiscal year ended June 30, 1998, Mark sold 580,000 shares of
Common Stock pursuant to the exercise of warrants for gross proceeds of
$1,510,450. Mark presently has an effective registration statement relating to
569,500 shares of Common Stock issuable upon the exercise of warrants and
options, the majority of which are at exercise prices ranging from $2.00 to
$5.00 per share. Mark will initially look to the exercise of outstanding
warrants and options to meet working capital deficits, if any. If Mark is
required to seek additional private sales of its securities, if available, the
sales would most likely be at discounts to the current trading price of the
Common Stock.
Mark's inventories decreased from $336,287 at June 30, 1997 to $112,474
at June 30, 1998 due to the completion of a major contract prior to year-end.
While Mark presented does not have any material commitments for capital
expenditures, management believes that is working capital requirements for
inventory and other manufacturing related costs will significantly increase with
increases in product orders.
For the fiscal year ended June 30, 1998, Mark had negative cash flow from
operating activities of $1,437,949. For the fiscal year ended June 30, 1998,
Mark had negative cash flow from investing activities of $216,338 attributable
to the purchase of property and equipment. Mark has no present intention to make
any acquisition, which would have a material negative or positive effect on cash
flow.
For the fiscal year ended June 30, 1998, financing activities provided
$1,796,407 in cash, principally from the Private Placement and warrants
exercises.
Cash and cash equivalents increased from $422,457 at June 30, 1997 to
$564,577 at June 30, 1998 due to financing activities. Working capital increased
to $3,078,217 at June 30, 1998 from $923,457 at June 30, 1997 primarily due to
proceeds of long-term debenture issuance.
18
<PAGE>
Other Matters
As of June 30, 1998, Mark had net operating loss carry-forwards of
approximately $19,550,000. Such carry-forwards begin to expire in the year 2009
if not previously used. The $19,550,000 carry-forward is comprised of
approximately $17,850,000 which is available to offset taxable income in the tax
year ending June 30, 1999. The remaining $1,700,000 carry-forward is restricted
as to utilization under Section 382 of the Internal Revenue Code. Since
realization of the tax benefits associated with these carry-forwards is not
assured, a full valuation allowance was recorded against these tax benefits as
required by SFAS No. 109.
Impact of Inflation and Changing Prices
Mark has been affected by inflation through increased costs of materials
and supplies, increased salaries and benefits and increased general and
administrative expenses; however, unless limited by competitive or other
factors, Mark passes on increased costs by increasing its prices for products
and services.
Forward Looking Statements
Except for the historical information contained herein, the matters
discussed in this report are forward looking statements under the federal
securities law. These statements are based on Mark's current plan and
expectations and involve risks and uncertainties that could cause actual future
activities and results to differ materially from those projected. Such risks and
uncertainty include, among other things, collection risks, meeting financial
requirements and the uncertainty of material sales of the IntraScan II PACS
system.
Year 2000 Disclosure
After an evaluation and analysis of its operations, including its
financial and operational computer systems applications, Mark has concluded no
material adverse effect on its operations will occur due to Year 2000 software
failures. To the extent modifications to such systems are required, management
believes the related costs will not materially affect Mark's financial position.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
Not Applicable.
19
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The Financial Statements and Supplementary Data to be provided pursuant to
this Item are included under Item 14 of this Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not Applicable.
20
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information regarding Directors and Executive Officers is
incorporated herein by reference to Mark's definitive proxy statement to be
mailed to its shareholders in connection with its 1998 Annual Meeting of
Shareholders and to be filed within 120 days after the end of the fiscal year
ended June 30, 1998.
Item 11. Executive Compensation.
The information regarding executive compensation is incorporated herein
by reference to Mark's definitive proxy statement to be mailed to its
shareholders in connection with its 1998 Annual Meeting of Shareholders and to
be filed within 120 days after the end of the fiscal year ended June 30, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information regarding security ownership of certain beneficial
owners and management is incorporated herein by reference to Mark's definitive
proxy statement to be mailed to its shareholders in connection with its 1998
Annual Meeting of Shareholders and to be filed within 120 days after the end of
the fiscal year ended June 30, 1998.
Item 13. Certain Relationships and Related Transactions.
The information regarding certain relationships and related
transactions is incorporated herein by reference to Mark's definitive proxy
statement to be mailed to its shareholders in connection with its 1998 Annual
Meeting of Shareholders and to be filed within 120 days after the end of the
fiscal year ended June 30, 1998.
21
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a)(1) Consolidated Financial Statements
- Reports of Independent Accountants F-1, F-2
- Consolidated Balance Sheets for
June 30, 1998 and 1997 F-3
- Consolidated Statements of Operations
for fiscal years ended June 30, 1998,
1997 and 1996 F-5
- Consolidated Statements of Stockholders
Equity for fiscal years ended June 30,
1998, 1997 and 1996 F-6 - Consolidated
Statement of Cash Flows
for fiscal years ended June 30,
1998, 1997 and 1996 F-7
- Notes to Consolidated Financial Statements F-8
- Chantrey Vellacott Report F-25
- Baker Tilly Report F-27
(3) Exhibits.
Exhibit
Number Description
2. a)-- Stock purchase Agreement between
Mark and Ian Baverstock, Jonathan
Newth, David Payne and Joanna Tubbs
dated April 5, 1996. (Incorporated
by reference to Exhibit 1 to Mark's
Form 8-K-Dated of Report May 28, 1996
referred to herein as "Mark's May 1996
Form 8-K")
b)-- Stock Purchase Agreement between Mark
and Christopher Cummins and Moria
Addington dated April 24, 1996.
(Incorporated by reference to
Exhibit 2 to Mark's May 1996 Form 8-K)
3. a)-- Amended and Restated Certificate of Incorporation*
b)-- By-laws*
22
<PAGE>
4. a)-- Specimen Stock Certificate*
10. Material Contracts
a)-- Employment Agreement between Mark
and Carl Coppola (Incorporated by
reference to Exhibit 10 a) to Mark's
Form 10-K for the fiscal year ended
June 30, 1997)
b)-- Incentive Stock Option Plan*
c)-- Agreement between New York State
and Mark dated July 17, 1996.
(Incorporated by reference to Exhibit
10 d) to Mark's Form 10-K for the
fiscal year ended June 30, 1996)
d)-- Agreement between Data General
Corporation and Mark dated March
18, 1996 as amended on January 20,
1997. (Incorporated by reference
to Exhibit 10 e) to Mark's Form 10-K
for the fiscal year ended June 30, 1996)
21. Subsidiaries of Mark*
24. Power of Attorney (included on page 24)*
27. Financial Data Schedule*
* Filed with this Form 10-K for the year ended June 30, 1998
(b) Reports on Form 8-K.
The following reports on Form 8-K have been filed by Mark during the
quarter ended June 30, 1998:
Date of Report Items Reported, Financial Statements Filed
-------------- ------------------------------------------
April 15, 1998 Item 4. Change in Registrant's
Certifying Accountant
June 29, 1998 Item 5. Other Events- Pro Forma
Balance Sheet as of
May 31, 1998
23
<PAGE>
POWER OF ATTORNEY
Mark Solutions, Inc., and each of the undersigned do hereby appoint Carl
Coppola, its or his true and lawful attorney to execute on behalf of Mark
Solutions, Inc. and the undersigned any and all amendments to this Report and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MARK SOLUTIONS, INC.
October 9, 1998 By: /s/ Carl Coppola
--------------------------
(Carl Coppola, Chief Executive
Officer and President)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the persons on behalf of the Registrant and in
the capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ Carl Coppola Chief Executive Officer October 9, 1998
- ---------------- President and Director
(Carl Coppola) (Principal Executive
Officer)
/s/Michael Nafash Chief Financial Officer, October 9, 1998
- ----------------- Vice President and
(Michael Nafash) Director
/s/ Richard Branca Director October 9, 1998
- ------------------
(Richard Branca)
/s/ Ronald Olszowy Director October 9, 1998
- -------------------
(Ronald E. Olszowy)
/s/William Westerhoff Director October 9, 1998
- --------------------
(William Westerhoff)
/s/Yitz Grossman Director October 9, 1998
- ----------------
(Yitz Grossman)
24
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Mark Solutions, Inc. and Subsidiaries
Bloomfield, New Jersey
We have audited the consolidated balance sheet of Mark Solutions, Inc. and
Subsidiaries as of June 30, 1998, and the related consolidation statements of
operations, stockholders' equity (deficiency), and cash flows for the year
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
financial statements of MarkCare Medical Systems Limited, a wholly owned
subsidiary, which statements reflect total assets of $155,015 as of June 30,1998
and a net loss of $1,301,640 for the year then ended. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for MarkCare Medical
Systems Limited, is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation.
we believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Mark Solutions, Inc. and
Subsidiaries as of June 30, 1998, and the results of its operations and cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
August 25, 1998
-F-1-
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
Mark Solutions, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Mark
Solutions, Inc. and Subsidiaries as of June 30, 1997 and the related
consolidated statements of operations, stockholders' equity (impairment), and
cash flows for each of the years in the two-year period ended June 30, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of MarkCare Medical Systems Limited, a wholly owned subsidiary, which
statements reflect total assets of $192,095 as of June 30, 1997 and total
revenues of $224,125 and $41,946, respectively, for the two years then ended.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
MarkCare Medical Systems Limited, is based solely on the report of the other
auditors.
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 consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mark
Solutions, Inc. and Subsidiaries as of June 30, 1997 and the results of its
operations and cash flows for each of the years in the two year period ended
June 30, 1997 in conformity with generally accepted accounting principles.
