17
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1996, 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. 0-23170
HEADWAY CORPORATE RESOURCES, INC.
(Name of Small Business Issuer as specified in its charter)
Delaware 75-2134871
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
850 Third Avenue, 11th Floor, New York, NY 10022
(Address of Principal Executive Offices and Zip Code)
Issuer's Telephone Number: (212) 508-3560
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, Par Value $0.0001
Check whether the issuer (1) filed all reports required to be
filed by sections 13 or 15(d) of the Exchange Act during the past
12 months (or such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year are
$57,197,000.
The aggregate market value of voting stock held by non-affiliates
computed on the basis of the last sale price on March 24, 1997,
was $16,465,000.
As of December 31, 1996, the Registrant had outstanding 6,301,448
shares of Common Stock, par value $0.0001.
Documents incorporated by reference: Incorporated by reference
in Part III of this report is to the definitive proxy statement
of the Company for the 1997 annual meeting of stockholders, which
the Company proposes to file with the Commission on or before
April 30, 1997.
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION Page
Part I
1. Description of Business 3
2. Description of Properties 7
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
Part II
5. Market for Common Equity and Related Stockholder 9
Matters
6. Management's Discussion and Analysis or Plan of 9
Operations
7. Financial Statements 12
8. Changes in and Disagreements with Accountants 12
on Accounting and Financial Disclosure
Part III
9. Directors, Executive Officers, Promoters and Control *
Persons; Compliance with Section 16(a) of the
Exchange Act
10. Executive Compensation *
11. Security Ownership of Certain Beneficial Owners and *
Management
12. Certain Relationships and Related Transactions *
13. Exhibits and Reports on Form 8-K 12
* These items are incorporated by reference from the
definitive proxy statement of the Company for the 1997 annual
meeting of stockholders to be filed with the Securities and
Exchange Commission on or before April 30, 1997.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Headway Corporate Resources, Inc., formerly AFGL
International, Inc. ("the Company"), is a provider of human
resource management and strategic advisory services in the United
States and overseas. The Company provides these services through
its wholly-owned subsidiaries, Headway Corporate Staffing
Services, Inc. ("Headway"), Whitney Partners, Inc. ("Whitney"),
and Furash & Company, Inc. ("Furash"). Headway was formed in
1996 to acquire Irene Cohen Temps, Inc., Corporate Staffing
Alternatives, Inc., Certified Technical Staffing, Inc., and the
operating assets of Irene Cohen Personnel, Inc. (collectively the
"IC Group"), which was completed in May 1996. In October 1996,
Headway acquired the assets of Vogue Personnel Services, Inc., of
New York City ("Vogue"), which have been incorporated in
Headway's staffing services business. Whitney conducts
operations in Europe through its wholly-owned subsidiary, The
Whitney Group (Europe) Limited, based in London. Whitney
recently formed two other subsidiaries, The Whitney Group (Asia)
Limited, which offers human resource management services in Hong
Kong, and Whitney Asia PTE Ltd., which operates from an office in
Singapore. Whitney also maintains an office in Japan. Furash
operates from an office in Washington, D.C.
On November 6, 1996, the stockholders of the Company
approved a change in the state of incorporation of the Company
from Nevada to Delaware through a merger of the Company (then
AFGL International, Inc., a Nevada corporation) into Headway
Corporate Resources, Inc., a Delaware corporation formed for that
purpose. Documents of merger were filed with the states of
Nevada and Delaware on November 7, 1996. In the merger, all
outstanding capital shares were exchanged on a one share for one
share basis, and the only change in the capital of the Company
was reduction of the par value for all capital shares to $0.0001
per share. Hereinafter, the term "Company" shall refer
collectively to Headway Corporate Resources, Inc., Headway
(including its subsidiaries), Whitney, and Furash, unless the
context otherwise indicates.
The principal offices of the Company are located at 850
Third Avenue, New York, New York, 10022, where its telephone
number is (212) 508-3560.
History
1996 Developments
The IC Group was purchased May 31, 1996, at a total price of
$9,230,000, plus an additional $500,000 payable only out of the
future net earnings derived from the acquired assets of Irene
Cohen Personnel, Inc., approximately $19,000 of which has been
earned and is payable as of December 31, 1996. The purchase
price was paid in cash, and determined through arms length
negotiations between the Company and the former shareholders of
the IC Group on the basis of the tangible assets of the IC Group
and the goodwill associated with the business. Funding for the
acquisition was provided by debt financing obtained from ING
(U.S.) Capital Corporation ("ING"), and equity financing obtained
by sale of the Company's Series C and D Convertible Preferred
Stock to certain private investors.
Vogue was purchased on October 21, 1996, at a total purchase
price of