Sax Macy Fromm & Co., PC
Certified Public Accountants
Clifton, New Jersey
August 22, 1997
Except for Note 1 as
to which the date is
September 23, 1997
-F-2-
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
June 30, 1998 June 30, 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 564,577 $ 422,457
Restricted cash 1,234,005 - - -
Subscriptions receivable 1,231,000 - - -
Accounts receivable, less allowance
of $5,500 in 1998 and 1997 623,912 3,178,928
Due from officer 102,058 - - -
Inventories (Note 4) 112,474 336,287
Other current assets (Note 5) 208,377 230,748
----------------- -----------------
Total Current Assets $ 4,076,403 $ 4,168,420
Property and Equipment:
Machinery and equipment 1,545,728 1,488,255
Demonstration equipment 436,348 395,419
Office furniture and equipment 397,607 401,731
Leasehold improvements 188,973 41,568
Vehicles 62,283 62,283
Property held under capital lease 47,129 47,129
----------------- -----------------
Total 2,678,068 2,436,385
Less: Accumulated depreciation and
amortization 2,239,456 2,089,126
Net Property and Equipment 438,612 347,259
Other Assets:
Costs in excess of net assets of
businesses acquired, less accumulated
amortization of $437,373 in 1998 and
$227,433 in 1997 (Note 6) 612,318 822,258
Other Assets: 46,768 94,340
----------------- -----------------
Total Other assets 659,086 916,598
------------ -----------
Total Assets $ 5,174,101 $ 5,432,277
============ ===========
</TABLE>
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements
-F-3-
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
Liabilities and Stockholder's Equity (Deficiency)
June 30, 1998 June 30, 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $ 715,642 $ 1,638,288
Short-term borrowings - - - 435,225
Current maturities of long-term debt 108,171 448,729
Current portion of obligations
under capital leases 19,418 8,276
Due to related parties 14,693 296,472
Notes payable to officer - - - 160,000
Accrued liabilities (Note 8) 140,262 257,973
----------------- -----------------
Total Current Liabilities $ 998,186 $ 3,244,963
Other Liabilities:
Long-term debt excluding current maturities 1,029,385 2,312,556
Long-term portion of obligations under
capital leases 31,031 27,911
----------------- -----------------
Total Other Liabilities 1,060,416 2,340,467
Commitments and Contingencies - - - - - -
Stockholder's Equity (Deficiency):
Common Stock, $.01 par value,
50,000,000 shares authorized;
19,296,674and 14,779,085 shares
issued and outstanding at June 30,
1998 and 1997 respectively 192,967 147,790
Additional paid-in capital 33,066,556 27,454,982
Deficit (30,144,024) (27,755,925)
----------------- -----------------
Total Stockholder's Equity (Deficiency) 3,115,499 (153,153)
---------- ------------
Total Liabilities and Stockholders' Equity
(Deficiency) $5,174,101 $5,432,277
========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements
-F-4-
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended June 30
-------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $ 12,921,810 $ 6,449,744 $ 3,454,615
Costs and Expenses:
Cost of sales 10,972,291 6,091,773 4,022,102
Selling, general and administrative
expenses 3,940,341 4,100,177 3,718,886
Reduction in carrying value of assets - - - - - - 777,495
---------- ---------- ---------
Total Costs and Expenses 14,912,632 10,191,950 8,518,483
---------- ---------- ---------
Operating (Loss) (1,990,822) (3,742,206) (5,063,868)
Other Income (Expenses):
Interest income 12,503 21,291 23,800
Interest expense (249,623) (290,651) (10,490)
Imputed interest expense on
convertible debentures (160,157) (1,422,813) - - -
Loss of disposal of property and
equipment - - - (4,886) (60,001)
---------- ---------- ----------
Net Other (Expenses) (397,277) (1,697,059) (46,691)
---------- ---------- ----------
(Loss) From Continuing Operations (2,388,099) (5,439,265) (5,110,559)
Discontinued Operations:
Loss of Bar-Lor Subsidiaries - - - - - - (35,078)
Loss of disposal of Bar-Lor
Subsidiaries - - - - - - (69,425)
---------- ---------- ---------
Total Discontinued Operations - - - - - - (104,503)
Net (Loss) $(2,388,099) $(5,439,265) $(5,215,062)
=========== ============ ============
Basic (Loss) per share $ (0.14) $ (0.38) $ (0.41)
=========== ============ ============
Weighted Average Number of Shares
Outstanding 16,580,402 14,221,606 12,732,022
=========== ============ ===========
Dividends Paid $ -0- $ -0- $ -0-
=========== ============ ===========
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements
</TABLE>
-F-5-
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficiency)
<TABLE>
<CAPTION>
Total
Additional Retained Stockholders'
Common Stock Paid-In Earnings Equity
Shares Amount Capital (Deficit) [Deficiency]
------ ------ ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balances June 30, 1995 11,734,801 $ 117,347 $18,773,312 $(17,101,598) 1,789,061
Acquisition of Simis Medical
Imaging, Limited on May 28, 1996 204,850 2,048 1,247,952 - - - 1,250,000
Issuance of stock through
private placements 1,636,664 16,367 4,247,210 - - - 4,263,577
Commission and related fees - - - - - - (8,175) - - - (8,175)
Net loss for the year ended
June 30, 1996 - - - - - - - - - (5,215,062) (5,215,062)
---------- ------- ---------- ----------- ---------
Balance June 30, 1996 13,576,315 135,762 24,260,299 (22,316,660) 2,079,401
Issuance of stock through
private placements 210,576 2,106 103,795 - - - 105,901
Conversion of convertible
debentures 992,194 9,922 1,399,548 - - - 1,409,470
Imputed interest expense on
convertible debentures - - - - - - 1,422,813 - - - 1,422,813
Deferred imputed interest on
convertible debt, net of
amortization of $32,031 - - - - - - 160,157 - - - 160,157
Warrants issued for services - - - - - - 130,861 - - - 130,861
Commissions and related fees - - - - - - (22,491) - - - (22,491
Net loss for the year ended
June 30, 1997 - - - - - - - - - (5,439,265) (5,439,265)
---------- ------- ---------- ----------- -----------
Balances June 30, 1997 14,779,085 147,790 27,454,982 (27,755,925) (153,153)
Conversion of convertible
debentures 2,602,500 26,025 2,173,975 - - - 2,200,000
Deferred imputed interest on
convertible debentures - - - - - - 321,000 - - - 321,000
Stock issued in lieu of interest 44,619 447 192,258 - - - 192,705
Stock issued for services 64,462 645 113,957 - - - 114,602
Warrants issued for services - - - - - - 92,000 - - - 92,000
Conversion of warrants 580,000 5,800 1,510,450 - - - 1,516,250
Commissions and related fees - - - - - - (45,456) - - - (45,456)
Issuance of stock through private
placement 1,220,000 12,200 1,077,450 - - - 1,089,650
Issuance of warrants through
private placement - - - - - - 176,000 - - - 176,000
Miscellaneous adjustment 6,008 60 (60) - - - - - -
Net loss for the year ended
June 30, 1998 - - - - - - - - - (2,388,099) (2,388,099)
---------- ------- ---------- ----------- -----------
Balances June 30, 1998 19,296,674 $192,967 $33,066,556 $(30,144,024) $3,115,499
========== ======== =========== ============= ==========
</TABLE>
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements
-F-6-
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions Inc. and Subsidiaries
Consolidated Statements and Cash Flow
Years Ended June 30
-------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net (loss) $ (2,388,099) $ (5,439,265) $ (5,215,062)
Adjustments to reconcile net (loss) to net cash (used for)
provided by operating activities:
Depreciation and amortization 360,270 377,280 637,169
Amortization of debt issue costs - - - 147,909 - - -
Deferred imputed interest on convertible debentures - - - 160,157 - - -
Securities issued for services 206,602 130,861 - - -
Stock issued for interest expense 192,705 1,472,284 - - -
Loss from discontinued operations - - - - - - 104,503
Reduction in carrying value of assets - - - - - - 777,495
Loss on disposition of property and equipment - - - 4,886 60,001
(Increase) decrease in assets:
Restricted cash (1,234,005) 181,781 177,469
Accounts receivable 2,555,016 (2,274,332) 666,445
Costs and estimated earnings in excess of billings on
contract in progress - - - - - - 66,485
Inventories 223,813 (189,982) 3,334
Other current assets 22,371 (97,423) (16,032)
Due from officer (102,058) - - - - - -
Other assets 47,572 (34,415) (7,153)
Increase (decrease) in liabilities:
Accounts payable (922,646) 1,139,038 (1,336,488)
Due to related parties (281,779) 251,277 (161,763)
Accrued liabilities (117,711) (65,265) 56,558
------------ ------------ ------------
Net adjustments to reconcile net (loss)
to net cash (used for) provided by operating activities 950,150 1,204,056 1,028,023
------------ ------------ ------------
Net Cash (Used for) Operating Activities (1,437,949) (4,235,209) (4,187,039)
------------ ------------ ------------
Cash Flows From Investing Activities:
Additions to property and equipment (216,338) (139,280) (51,451)
Proceeds from disposition of segment - - - - - - 100,000
Proceeds from sale of assets - - - 2,500 12,500
------------ ------------ ------------
Net Cash Provided by (Used for) Investing Activities (216,338) (136,780) 61,049
------------ ------------ ------------
Cash Flows From Financing Activities:
Proceeds from long-term debt 1,033,000 4,500,000 - - -
Repayment of long-term debt (456,729) (398,704) - - -
Proceeds from short-term borrowings 1,080,000 1,185,912 38,668
Repayment of short-term borrowings (1,515,225) (820,000) - - -
Repayment of notes payable for equipment and vehicles (11,083) (17,387) (29,283)
Advances from officer - - - 160,000 - - -
Repayment of advances from officer (160,000) - - - - - -
Payment of offering costs and commissions (45,456) (22,491) (8,175)
Proceeds from issuance of securities 1,871,900 105,894 4,263,577
Payment of debt issue costs - - - (162,700) - - -
Cash acquired in business combination - - - - - - 8,421
------------ ------------ ------------
Net Cash Provided by Financing Activities 1,796,407 4,530,524 4,273,208
------------ ------------ ------------
Net Increase in Cash and Cash Equivalents 142,120 158,535 147,218
Cash and Cash Equivalent at Beginning of Year 422,457 263,922 116,704
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 564,577 $ 422,457 $ 263,922
============ =========== ===========
The Accompanying Notes are an Integral Part of these
Consolidated Financial Statements
</TABLE>
-F-7-
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Management Plans and Subsequent Events:
Mark Solutions, Inc.'s (the Company) modular cell products represent an
alternative to traditional construction methods, and penetration into the
construction market has met resistance typically associated with an unfamiliar
product. Accordingly, the Company has been and will continue to be subject to
significant sales fluctuations until its modular cell technology receives
greater acceptance in the construction market, which management believes will
occur as new projects are awarded and completed.
In May 1996, the Company acquired MarkCare Medical Systems Limited
(formerly Simis Medical Imaging Limited), the entity, which developed the
IntraScan II PACS software, to more effectively control the development and
marketing strategy. In addition, the Company has entered into a software
supplier agreement with Data General Corporation, a large computer hardware and
integration provider, pursuant to which Data General will include the IntraScan
II PACS software program in proposals to health care institutions. Although no
assurances can be given, management believes that these actions will improve the
effectiveness of its marketing plan and will enable the Company to generate
significant revenues from the IntraScan II PACS system in fiscal 1999. Mark
received its first purchase order for its IntraScan II PACS software on August
10, 1998 from Data General.
The Company's working capital requirements have historically exceeded its
working capital from operations. Accordingly, the Company has been dependent,
and absent significant improvements in operations, will continue to be dependent
on the infusion of new capital in the form of equity or debt financing.
The Company has effective registration statements relating to 569,500
shares of common stock issuable upon the exercise of warrants and options and
intends to register approximately 3,760,000 additional shares of common stock
issuable upon the exercise of other outstanding warrants and options. The
Company will initially look to the exercise of presently outstanding warrants
and options to meet working capital deficits, however if sufficient securities
are not exercised, the Company will consider additional private sales of its
securities.
The Company believes the existing modular cell contracts, presently
available working capital, projected modular cell contracts and other financial
developments will result in improved operating results and generate sufficient
working capital through fiscal 1999.
-F-8-
<PAGE>
Note 2 - Summary of Significant Accounting
Policies:
A. Nature of Business - The Company is a Delaware corporation, which
operates its various businesses through wholly owned subsidiaries
and a division.
The Company is engaged in the design, manufacture, and/or
installation of (i) modular steel cells for correctional institution
construction and (ii) diagnostic support, picture archiving and
communication computer systems (PACS) marketed under the name
"IntraScan".
B. Basis of Consolidation - The consolidated financial statements
include the accounts of Mark Solutions, Inc. (Mark) and its wholly
owned Subsidiaries, MarkCare Medical Systems, Inc. (MarkCare), and
MarkCare Medical Systems Limited (LTD). The operations of MarkCare
Medical Systems Limited are included in the accompanying
consolidated financial statements from the date it was acquired, May
28, 1996. Prior to consolidation, the financial statements of LTD
are reconciled to U.S. Generally Accepted Accounting Principles.
C. Revenue Recognition - Revenues are recorded at the time services are
performed or when products are shipped except for manufacturing
contracts which are recorded on the percentage-of-completion method
which measures the percentage of costs incurred over the estimated
total costs for each contract. This method is used because
management considers incurred costs to be the best available measure
of progress on these contracts. Contract costs include all direct
material and labor costs and those indirect costs related to
contract performance. Selling, general and administrative costs
are charged to expense as incurred. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses
are determined. The Company provides an allowance for bad debts
and returns based upon its historical experience. The allowance
for bad debts is charged as a general and administrative expense.
D. Cash Equivalents - For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
E. Inventories - Inventories are valued at the lower of cost or market
on a first-in, first-out basis. The Company evaluates the levels of
inventory based on historical movement and current projections of
usage of the inventory. If this evaluation indicates obsolescence
and or slow movement, the Company would record a reduction in the
carrying value by the amount the cost basis exceeded the estimated
net realizable value of the inventory.
-F-9-
<PAGE>
Note 2 - Summary of Significant Accounting Policies (Continued):
F. Property and Depreciation - All property and equipment items are
stated at cost. Leasehold improvements are amortized under the
straight-line method. Substantially all other items are depreciated
under straight line and accelerated methods. Depreciation and
amortization is provided in amounts sufficient to write-off the cost
of depreciable assets, less salvage value, over the following
estimated useful lives:
Machinery and equipment 7 years
Demonstration equipment 5 - 7 years
Office furniture and equipment 5 - 7 years
Leasehold improvements 31 - 39 years
Vehicles 5 years
Property held under capital lease 5 years
From January 1, 1996 to September 30, 1996 the Company did not
maintain a manufacturing facility and out-sourced its manufacturing
to third party manufacturers. As a result, the Company's
manufacturing equipment, with a cost of $1,261,637, was not
utilized. The accompanying financial statements do not include a
charge for the depreciation of the manufacturing equipment from
January 1, 1996 to September 30, 1996.
The Company obtained a manufacturing facility on October 1, 1996 and
subsequently placed the manufacturing equipment in service.
G. Costs in Excess of Net Assets of Businesses Acquired - In connection
with the acquisition of MarkCare and LTD, the excess acquisition
cost over the fair value of net assets of businesses acquired is
being amortized using the straight-line method over five years.
The Company periodically reviews the carrying amounts of costs in
excess of net assets of businesses acquired. If events or changes in
circumstances indicate that the amount of the net assets may not be
recoverable, based on information available to the Company at that
time, including current and projected cash flows, an appropriate
adjustment is charged to operations.
H. Income Taxes - Deferred income taxes are recognized for tax
consequences of "temporary differences" by applying enacted
statutory tax rates, applicable to future years, to differences
between the financial reporting and the tax basis of existing assets
and liability. Deferred taxes are also recognized for operating
losses that are available to offset future taxable income.
-F-10-
<PAGE>
Note 2 - Summary of Significant Accounting Policies (Continued):
I. Loss Per Common Share - In 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128). This Statement establishes standards for computing and
presenting earnings (loss) per share (EPS).
SFAS No. 128 requires dual presentation of basic and diluted EPS.
Basic EPS excludes dilution and is computed by dividing net income
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if stock options or convertible
securities were exercised or converted into common stock. The
Company's adoption of SFAS No. 128 did not materially change current
and prior years' EPS.
Basic and diluted loss per share amounts were equivalent for the
years ended June 30, 1998, 1997 and 1996.
J. Stock-Based Compensation - The Company grants stock options to
employees with an exercise price equal to or above the fair value of
the shares at the date of the grant. The Company accounts for stock
option grants in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and, accordingly, recognizes no
compensation expense for the stock option grants.
K. 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 at the date of the financial statements and
the reported amounts of expenses during the report period. The
estimates involve judgments with respect to, among other things,
various future factors which are difficult to predict and are beyond
the control of the Company.
Therefore, actual amounts could differ from these estimates.
L. Research and Development Costs - Research and development costs,
consisting of salaries and materials, relating to software
development are expensed as incurred. Prior to technological
feasibility the costs were charged to Selling, General and
Administrative expense, amounting to $0, $481,987 and $326,158 for
the years ended June 30, 1998, 1997 and 1996, respectively.
M. Reclassifications - Certain prior year amounts have been
reclassified to conform with the current year presentation.
-F-11-
<PAGE>
Note 2 - Summary of Significant Accounting Policies (Continued):
N. New Standards - In June 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distribution
to owners. Among other disclosures, SFAS No. 130 requires that all
items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as
other financial statements.
In addition, in June 1997, the FASB issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related
Information," which establishes standards for reporting information
about operating segments. It also establishes standards for
disclosures regarding products and services, geographic areas and
major customers.
Both of these new standards are effective for periods beginning
after December 15, 1997 and require comparative information for
earlier years to be restated. The implementation of these new
standards will not affect the Company's results of operations and
financial position, but may have an impact on future financial
statement disclosures.
Note 3 - Acquisition:
On May 28, 1996, the Company acquired all of the capital stock of MarkCare
Medical Systems Limited, a privately held British company (LTD) for $1,250,000
payable in the Company's common stock. This acquisition has been accounted for
using the purchase method of accounting. The Company recorded costs in excess of
net assets approximating $1,050,000 in connection with this acquisition.
Note 4 - Inventories:
Inventories consist of the following:
June 30
--------------------------------------
1998 1997
----------------- -----------------
Raw materials $ 84,974 $ 300,888
Finished goods 27,500 35,399
----------------- -----------------
Total Inventories $ 112,474 $ 336,287
================= =================
-F-12-
<PAGE>
Note 5 - Other Current Assets:
Other current assets consist of:
June 30
------------------------------------
1998 1997
---------------- -----------------
Prepaid expenses $ 208,377 $ 60,860
Loans and exchanges - - - 9,731
Deferred imputed interest
on convertible debentures - - - 160,157
---------------- -----------------
Total $ 208,377 $ 230,748
================ =================
Note 6 - Costs in Excess of Net Assets of Business Acquired:
The components of costs in excess of net assets of businesses acquired as
of June 30, 1998 and 1997 are as follows:
Year Ended June 30
-------------------------------------------
1998 1997
-------------------- -------------------
Beginning balances $ 822,258 $1,032,196
Amortization expense
for the year (209,940) (209,938)
-------------------- -------------------
Ending Balances $ 612,318 $ 822,258
==================== ===================
Note 7 - Short-Term Borrowings:
In March 1997 the Company entered into a bank line of credit based on 60%
of eligible accounts receivable and 32% of the appraised value of eligible
machinery and equipment, not to exceed the line of credit amount of $400,000.
This revolving credit agreement, which expires in October 1998, is
collateralized by substantially all of the Company's assets plus the personal
guarantee of the Company's chief executive officer. Interest is payable monthly
at 1-1/2% above the bank's prime rate. The Company did not have any outstanding
borrowing at June 30, 1998.
-F-13-
<PAGE>
Note 8 - Accrued Liabilities:
The accrued liabilities consist of:
June 30
-----------------------------------------
1998 1997
------------------- ------------------
Salaries $ 34,282 $ 77,488
Professional fees 90,900 48,665
Interest - - - 35,422
Other 15,080 96,398
------------------- ------------------
Total $ 140,262 $ 257,973
=================== ==================
Note 9 - Related Party Transactions:
The Company purchases materials and is reimbursed for various expenses
from Mark Lighting Fixture Co., Inc. (Mark Lighting), an entity owned by the
Company's Chief Executive Officer and Metalite, Inc. (Metalite), an entity owned
by the brother of the Company's Chief Executive Officer.
The following related party transactions are included in the accompanying
financial statements:
Year Ended June 30
---------------------------------------------------------
1998 1997 1996
----------------- ----------------- ------------------
Purchases $ 421,497 $ 231,051 $ 105,512
Expense reimbursement 58,104 135,319 93,125
Consulting services 1,120 33,540 - - -
Bonding fees (5,029) 95,785 - - -
-F-14-
<PAGE>
Note 9 - Related Party Transactions (Continued):
As a result of current and prior years' transactions, the Company
has net balances due to (from) the following related parties, which will be
settled in the ordinary course of business:
June 30
-----------------------------------------
1998 1997
------------------- ------------------
Mark Lighting Fixture Co., Inc. $ 3,360 $ 134,327
Metalite, Inc. 8,869 8,869
Laborstat, Inc. (800) (988)
Carl Coppola (102,058) 95,785
Other shareholders 3,265 58,479
------------------ ------------------
Due to (from) Related Parties $ (87,364) $ 296,472
=================== ==================
In connection with several modular cell project, the Company's Chief
Executive Officer, Carl Coppola, provided third party guarantees to assist the
Company in obtaining performance and completion bonds. As compensation for
providing these guarantees, the Company recorded $95,785 representing five
percent of the gross proceeds from these projects for the year ended June 30,
1997.
During May 1997 the Company received an aggregate of $160,000 and
issued 10% promissory notes payable to its Chief Executive Officer with
principal and interest due August 20, 1997 and September 30, 1997, respectively,
and interest due semi-annually. The entire balance was paid during fiscal 1998.
During fiscal 1998, the Company loan $100,000 to its Chief Executive
Officer. The entire balance was repaid subsequent to year end.
The Company grants non-employee directors, options for serving on
the Board of Directors. On December 3, 1997, each of the Company's directors
were granted five-year options to purchase 100,000 shares of Common Stock at
between $2.875 and $3.375 per share, the closing share price on the date of
grant. On June 25, 1998, the Company cancelled the options and issued new
five-year options purchase 100,000 shares of Common Stock at $1.125 per share,
the closing price on the date of the grant.
-F-15-
<PAGE>
Note 10 - Long-Term Debt:
A. Long-term debt consists of the following:
June 30
-----------------------------------------
1998 1997
------------------ --------------------
Note payable, due December
1999;collateralized by
small equipment $ 12,556 $ 19,989
7% convertible debentures
due August 20, 1998 - - - 441,296
7% convertible debentures
due January 20, 1999 - - - 750,000
7% convertible debentures
due June 2, 1999 - - - 1,250,000
7% convertible debentures
due June 29, 1999 100,000 300,000
7% convertible debentures
due December 31, 1999 1,025,000 - - -
------------------ --------------------
Total Long-Term Debt 1,137,556 2,761,285
Less: Current Portion
Long-Term Debt,
Excluding Current
Portion 108,171 448,729
------------------ --------------------
$ 1,029,385 $ 2,312,556
================== ====================
Maturities of total long-term debt are as follows:
Year Ended June 30
------------------
1999 108,171
2000 1,029,385
B. Convertible Debentures:
On August 23, 1996, the Company sold $2,200,000 principal amount 7%
convertible debentures due August 22, 1998 ("1996 Debentures"). On
December 26, 1996, the terms of the 1996 Debentures were amended to
(i) prohibit additional conversions until March 31, 1997 unless the
trading price of the common stock reaches levels in excess of $3.00
per share and (ii) modify the conversion price to the lesser of (a)
$1.38 or (b) 80% of the average closing bid price on the five
trading days immediately preceding the date(s) of conversion. The
entire Debenture had been converted at June 30, 1998.
In connection with the issuance of the 1996 Debentures, the Company
incurred $162,700 of debt issue costs. These costs were charged to
operations over the remaining term of the 1996 Debentures.
On January 21, 1997, the Company sold $750,000 principal amount
7% convertible debentures due January 20, 1999 (the "1997
Debentures"). The 1997 debentures are convertible, on or after
July 15, 1997, into shares of common stock at a conversion price
which is the lesser of (i) $2.125 or (ii) 80% of the average
closing bid price on the five trading days immediately preceding
the date(s) of conversion. Interest on the 1997 Debentures is
payable in cash or common stock at the Company's option. On May
1, 1998 the Debenture was converted into 750,000 shares of Common
Stock.
-F-16-
<PAGE>
Note 10 - Long Term Debt (Continued)
On June 2, 1997, the Company sold $1,250,000 principal amount 7%
Convertible Debentures due June 2, 1999. The debentures are
immediately convertible into shares of common stock at a conversion
price of $0.80 per share.
During 1998 the Company issued 44,619 shares of Common Stock (valued
at $192,258) in connection with the conversion of accrued interest
on convertible debentures.
On June 27, 1997, the Company sold $300,000 principal amount 7%
convertible debentures due June 29, 1999. The debentures are
convertible, on or after December 30, 1997, into shares of common
stock at a conversion price of $0.80 per share. Included in current
assets is $160,157, which represents the unamortized portion of the
beneficial conversion feature as of June 30, 1997. On June 19, 1998,
$200,000 of the Debenture was converted into 250,000 shares of
Common Stock. The Company issued 75,000 warrants with an exercise
price of $1.50 as part of the conversion. At June 30 1998, $100,000
of the debenture remains outstanding.
In June 1998, the Company completed a $2,750,000 private placement of
equity and debt units (the "Private Placement") pursuant to which the
Company issued (i) 1,220,000 shares of Common Stock (the "Private
Placement Common Stock"), (ii) convertible debentures (face amount
$1,530,000) due December 28, 1999, (the "Convertible Debentures"),
(iii) warrants to purchase 1,375,000 shares of Common Stock, (iv) and
an option exercisable by the investors to purchase an additional
convertible debentures (face amount $2,550,000) with warrants to
purchase 1,275,000 shares of Common Stock (the "Debt Unit Option").
Of the $1,530,000 proceeds received in connection with the
convertible debentures and its related options, $505,000 was
attributed to the debenture conversion features and options and has
been classified as additional paid-in capital, and the remaining
$1,025,000 has been classified as a long-term obligation.
At June 30, 1998 approximately $1,234,000 of the proceeds were held
in escrow and $1,231,000 were outstanding. These funds were
collected and deposited into the Company's operating accounts in
July 1998.
-F-17-
<PAGE>
Note 10 - Long Term Debt (Continued)
The holders of the Private Placement Common Stock are entitled to
additional shares of Common Stock to the extent the net proceeds from
the sale of the Private Placement Common Stock is less than $1.30 per
share (the "Share Adjustment"). The Convertible Debentures are
convertible into shares of Common Stock at the lesser of (i) $1.50
per share or (ii) 75% of the average closing bid price of the Common
Stock for the five trading days immediately preceding the conversion.
The Warrants are exercisable for a four-year period at $1.50 per
share. The Debt Unit Option entitles the investors to purchase up to
an additional $2,550,000 in 18 month principal amount convertible
debentures with terms identical to the Convertible Debentures with
four-year warrants to purchase an aggregate of 1,250,000 shares of
Common Stock at $1.50 per share.
Issuance of Common Stock in excess of 3,615,334 shares pursuant to
the Private Placement including the (i) Share Adjustment, (ii)
conversion of the Convertible Debentures, (iii) exercise of Warrants
and (iv) exercise of the Debt Unit Option is subject to the approval
of the Company's shareholders. In the absence of shareholder approval
of issuance's in excess of 3,615,334 shares the holders of the
Private Placement Common Stock and Convertible debentures will have
the right to demand cash payment equal to the value of the Share
Adjustment and the redemption of the Convertible Debentures at 125%
of the principal amount plus accrued interest.
As of September 1, 1998, all of the Convertible Debentures and
Warrants remained, issued and outstanding.
The Company has charged to operations for the years ending June 30,
1998 and 1997, $160,157 and $1,422,813 of imputed interest expense
on convertible debentures, which represents the discount on
conversion of each of the above convertible debentures.
Note 11 - Fair Value of Financial Instruments
The estimated fair value of the Company's convertible debt as of June
30, 1998 is as follows:
Carrying Fair
Amount Value
--------------------- ---------------------
Convertible debt $ 1,125,000 $ 1,125,000
-F-18-
<PAGE>
Note 11 - Fair Value of Financial Instruments (Continued):
The estimated fair value of the Company's convertible debt as of June
30, 1997 is as follows:
Carrying Fair
Amount Value
--------------------- ---------------------
Convertible debt $ 2,741,296 $ 2,928,796
The estimated fair value amount has been determined using available market
information or other appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop estimates of fair
value, so the estimates are not necessarily indicative of the amount that could
be realized or would be paid in a current market exchange. The effect of using
different market assumptions and/or estimation methodologies may be material to
the estimated fair value amounts.
The fair value of the Company's other financial instruments approximates
their carrying amounts.
Note 12 - Stockholders' Equity:
A. Stock Option Plan:
On November 10, 1993, the Company adopted a Stock Option Plan. The Plan
is administered and terms of option grants are established by the Board
of Directors. Under the terms of the Plan, options to purchase 1,000,000
shares of common stock may be granted to key employees. Options become
exercisable as determined by the Board of Directors and expire over
terms not exceeding employment, six months after death or one year in
the case of permanent disability of the option holder. The option price
for all shares granted under the Plan is equal to the fair market value
of the common stock at the date of grant, as determined by the Board of
Directors, except in the case of a ten percent shareholder where the
option price shall not be less than 110% of the fair market value at the
date of grant.
-F-19-
<PAGE>
Note 12 - Stockholders' Equity (Continued):
The following information relates to shares under option and shares
available for grant under the Plan:
<TABLE>
<CAPTION>
June 30
--------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------- -------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 381,000 $ 2.04 367,000 $ 3.70 523,000 $ 3.71
Granted 524,000 2.67 282,500 1.60 --- --
Cancelled (505,500) 2.95 (268,500) 3.81 (76,000) 3.79
Exercised ---- -- ---- 2.04 (80,000) 3.67
------- ------ ------- ------- ------- -------
Outstanding at
end of year 399,500 $ 1.45 381,000 $ 2.04 367,000 $ 3.70
======= ====== ======= ======= ======= =======
Available for
issuance under Plan 520,000 539,000 553,000
Weighted average
contractual life
(years) 1.95 2.24 1.22
Shares subject to
exercisable option 399,500 381,000 367,000
</TABLE>
B. Stock Warrants
Outstanding warrants are as follows:
<TABLE>
<CAPTION>
June 30
---------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Warrants outstanding
at beginning of year 3,241,758 $ 3.67 3,933,880 $ 4.10 4,848,859 $ 4.45
Granted 2,565,000 1.58 1,395,000 2.91 615,000 5.08
Exercised (580,000) (2.61) (43,572) 2.43 (1,456,979) 2.54
Expired (980,091) (4.20) (2,043,550) 4.02 (73,000) 7.16
--------- ------ --------- ------ --------- ------
Warrants outstanding
at end of year 4,246,667 $ 2.43 3,241,758 $ 3.64 3,933,880 $ 4.10
========= ====== ========= ====== ========= ======
Weighted average
contractual life
(years) 2.56 1.51 .79
</TABLE>
-F-20-
<PAGE>
Note 12 - Stockholders' Equity (Continued):
C. Pro forma Information:
Pro forma information regarding net earnings and earnings per share,
as required by SFAS No. 123, has been determined as if the Company
had accounted for its employee stock options under the fair-value
method. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the
following weighted average assumptions for fiscal 1998 and 1997:
risk-free interest rate of 6.40% and 5.57%; dividend yield -0-;
volatility fact related to the expected market price of the
Company's common stock of .35; and weighted-average expected option
life of 3.3 and 2.0 years. The weighted-average fair value of
options granted during fiscal 1998 and 1997 were $1.76 and $1.84,
respectively. The Company's pro forma information follows:
June 30
--------------------------------------------------
1998 1997 1996
---- ---- ----
Pro forma net (loss) ($3,017,300) $(5,701,590) $(5,224,781)
Pro forma loss per
common share (.18) (.40 ) (.41)
ote 13 - Leases:
A. Facility Leases:
The Company occupies its offices pursuant to an operating lease
expiring in December 1998. The Company conducts its manufacturing
operations pursuant to an operating lease expiring November 15,
2004. Under the terms of these leases, the Company is obligated to
pay maintenance, insurance, and its allocable share of real estate
taxes. The Company also leases various automobiles and small office
equipment.
Future minimum rental payments under these operating leases are as
follows:
Year Ended June 30
1999 276,254
2000 193,820
2001 186,149
2002 174,236
2003 and thereafter 413,811
----------
Total future minimum rental payments 1,070,034
=========
-F-21-
<PAGE>
Note 13 - Leases (Continued):
Rent expense for the years ending June 30, 1998, 1997, and 1996,
was $330,991, $254,522, and $205,586, respectively.
B. Capital Leases:
The Company leases certain equipment under capital leases with
expiration dates ranging from April 2000 through April 2002.
Future minimum lease payments are as follows:
Year Ended June 30
1999 $ 29,723
2000 26,587
2001 8,936
2002 1,611
---------
Total future minimum lease payments 66,857
Less: Amount representing interest 16,408
---------
Present value of net future minimum
lease payments 50,449
Less: Current portion of obligations
under capital leases 19,418
---------
Long-term portion of obligations
under capital leases $ 31,031
=========
Note 14 - Commitments and Contingencies:
The Company entered into an employment agreement with its Chief Executive
Officer. The agreement expires on June 30, 2000 and is payable at an annual base
salary of $200,000. In addition, the agreement includes three (3) year
nonqualified options to purchase 750,000 shares of common stock at various
prices exercise prices ranging from $1.25 to $2.75.
In connection with the acquisition of LTD, a former shareholder of LTD
entered into a three (3) year employment agreement with LTD which provides (i)
an annual salary of U.K. Pounds 60,000 in the initial year with U.K. Pounds
5,000 increases in the succeeding two years and (ii) bonus equal to 10% of the
post tax profits of LTD. On January 28, 1998 the Company bought out the
remainder of the contract in exchange for 64,462 shares of Common Stock. The
value of the shares at the issue date was $114,602.
The Company maintains cash balances at several financial institutions
located in New Jersey. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. As of June 30, 1998 and 1997, the
Company's uninsured cash balances approximated $1,576,000 and $599,000,
respectively.
-F-22-
<PAGE>
Note 14 - Commitments and Contingencies (Continued):
The Company is involved in various lawsuits and claims incidental to its
business. In the opinion of management, the ultimate liabilities, if any,
resulting from such lawsuits and claims, will not materially affect the
financial position of the Company.
Note 15 - Income Taxes:
As of June 30, 1998, the Company has Federal net operating loss carry
forwards of approximately $19,550,000. Such carry forwards begin to expire in
2009 if not previously used. The $19,550,000 carry forward is comprised of
approximately $17,850,000 which is available for utilization in the tax year
ending June 30, 1999. The remaining $1,700,000 carry forward is restricted as to
utilization subject to the provisions of Internal Revenue Code Section 382.
Since realization of the tax benefits associated with these carry forwards is
not assured, a full valuation allowance was recorded against these tax benefits
as required by SFAS No. 109.
Note 16 - Discontinued Operations:
On November 10, 1993, Showcase Cosmetics, Inc. (Showcase), the parent
company of the Bar-Lor Subsidiaries, and the Company consummated Reorganization
(the "Reorganization") pursuant to a Plan of Reorganization dated December 23,
1992, as amended. The reorganization was accounted for using the purchase method
of accounting. On October 13, 1995, the Company disposed of the Bar-Lor
Subsidiaries, whose principal services were the packaging and distribution of
cosmetic products.
Note 17 - Supplemental Cash Flow Information:
A. Cash paid for interest during the years ended June 30, 1998, 1997
and 1996 amounted to $64,919, $40,832 and $9,581.
B. The Company acquired certain equipment with an aggregate cost of
$25,345 and $6,200 under capital leases obligations for the years
ended June 30, 1998 and 1997 respectively.
C. During 1998, $2,200,000 of Debentures were converted into 2,602,500
shares of common stock. During 1997, $360,000 of Converted
Debentures were liquidated through the issuance of Common Stock.
-F-23-
<PAGE>
Note 17 - Supplemental Cash Flow Information (Continued):
D. During 1998, the Company granted outside consultants options to
acquire 360,000 shares of common stock at exercise prices ranging
from $1.16 to $4.00. In addition, the Company modified the terms of
640,000 options held by outside consultants. The fair value of these
options ($92,000) has been charged to operations in accordance with
SFAS No. 123.
Note 18 - Segment Information:
The Company's two industry segments are the design and manufacture of
modular steel prison cells for the corrections industry and the distribution of
treatment booths and IntraScan Systems to the medical industry. The following is
a summary of selected consolidated financial information for the Company's
industry segments:
June 30
------------------------------------------------
1998 1997 1996
---- ---- ----
Revenues:
Modular steel products $ 12,713,508 $ 6,114,195 $ 3,256,574
Medical products 208,302 335,549 198,041
------------- ------------ ------------
Total $ 12,921,810 $ 6,449,744 $ 3,454,615
============= ============ ============
Operating Profit (Loss):
Modular steel products 73,434 (2,706,272) (4,508,406)
Medical products (2,064,256) (1,035,934) (555,462)
-------------- ------------- ------------
Total $ (1,990,822) $ (3,742,206) $(5,063,868)
============= ============= ============
Identifiable Assets:
Modular steel products $ 4,258,021 $ 5,002,432 $ 1,317,620
Medical products 916,080 429,845 1,766,143
------------- ------------- ------------
Total $ 5,174,101 $ 5,432,277 $ 3,083,763
============= ============= ============
For the year ended June 30, 1998, 1997 and 1996, one customer accounted
for 93%, 48% and 70% of the total revenues. As of June 30, 1998, one customer
accounted for 42% of receivables.
Note 19 - Reduction in Carrying Value of Assets:
The Company acquired the stock of LTD, the developer of the IntraScan II
PACS system. In connection with this acquisition, the Company has determined to
focus its marketing efforts on the IntraScan II PACS technology. In November
1992, the Company acquired Diversified Imaging Technology, a company that
developed the IntraScan I technology, which was subsequently integrated with the
IntraScan II product. As a result, during the fourth quarter of fiscal 1996 the
Company charged operations with approximately $777,000 to write off the excess
net assets of businesses acquired as resulting from its acquisition of the
IntraScan I technology.
-F-24-
<PAGE>
CHANTREY VELLACOTT
MARKCARE MEDICAL SYSTEMS LIMITED
Auditors' Report To The Members of MarkCare Medical Systems Limited
We have audited the financial statements, [for the year ended June 30, 1998].
Which have been prepared under the historical cost convention [ ].
Respective Responsibilities Of Directors And Auditors
As described [ ] the company's directors are responsible for the preparation of
the financial statements. It is our responsibility to form an independent
opinion, based on our audit, on those financial statements and to report our
opinion to you.
Basis Of Opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting polices are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Going concern
In forming our opinion we have considered the adequacy of the disclosures made
in the financial statements [ ] concerning the basis on which the financial
statements have been prepared. The financial statements have been prepared on a
going concern basis. We considered that this matter should be drawn to your
attention but our opinion is not qualified in this respect.
US GAAP and US GAAS
With respect to the information disclosed in the financial statements, we are
not aware of any material differences between UK Generally Accepted Accounting
Principles and US Generally Accepted Accounting Principles or between UK
Auditing Standards and US Generally Accepted Auditing Standards.
-F-25-
<PAGE>
Opinion
In our opinion the financial statements give a true and fair view of the state
of the company's affairs at 30 June 1998 and of its loss for the year then ended
and have been properly prepared in accordance with the Companies Act of 1985.
/s/ Chantrey Vellacott
Chartered Accountants
Registered Auditors
LONDON
<PAGE>
-F-26-
BAKER TILLY
AUDITORS REPORT TO THE MEMBERS OF MARKCARE MEDICAL SYSTEMS, LTD.
We have audited the financial statements. [for the year ended June 30, 1997].
Respective responsibilities of directors and auditors
As described [ ] the company's directors are responsible for the preparation of
the financial statements. It is our responsibility to form and independent
opinion, based on our audit, on those statements and to report our opinion to
you.
Basis of opinion
We conducted our audit, in accordance with Auditing Standards issued by the
Auditing Practice Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit, as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatements, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Fundamental Uncertainty
These accounts have been prepared under the going concern accounting policy.
This is on the basis that the holding company and the directors will continue to
provide sufficient finance to enable the company to meet its liabilities. The
balance sheet position at June 30, 1997, is insolvent by L 340,319. As stated in
the financial statements amounts owned to the holding company and a company
owned by a director total L 324,476. The company is therefore reliant on the
holding company and directors support in order to continue trading. Our opinion
is not qualified in this respect.
US GAAP and US GAAS
With respect to the information disclosed in the financial statements, we are
not aware of any material differences between UK Generally Accepted Accounting
Principles and US Generally Accepted Accounting Principles or between UK
Auditing Standards and US Generally Accepted Auditing Standards.
-F-27-
<PAGE>
Opinion
In our opinion the financial statements give a true and fair view of the state
of the company's affairs at 30 June 1997 and of its loss for the period then
ending and have been properly prepared in accordance with the provisions of the
Companies Act 1985.
/s/ Baker Tilly
Registered Auditors
Chartered Accountants
Old Sarum House
49 Princes Street
Yeovil, Somerset
BA20 1EG
-F-28-
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MARK SOLUTIONS, INC.
The undersigned corporation, in order to amend and restate its Certificate of
Incorporation, hereby certifies as follows:
1. (a) The present name of the corporation (hereinafter called the
corporation") is Mark Solutions, Inc.
(b) The name under which the corporation was originally incorporated is
Showcase Cosmetics, Inc., and the date of filing the original
certificate or incorporation of the corporation with the Secretary
of State of the State of Delaware is September 29, 1986.
2. The certificate of incorporation of the corporation is hereby amended by
striking out Article FOURTH thereof and by substituting in lieu thereof
new Article FOURTH which is set forth in the Restated Certificate or
Incorporation hereinafter provided for.
3. The provisions of the certificate of incorporation of the corporation
as heretofore amended and/or supplemented, and as herein amended, are
hereby restated and integrated into a single instrument which is
hereinafter set forth, and which is entitled Restated Certificate of
Incorporation of Mark Solutions, Inc. without any further amendment
other than the amendment herein certified and without any discrepancy
between the provisions of the certificate of incorporation as
heretofore amended and supplemented and the provisions of the said
single instrument hereinafter set forth.
4. The amendment and the restatement of the restated certificate of
incorporation herein certified have been duly adopted by the
stockholders in accordance with the provisions of Section 242 and of
Section 245 of the General Corporation Law of the State of Delaware.
-1-
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
MARK SOLUTIONS, INC.
FIRST: The name of the corporation is: Mark Solutions, Inc.
SECOND: The registered office of the corporation is to be located at c/o
Corporation Service Company, 1013 Centre Road, in the City of
Wilmington, County of New Castle, State of Delaware 19805.
The name of its registered agent at that address is
Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the
General Corporation Law of Delaware.
FOURTH: The Corporation shall be authorized to issue the following shares:
Class Number of Shares Par Value
----- ---------------- ---------
Common Stock 50,000,000 $.01
FIFTH: The name and address of the incorporator are as follows: -
NAME ADDRESS
---- -------
Ray A. Barr 9 East 40th Street, New York, NY 10016
SIXTH: The following provisions are inserted for the management of the business
and for the conduct of the affairs of the corporation, and for
further definition, limitation and regulation for the powers
of the corporation and of its directors and stockholders:
(1) The number of directors of the corporation shall be such
as from time to time shall be fixed by, or in the manner
provided in the by-laws. Election of directors need not be by
ballot unless the by-laws so provide.
(2) The Board of Directors shall have power without the assent
or vote of the stockholders:
(a) To make, alter, amend, change, add to or repeal
the By-laws of the corporation; to fix and vary the
amount to be reserved for any proper purpose; to
authorize and cause to be executed mortgages and
liens upon all or any part of the property of the
corporation; to determine the use and disposition of
any surplus or net profits; and to fix the times for
the declaration and payment of dividends.
(b) To determine from time to time whether, and to
what times and places, and under what conditions the
accounts and books of the corporation (other than the
stockledger) or any of them shall be open to the
inspection of the stockholders.
-2-
<PAGE>
(3) The directors in their discretion may submit any contract
or act for approval or ratification at any annual meeting of
the stockholders or at any meeting of the stockholders called
for the purpose of considering any such act or contract, and
any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the
corporation which is represented in person or by proxy as such
meeting and entitled to vote thereat (provided that a lawful
quorum of stockholders be there represented in person in
person or by proxy) shall be as valid and as binding upon the
corporation and upon all the stockholders as though it had
been approved or ratified by every stockholder of the
corporation, whether or not the contract or act would
otherwise be open to legal attack because of directors'
interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or
by statute expressly conferred upon them, the directors are
hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the
corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any by-laws
from time to time made by the stockholders; provided, however,
that no by-law so made shall invalidate any prior act of the
directors which would have been valid if such by-law had not
been made.
SEVENTH : No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary
duty as a director, except with respect to (1) a breach of the
director's duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of law,
(3) liability under Section 174 of the Delaware General
Corporation Law or, (4) a transaction from which the
director derived an improper personal benefit, it being the
intention of the foregoing provision to eliminate the
liability of the corporation's directors to the corporation
or its stockholders to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law, as amended
from time to time. The corporation shall indemnify to the
fullest extent permitted by Sections 102(b)(7) and 145 of the
Delaware General Corporation Law, as amended from time to
time, each person that such Sections grant the corporation
the power to indemnify.
EIGHTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or
between this corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of
Delaware, may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for
this corporation under the provisions of Section 291 of Title
8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this
corporation under the provisions of Section 279 Title 8 of the
Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders
of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number
representing three-fourths (3/4) in value of the creditors or
class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to
any compromise or arrangement and to any reorganization of
this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the
said application as been made, be binding on all the creditors
or class of creditors, and/or all the stockholders or class of
stockholders, of this corporation, as the case may be, and
also on this corporation.
-3-
<PAGE>
NINTH: The corporation reserves the right to amend, alter, change or repreal
any provision contained in this certificate of
incorporation in the manner now or hereafter prescribed by
law, and all rights and powers conferred herein on
stockholders, directors, and officers are subject to this
reserved power.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the statements
made herein are true and under the penalties of perjury, this 27th day of
January 1998.
MARK SOLUTIONS, INC.
/s/ Carl Coppola
-----------------------
Carl Coppola, President
ATTEST:
/s/ Cheryl Gomes
- --------------------------
Cheryl A. Gomes, Secretary
-4-
<PAGE>
BY-LAWS
0F
MARK-SOLUTIONS, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. -The registered office shall be established
and maintained at c/o United Corporate Services, Inc, 410 South State Street,
Dover, Delaware 19901 and United Corporate Services, Inc. shall be the
registered agent of this corporation in charge thereof.
SECTION 2. OTHER OFFICES. - The corporation may have other offices, either
within or without the State of Delaware, at such place or places as the Board of
Directors may from time to time appoint or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS: - Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of meeting. In the event the
Board of Directors fails to so determine the time, date and place of meeting,
the annual meeting of stockholders shall be held at the registered office of the
corporation in Delaware.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote should elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS. - Meetings of stockholders for any purpose other
than the election of directors may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting.
SECTION 3. VOTING.- Each stockholder entitled to vote in accordance with the
terms of the Certificate of Incorporation and in accordance with the provisions
of these By-Laws shall be entitled to one vote, in person or by proxy, for each
share of stock entitled to vote held by such stockholder, but no proxy shall be
voted after three years from its date unless such proxy provides for a longer
period. Upon the demand of any stockholder, the vote for directors and the vote
upon any question before the meeting, shall be by ballot. All elections for
directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
-1-
<PAGE>
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM . - Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. SPECIAL MEETINGS. - Special meetings of the stockholders for any
purpose or purposes any be called. by the President or Secretary, or by
resolution of the directors.
SECTION 6. NOTICE OF MEETINGS . - Written notice, stating the place, date
and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than fifty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. - The number of directors shall be one (1). The
directors shall be elected at the annual meeting of the stockholders and each
director shall be elected to serve until his successor shall be elected and
shall qualify. A director need not be a stockholder.
SECTION 2. RESIGNATIONS. - Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES - If the office of any director, member of a committee
or other officer becomes vacant, the remaining directors in office, though less
than a quorum by a majority vote, may appoint any qualified person to fill such
vacancy, who shall hold office for the unexpired term and until his successor
shall be duly chosen.
SECTION 4. REMOVAL. - Any director or directors may be removed either for or
without cause at any time by the affirmative vote of the holders of a majority
of all the shares of stock outstanding and entitled to vote, at a special
meeting of the stockholders called for the purpose and the vacancies thus
-2-
<PAGE>
created may be filled, at the meeting held for the purpose of removal, by the
affirmative vote of a majority in interest of the stockholders entitled to vote.
SECTION 5. INCREASE OF NUMBER. - The number of directors may be increased by
amendment of these By-Laws by the affirmative vote of a majority of the
directors, though less than a quorum, or, by the affirmative vote of a majority
in interest of the stockholders, at the annual meeting or at a special meeting
called for that purpose, and by like vote the additional directors may be chosen
at such meeting to hold office until the next annual election and until their
successors are elected and qualify.
SECTION 6. POWERS. The Board of Directors shall exercise all of the powers
of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. - The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member or
such committee or committees, the member or members thereof present at any such
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board of
Directors, or in these By-Laws, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power of authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and unless the resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS. - The newly elected Board of Directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent, in
writing, of all the directors.
Unless restricted by the incorporation document or elsewhere in these
By-laws, members of the Board of Directors or any committee designated by such
Board may participate in a meeting of such Board or committee by means of
conference 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 such meeting.
Regular meetings of the Board of Directors may be scheduled by a resolution
adopted by the Board. The Chairman of the Board or the President or Secretary
may call, and if requested by any two directors, must call special meeting of
the Board and give five days' notice by mail, or two days' notice personally or
by telegraph or cable to each director. The Board of Directors may hold an
annual meeting, without notice, immediately after the annual meeting of
shareholders.
-3-
<PAGE>
SECTION 9. QUORUM. - A majority of the directors shall constitute a quorum
for the transaction of business. If at any meeting of the board there shall be
less than a quorum present, a majority of those present may adjourn the meeting
from time to time until a quorum is obtained, and no further notice thereof need
be given other than by announcement at the meeting which shall be so adjourned.
SECTION 10. COMPENSATION. - Directors shall not receive any stated salary for
their services as directors or as members of committees, but by resolution of
the board a fixed fee and expenses of attendance may be allowed for attendance
at each meeting. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer, agent
or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. - Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting, if prior to such action a written consent thereto is
signed by all members of the board, or of such committee as the case may be, and
such written consent is filed with the minutes of proceedings of the board or
committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. - The officers of the corporation shall be a President,
a Treasurer, and a Secretary, all of whom shall be elected by the Board of
Directors and who shall hold office until their successors are elected and
qualified. In addition, the Board of Directors may elect a Chairman, one or more
Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as they
may deem proper. None of the officers of the corporation need be directors. The
officers shall be elected at the first meeting of the Board of Directors after
each annual meeting. More than two offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors may appoint
such other officers and agents as it may deem advisable, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. - The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. - The President shall be the chief executive officer
of the corporation and shall have the general powers and duties of supervision
and management usually vested in the office of President of a corporation. He
shall preside at all meetings of the stockholders if present thereat, and in the
absence or non-election of the Chairman of the Board of Directors, at all
meetings of the Board of Directors, and shall have general supervision,
direction and control of the business of the corporation. Except as the Board of
Directors shall authorize the execution thereof in some other manner, he shall
execute bonds, mortgages and other contracts in behalf of the corporation, and
shall cause the seal to be affixed to any instrument requiring it and when so
affixed the seal shall be attested by the signature of the Secretary or the
Treasurer or Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT. - Each Vice-President shall have such powers and
shall perform such duties as shall be assigned to him by the directors.
SECTION 6. TREASURER. - The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
-4-
<PAGE>
The Treasurer shall disburse the funds of the corporation as may be ordered
by the Board of Directors, or the President, taking proper vouchers for such
disbursements. He shall render to the President and Board of Directors at the
regular meetings of the Board of Directors, or whenever they may request it, an
account of all his transactions as Treasurer and of the financial condition of
the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY. - The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by the law or by these By-Laws, and in case of his absence or refusal
or neglect so to do, any such notice may be given by any person thereunto
directed by the President, or by the directors, or stockholders, upon whose
requisition the meeting is called as provided in these By-Laws. He shall record
all the proceedings of the meetings of the corporation and of the directors in a
book to be kept for that purpose, and shall perform such other duties as may be
assigned to him by the directors or the President. He shall have the custody of
the seal of the corporation and shall affix the same to all instruments
requiring it, when authorized by the directors or the President, and attest the
same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.-Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. - A certificate of stock, signed by the
Chairman or Vice-Chairman of the Board of Directors, if they be elected,
President or Vice-President, and the Treasurer or an Assistant Treasurer, or
Secretary or Assistant Secretary, shall be issued to each stockholder certifying
the number of shares owned by him in the corporation. When such certificates are
countersigned (1) by a transfer agent other than the corporation or its
employee, or, (2) by a registrar other than the corporation or its employee, the
signatures of such officers may be facsimiles.
SECTION 2. LOST CERTIFICATES. - A new certificate of stock may be issued in
the place of any certificate theretofore issued by the corporation, alleged to
have been lost or destroyed, and the directors may, in their discretion, require
the owner of the lost or destroyed certificate, or his legal representatives, to
give the corporation a bond, in such sum as they may direct, not exceeding
double the value of the stock, to indemnify the corporation against any claim
that may be made against it on account of the alleged loss of any such
certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. - The shares of stock of the corporation
shall be transferrable only upon its books by the holders thereof in person or
by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. - In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any date, which shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
-5-
<PAGE>
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjournment meeting.
SECTION 5. DIVIDENDS. - Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. - The corporate seal shall be circular in form and shall
contain the name of the corporation, the year of its creation and the words
"Corporate Seal, Delaware, 1986". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR.- The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. - All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. - Whenever any notice is required by
these By-Laws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage, prepaid, addressed to
the person entitled thereto at his address as it appears on the records of the
corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by Statute.
Whenever any notice whatever is required to be given under the provisions of
any law, or under the provisions of the Certificate of Incorporation of the
corporation of these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal of By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal of By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
-6-
<PAGE>
NUMBER
SHARES
MS
MARK SOLUTIONS INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 570418 10 3
COMMON STOCK
THIS CERTIFIES THAT:
SPECIMEN
is owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.01 VALUE EACH
OF MARK SOLUTIONS, INC.
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of Delaware,
and to the Certificate of Incorporation and By-laws of the Corporation, as now
or hereafter amended. This certificate is not valid until countersigned by the
Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED: COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
JERSEY CITY, NJ
TRANSFER AGENT
BY:
AUTHORIZED OFFICER
MARK SOLUTIONS, INC.
CORPORTATE
SEAL
1986
DELAWARE
/s/ Cheryl A. Gomes /s/ Carl Coppola
Secretary President
-1-
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MINA CT.......Custodian....
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ...............
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESSS, INCLUDING ZIP CODE, OF ASSIGN)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
______________________________________________________________________________
Shares of the stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated____________________
----------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF THE SHARES OF EACH CLASS AND SERIES AUTHORIZED TO BE ISSUED, SO
FAR AS THE SAME HAVE BEEN DETERMINED, AND OF THE AUTHORITY, IF ANY, OF THE BOARD
TO DIVIDE THE SHARES INTO CLASSES OR SERIES AND TO DETERMINE AND CHANGE THE
RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF ANY CLASS OR SERIES. SUCH
REQUEST MAY BE MADE TO THE SECRETARY OF THE CORPORATION OR TO THE TRANSFER AGENT
NAMED ON THIS CERTIFICATE.
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST
COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK
EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM.
-2-
<PAGE>
MARK SOLUTIONS, INC.
1993 STOCK OPTION PLAN
-1-
<PAGE>
TABLE OF CONTENTS
Page
Section 1. PURPOSE............................................ 4
Section 2. DEFINITIONS........................................ 4
2.1 Board....................................... 4
2.2 Code........................................ 4
2.3 Committee................................... 4
2.4 Corporation................................. 4
2.5 Exchange Act................................ 4
2.6 Fair Market Value........................... 4
2.7 Option...................................... 4
2.8 Key Employee................................ 4
2.9 Option Certificate.......................... 5
2.10 Option Price................................ 5
2.11 Parent Corporation.......................... 5
2.12 Plan........................................ 5
2.13 Principal Officer........................... 5
2.14 Securities Act.............................. 5
2.15 Stock....................................... 5
2.16 Subsidiary.................................. 5
2.17 Ten Percent Shareholder..................... 5
Section 3. SHARES SUBJECT TO OPTIONS.......................... 6
Section 4. EFFECTIVE DATE.................................... 6
Section 5. COMMITTEE......................................... 6
Section 6. ELIGIBILITY....................................... 6
Section 7. GRANT OF OPTIONS.................................. 7
7.1 Committee Action............................. 7
7.2 $100,000 Limit............................. 7
Section 8. OPTION PRICE...................................... 7
Section 9. EXERCISE PERIOD.................................. 8
Section 10. NONTRANSFERABILITY............................. 9
Section 11. SECURITIES REGISTRATION AND RESTRICTIONS....... 9
Section 12. LIFE OF PLAN................................... 10
Section 13. ADJUSTMENT..................................... 10
Section 14. SALE OR MERGER OF THE CORPORATION.............. 10
-2-
<PAGE>
Section 15. AMENDMENT OR TERMINATION...................... 11
Section 16. MISCELLANEOUS................................ 11
16.1 No Shareholder Rights................. 11
16.2 No Contract of Employment............. 11
16.3 Withholding........................... 11
16.4 Construction.......................... 11
-3-
<PAGE>
Section 1. PURPOSE
The purpose of this Plan is to promote the interests of the Corporation by
granting Options to purchase Stock to Key Employees in order to (a) attract and
retain Key Employees; (b) provide an additional incentive to each Key Employee
to work to increase the value of the Stock; and (c) provide each such Key
Employee with a stake in the future of the Corporation which corresponds to the
stake of each of the Corporation's shareholders.
Section 2. DEFINITIONS
Each term set forth in this Section 2 shall have the meaning set forth
opposite such term for purposes of this Plan and for any Option granted under
this Plan. For purposes of such definitions, the singular shall include the
plural and the plural shall include the singular. Unless otherwise expressly
indicated, all Section references herein shall be construed to mean references
to a particular Section of this Plan.
2.1 Board means the Board of Directors of the Corporation.
2.2 Code means the Internal Revenue Code of 1986, as amended.
2.3 Committee means the committee or either of the committees appointed
by the Board to administer this Plan as contemplated by Section 5.
2.4 Corporation means Mark Solutions, Inc., a Delaware corporation, and
any successor to such corporation.
2.5 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.6 Fair Market Value means the price which the Committee acting in
good faith determines through any reasonable valuation method that a
share of Stock might change hands between a willing buyer and a willing
seller, neither being under any compulsion to buy or to sell and both
having reasonable knowledge of the relevant facts.
2.7 Key Employee means any employee of the Corporation or a Subsidiary,
who, in the judgment of the Committee acting in its absolute discretion,
is a key to the success of the Corporation or a Subsidiary.
2.8 Option means any option granted under this Plan to purchase Stock which
satisfies the requirements of Section 422 of the Code.
2.9 Option Certificate means the written agreement or instrument which sets
forth the terms of an Option granted to a Key Employee under this Plan.
2.10 Option Price means the price which shall be paid to purchase one
share of stock upon the exercise of an Option granted under this
Plan.
2.11 Parent Corporation means any corporation which is a parent corporation
of the Corporation within the meaning of Section 424(e) of the Code.
-4-
<PAGE>
2.12 Plan means this Mark Solutions, Inc. 1993 Stock Option Plan, as amended
from time to time.
2.13 Principal Officer means the Chairman of the Board (if the Chairman of
the Board is a payroll employee), the Chief Executive Officer, the
President, any Executive Vice President, any Senior Vice President, any
Vice President and the Treasurer of the Corporation and any other person
who is an "officer" of the Corporation as that term is defined in Rule
16a-1(f) under the Exchange Act or any successor rule thereunder.
2.14 Securities Act means the Securities Act of 1933, as amended.
2.15 Stock means the Common Stock, $.01 par value per share, of the
Corporation.
2.16 Subsidiary means any corporation which is a subsidiary corporation of the
Corporation within the meaning of Section 424(f) of the Code.
2.17 Ten Percent Shareholder means a person who owns after taking into account
the attribution rules of Section 424(d) of the Code more than ten percent
(10%) of the total combined voting power of all classes of stock of either
the Corporation, a Subsidiary or a Parent Corporation.
Section 3. SHARES SUBJECT TO OPTIONS
There shall be 1,000,000 shares of Stock reserved for issuance in
connection with Options under this Plan. Such shares of Stock shall be reserved
to the extent that the Corporation deems appropriate from authorized but
unissued shares of Stock and from shares of Stock which have been reacquired by
the Corporation. Any shares of Stock subject to an Option which remain after the
cancellation expiration or exchange of such Option for another Option thereafter
shall again become available for use under this Plan.
Section 4. EFFECTIVE DATE
The effective date of this Plan shall be the date it is originally
approved and adopted by the Board of the Corporation, subject to approval by the
shareholders of the Corporation acting at a duly called meeting of such
shareholders or acting by unanimous written consent in lieu of a meeting,
provided such shareholder approval occurs within twelve (12) months after the
date the Board approves and adopts this Plan.
Section 5. COMMITTEE
This Plan shall be administered by the Committee. The Committee acting in
its absolute discretion shall exercise such powers and take such action as
expressly called for under this Plan. Furthermore, the Committee shall have the
power to interpret this Plan and to take such other action in the administration
and operation of this Plan as the Committee deems equitable under the
circumstances, which action shall be binding on the Corporation, on each
affected Key Employee, and on each other person directly or indirectly affected
Key Employee, and on each other person directly or indirectly affected by such
action. The Board may designate one Committee, all of the members of which are
members of the Board.
-5-
<PAGE>
Section 6. ELIGIBILITY
Only Key Employees shall be eligible for the grant of Options under this
Plan.
Section 7. GRANT OF OPTIONS
7.1Committee Action. The Committee in its absolute discretion shall grant
Options to Key Employees under this Plan from time to time to purchase shares of
Stock and, further, shall have the right to grant new Options in exchange for
outstanding Options. Each grant of an Option shall be evidenced by an Option
Certificate, and each Option Certificate shall:
(a)specify that the Option is an "incentive stock option";
(b) incorporate such other terms and conditions as
the Committee acting in its absolute discretion deems consistent with
the terms of this Plan, including, without limitation, a limitation on
the number of shares subject to the option which first became
exercisable or subject to surrender during any particular period.
In connection with the termination for any reason of employment by or service to
the Corporation or any Subsidiary of any particular holder of any Option, the
Committee may, in its discretion, determine to modify the number of shares of
Stock as to which such Option first becomes exercisable during any particular
period as provided in the related Option Certificate; provided, however, that
the Committee may not extend any such period with respect to any shares of Stock
subject to such Option.
7.2$100,000 Limit. To the extent that the aggregate Fair Market Value of
the stock with respect to which Options satisfying the requirements of Section
422 of the Code granted a Key Employee under this Plan and under any other stock
option plan adopted by the Corporation, a Subsidiary or a Parent Corporation
first become exercisable in any calendar year exceeds $100,000 (based upon the
Fair Market Value on the date of the grant), such Options shall be treated as
non-qualified options.
Section 8. OPTION PRICE
The Option Price for each share of Stock subject to an Option shall not be
less than the Fair Market Value of a share of Stock on the date the Option is
granted, or if the Key Employee is a Ten Percent Shareholder, the Option Price
for each share of Stock subject to such Option shall not be less than 110% of
the Fair Market Value of a share of Stock on the date the Option is granted. The
Option Price shall be payable in cash in full upon the exercise of any Option.
Section 9. EXERCISE PERIOD
Each Option granted under this Plan shall be exercisable in whole or in part
at such time or times as set forth in the related Option Certificate, but no
Option Certificate shall provide that:
(a) an Option is exercisable before the date such Option is granted, or
(b) an Option is exercisable after the date which is the tenth
anniversary of the date such option is granted. If an Option is granted
to a Key Employee who is a Ten Percent Shareholder the Option Certificate
shall provide that the Option is not exercisable after the expiration of
five years from the date the Option is granted. An Option
Certificate may provide for the exercise of an Option after the
employment of a Key Employee has terminated only as provided below.
-6-
<PAGE>
Upon the occurrence of the Key employee's ceasing for any reason to be
employed by the Corporation (such occurrences being a "termination of
employment"), the Option, the extent not previously exercised, shall terminate
and become null and void immediately upon such termination of employment, except
in a case where the termination of the Key Employee's employment is by reason of
retirement, disability or death.
Upon a termination of employment by reason of retirement, disability or
death, the Option may be exercised during the following periods, but only to the
extent that the Option was outstanding and exercisable on any such date of
retirement, disability or death: (i) the one-year period following the date of
such termination of employment in the case of a disability (within the meaning
of Section 22(e) (3) of the Code), (ii) the six-month period following the date
of issuance of letters testamentary or letters of administration to the executor
or administrator of a deceased Key Employee, in the case of death during his
employment by the Corporation, but not later than one year after the Key
Employee's death, and (iii) the three-month period following the date of such
termination in the case of retirement on or after attainment of age 65, or in
the case of disability other than as described in (i) above. In no event,
however, shall any such period extend beyond the original exercise period.
A transfer of the Key Employee's employment between the Corporation and any
Subsidiary, or between any Subsidiaries, shall not be deemed to be a termination
of the Key Employee's employment.
Notwithstanding any other provisions set forth herein or in the Plan, if the
Key Employee shall (i) commit any act of malfeasance of wrongdoing affecting the
Corporation or any Subsidiary, (ii) breach any covenant not to compete, or
employment contract, with the Corporation or any Subsidiary, or (iii) engage in
conduct that would warrant the Key Employee's discharge for cause (excluding
general dissatisfaction with the performance of the Key Employee's duties, but
including any act of disloyalty or any conduct clearly tending to bring
discredit upon the Corporation or any Subsidiary), any unexercised portion of
the Option shall immediately terminate and be void.
Section 10. NONTRANSFERABILITY
No Option granted under this Plan shall be transferable by a Key Employee
otherwise than by will or by the laws of descent and distribution, and such
Option shall be exercisable during a Key Employee's lifetime only by the Key
Employee. The person or persons to whom an Option is transferred by will or by
the laws of descent and distribution thereafter shall be treated as the Key
Employee for purposes of this Plan.
-7-
<PAGE>
Section 11. SECURITIES REGISTRATION AND RESTRICTIONS
Each Option Certificate shall provide that, upon the receipt of shares of
Stock as a result of the exercise of an Option, the Key Employee shall, if so
requested by the Corporation, hold such shares of Stock for investment and not
with a view toward resale or distribution to the public and, if requested by the
Corporation, shall deliver to the Corporation a written statement to that effect
satisfactory to the Corporation. Each Option Certificate shall also provide
that, if so requested by the Corporation, the Key Employee shall represent in
writing to the Corporation that he or she will not sell or offer to sell any
such shares of Stock unless a registration statement shall be in effect with
respect to such Stock under the Securities Act and any applicable state
securities law or unless he or she shall have furnished to the Corporation an
opinion, in form and substance satisfactory to the Corporation, of legal counsel
acceptable to the Corporation, that such registration is not required.
Certificates representing the Stock transferred upon the exercise of an Option
granted under this Plan may at the discretion of the Corporation bear a legend
to the effect that such Stock has not been registered under the Securities Act
or any applicable state securities law and that such Stock may not be sold or
offered for sale in the absence of (i) an effective registration statement as to
such Stock under the Securities Act and any applicable state securities law or
(ii) an opinion, inform and substance satisfactory to the Corporation, of legal
counsel acceptable to the Corporation, that such registration is not required.
Furthermore, the Corporation shall have the right to require a Key Employee to
enter into such shareholder or other related agreements as the Corporation deems
necessary or appropriate under the circumstances as a condition to the issuance
of any Stock under this Plan to a Key Employee.
Section 12. LIFE OF PLAN
No Option shall be granted under this Plan on or after the earlier of
(a) the tenth anniversary of the original effective date of this Plan as
determined under Section 4; provided, however, that after such anniversary
date this Plan otherwise shall continue in effect until all outstanding
Options have been exercised in full or no longer are exercisable, or
(b) the date on which all of the Stock reserved under Section 3 of this
Plan has, as a result of the exercise of Options granted under this Plan,
been issued or no longer is available for use under this Plan, in which
event this plan also shall terminate on such date.
Section 13. ADJUSTMENT
The number of shares of Stock reserved under Section 3 of this Plan, and the
number of shares of Stock subject to Options granted under this Plan and the
Option Price of such Options shall be adjusted by the Board in an equitable
manner to reflect any change in the capitalization of the Corporation,
including, but not limited to, such changes as stock dividends or stock splits.
Furthermore, the Board shall have the right to adjust in a manner which
satisfies the requirements of Section 424(a) of the Code the number of shares of
Stock reserved under Options granted under this Plan and the Option Price of
such Options in the event of any corporate transaction described in Section
-8-
<PAGE>
424(a) of the Code that provides for the substitution or assumption of such
Options. If any adjustment under this Section 13 would create a fractional share
of Stock or a right to acquire a fractional share of Stock, such fractional
share shall be disregarded and the number of shares of Stock reserved under this
Plan and the number subject to any Options granted under this Plan shall be the
next lower number of shares of Stock, rounding all factions downward. An
adjustment made under this Section 13 by the Board shall be conclusive and
binding on all affected persons and, further, shall not constitute an increase
in "the number of shares reserved under Section 3" within the meaning of Section
15(a) of this Plan.
Section 14. SALE OR MERGER OF THE CORPORATION
If the Corporation agrees to sell all or substantially all of its assets for
cash or property or for a combination of cash and property or agrees to any
merger, consolidation, reorganization, division or other corporate transaction
in which Stock is converted into another security or into the right to receive
securities or property and such agreement does not provide for the assumption or
substitution of the Options granted under this Plan, each then outstanding
Option at the direction and discretion of the Board may be canceled unilaterally
by the Corporation as of the effective date of such transaction in exchange for
the same net consideration which each Key Employee would have received if each
such Option had been exercisable in full on such date and each Key Employee had
exercised each such Option for Stock under Section 11 on such date and then sold
such Stock on such date.
Section 15. AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent that
the Board deems necessary or appropriate; provided, however, that no such
amendment shall be made absent the approval of the shareholders of the
Corporation (a) to increase the aggregate number of shares reserved under
Section 3, (b) to extent the maximum life of the Plan under Section 12 or the
maximum exercise period under Section 9, (c) to decrease the minimum option
price under Section 8, (d) to change the class of persons eligible for Options
under Section 6 or to otherwise materially modify the requirements as to
eligibility for participation in this Plan, or (e) to otherwise materially
increase the benefits accruing under this Plan. The Board also may suspend the
granting of Options under this Plan at any time and may terminate this Plan at
any time; provided, however, that the Corporation shall not have the right
unilaterally to cancel or, in a manner which would materially adversely affect
the holder, amend or modify any Option granted before such suspension or
termination unless (i) the Key Employee consents in writing to such
modification, amendment or cancellation or (ii) there is a dissolution or
liquidation of the Corporation or a transaction described in Section 13 or
Section 14 of this Plan.
Section 16. MISCELLANEOUS
16.1 No Shareholder Rights. No Key Employee shall have any rights as a
shareholder of the Corporation as a result of the grant of an Option to him or
to her under this Plan or his or her exercise of such Option pending the actual
delivery of Stock subject to such Option to such Key Employee.
-9-
<PAGE>
16.2 No Contract of Employment. The grant of an Option to a Key Employee
under this Plan shall not constitute a contract of employment and shall not
confer on a Key Employee any rights upon his or her termination of employment or
service in addition to those rights, if any, expressly set forth in the Option
Certificate which evidences his or her Option.
16.3 Withholding. The exercise of any Option granted under this Plan shall
constitute a Key Employee's full and complete consent to whatever action the
Committee elects to satisfy the federal and state tax withholding requirements,
if any, which the Committee in its discretion deems applicable to such exercise
or surrender.
16.4 Construction. This Plan and the Option Certificates shall be construed
under the laws of the State of New Jersey.
-10-
<PAGE>
MARK SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of the date of grant, ******************* ,(the "Date
of Grant"), is delivered by Mark Solutions, Inc., a Delaware corporation (the
"Corporation") to ************** (the "Grantee"), who is an employee or officer
of the Corporation or one of its subsidiaries.
WHEREAS, the Board of Directors of the Corporation (the "Board") on April 19,
1993, adopted, with subsequent stockholder approval, the Corporation's 1993
Incentive Stock Option Plan (the "Plan").
WHEREAS, the Plan provides for the granting of incentive stock options by a
committee to be appointed by the Board (the "Committee") to officers and key
employees of the Corporation or any subsidiary to purchase shares of the Common
Stock of the Corporation, par value $.01 per share (the "Stock"), in accordance
with the terms and provisions thereof; and
WHEREAS, the Committee considers the Grantee to be a person who is eligible
for a grant of incentive stock options under the Plan, and has determined that
it would be in the best interest of the Corporation to grant the incentive stock
options documented herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Grant of Option.
Subject to the terms and conditions hereinafter set forth, the Corporation,
with the approval and at the direction of the Committee, hereby grants to the
Grantee, as of the Date of Grant, an option to purchase up to ****** shares of
Stock at a price of $***** per share, the fair market value. Such option is
hereinafter referred to as the "Option" and the shares of Stock purchasable upon
exercise of the "Option" are hereinafter sometimes referred to as the "Option
Shares". The Option is intended by the parties hereto to be, and shall be
treated as, an incentive stock option (as such term is defined under Section 422
of the Internal Revenue Code of 1986).
2. Exercise.
Subject to such further limitations as are provided herein, the Option shall
become exercisable on and after three (3) months from Date of Grant.
-11-
<PAGE>
3. Termination of Option.
(a) The Option and all rights hereunder with respect thereto, to the extent
such rights shall not have been exercised, shall terminate and become null and
void after the expiration of three (3) years from Date of Grant (the "Option
Term").
(b) Upon the occurrence of the Grantee's ceasing for any reason to be employed
by the Corporation (such occurrence being a "termination of employment"), the
Option, to the extent not previously exercised, shall terminate and become null
and void immediately upon such termination of the Grantee's employment, except
in a case where the termination of the Grantee's employment is by reason of
retirement, disability or death.
Upon a termination of the Grantee's employment by reason of retirement,
disability or death, the Option may be exercised during the following periods,
but only to the extent that the Option was outstanding and exercisable on any
such date of retirement, disability or death: (i) the one-year period following
the date of such termination of the Grantee's employment in the case of a
disability (within the meaning of Section 22(e) (3) of the Code), (ii) the
six-month period following the date of issuance of letters testamentary or
letters of administration to the executor or administrator of deceased Grantee,
in the case of the Grantee's death during his employment by the Employer, but
not later than one year after the Grantee's death, and (iii) the three-month
period following the date of such termination in the case of retirement on or
about attainment of age 65, or in the case of disability other than as described
in (i) above. In no event, however, shall any such period extend beyond the
Option Term.
(c) In the event of the death of the Grantee, the Option may be exercised by
the Grantee's legal representative(s), but only to the extent that the Option
would otherwise have been exercisable by the Grantee.
(d) A transfer of the Grantee's employment between the Corporation and any
Subsidiary, or between any Subsidiaries, shall not be deemed to be a termination
of the Grantee's employment.
(d) Notwithstanding any other provisions set forth herein or in the Plan, if
the Grantee shall (i) commit any act of malfeasance or wrongdoing
affecting the Corporation or any Subsidiary, (ii) breach any covenant
not to compete, or employment contract, with the Corporation or any
Subsidiary, or (iii) engage in conduct that would warrant the Grantee's
discharge for cause (excluding general dissatisfaction with the
performance of the Grantee's duties, but including any act of disloyalty
or any conduct clearly tending to bring discredit upon the Corporation
or any Subsidiary) any unexercised portion of the Option shall
immediately terminate and be void.
-12-
<PAGE>
4. Exercise of Options.
(a) The Grantee may exercise the Option with respect to all or any part of the
number of Option Shares then exercisable hereunder by giving the Secretary of
the Corporation written notice of intent to exercise. The notice of exercise
shall specify the number of Option Shares as to which the Option is to be
exercised and the date of exercise thereof, which date shall be at least five
(5) days after the giving of such notice unless an earlier time shall have been
mutually agreed upon.
(b) Full payment (in U.S. dollars) by the Grantee of the option price for the
Option Shares purchased shall be made on or before the exercise date specified
in the notice of exercise in cash.
(c) On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, the Corporation shall cause to be delivered to the
Grantee, a certificate or certificates for the Option Shares then being
purchased (out of theretofore issued Stock or reacquired Stock, as the
Corporation may elect) upon full payment for such Option Shares. The obligation
of the Corporation to deliver Stock shall, however, be subject to the condition
that if at any time the Committee shall determine in its discretion that the
listing, registration or qualification of the Option or the Option Shares upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the Option may not be exercised in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
(d) If the Grantee fails to pay for any of the Option Shares specified in such
notice or fails to accept delivery thereof, the Grantee's right to purchase any
such Option Shares may be terminated by the Corporation. The date specified in
the Grantee's notice as the date of exercise shall be deemed the date of
exercise of the Option, provided that payment in full for the Option Shares to
be purchased upon such exercise shall have been received by such date.
5. Adjustment of and Changes in Stock of the Corporation.
In the event of a reorganization, recapitalization, change of shares, stock
split, spin-off, stock dividend, reclassification, subdivision or combination of
shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of capital stock of the Corporation, the Committee
shall make any adjustment as it deems appropriate in the number and kind of
shares of Stock subject to the Option or in the option price provided, however,
that no such adjustment shall give the Grantee any additional benefits under the
Option.
-13-
<PAGE>
6. No Rights of Stockholders.
Neither the Grantee nor any personal representative shall be, or shall have
any of the rights and privileges of, a stockholder of the Corporation with
respect to any shares of Stock purchasable or issuable upon the exercise of the
Option, in whole or in part, prior to the date of exercise of the Option.
7. Non-Transferability of Option.
During the Grantee's lifetime, the Option hereunder shall be exercisable only
by the Grantee or any guardian or legal representative of the Grantee, and the
Option shall not be transferable except, in case of the death of the Grantee, by
will or the laws of descent and distribution, nor shall the Option be subject to
attachment, execution or other similar process. In no event of (a) any attempt
by the Grantee to alienate, assign, pledge, hypothecate or otherwise dispose of
the Option, except as provided for herein, or (b) the levy of any attachment,
execution or similar process upon the rights or interest hereby conferred, the
Corporation may terminate the Option by notice to the Grantee and it shall
thereupon become null and void.
8. Employment Not Affected.
The granting of the Option nor its exercise shall not be construed as granting
to the Grantee any right with respect to continuance of employment of the
Corporation. Except as may otherwise be limited by a written agreement between
the Corporation and the Grantee, the right of the Corporation to terminate at
will the Grantee's employment with it at any time (whether by dismissal,
discharge, retirement or otherwise) is specifically reserved by the Corporation,
or on behalf of the Corporation (whichever the case may be), and acknowledged by
the Grantee.
9. Amendment of Option.
The Option may be amended by the Board or the Committee at any time (i) if the
Board or the Committee determines, in its sold discretion, that amendment is
necessary or advisable in the light of any addition to or change in the Internal
Revenue Code of 1986 or in the regulations issued thereunder, or any federal or
state securities law or other law or regulation, which change occurs after the
Date of Grant and by its terms applies to the Option; or (ii) other than in the
circumstances described in clause (i), with the consent of the Grantee.
-14-
<PAGE>
10. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the terms of which
are incorporated herein by reference, and the Option shall in all respects be
interpreted in accordance with the Plan. The Committee shall interpret and
construe the Plan and this instrument, and its interpretations and
determinations shall be conclusive and binding on the parties hereto and any
other person claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder.
11. Governing Law.
The validity, construction, interpretation and effect of this instrument shall
exclusively be governed by and determined in accordance with the law of the
State of New Jersey, except to the extent preempted by federal law, which shall
to that extent govern.
IN WITNESS WHEREOF, the Corporation has caused its duly authorized officers
to execute and attest this Grant of Incentive Stock option, and to apply the
corporate seal hereto, and the Grantee has placed his or her signature hereon,
effective as of the Date of Grant.
Attest: MARK SOLUTIONS, INC.
___________________________ By:___________________________
Secretary President
ACCEPTED AND AGREED TO:
By:_________________________
Grantee
-15-
<PAGE>
SUBSIDIARIES OF MARK SOLUTIONS, INC.
Name of Subsidiary Jurisdiction of Organization
- ------------------ ----------------------------
MarkCare Medical Systems, Inc. Maryland
MarkCare Medical Systems, Limited United Kingdom-England
-1-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000807397
<NAME> Mark Solutions, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 564,577
<SECURITIES> 0
<RECEIVABLES> 629,412
<ALLOWANCES> 5,500
<INVENTORY> 112,474
<CURRENT-ASSETS> 4,076,403
<PP&E> 2,678,068
<DEPRECIATION> 2,239,456
<TOTAL-ASSETS> 5,174,101
<CURRENT-LIABILITIES> 998,186
<BONDS> 1,060,416
0
0
<COMMON> 192,967
<OTHER-SE> 2,922,532
<TOTAL-LIABILITY-AND-EQUITY> 5,174,101
<SALES> 12,921,810
<TOTAL-REVENUES> 12,934,313
<CGS> 10,972,291
<TOTAL-COSTS> 14,912,632
<OTHER-EXPENSES> 160,157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249,623
<INCOME-PRETAX> (2,388,099)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,388,099)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,388,099)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
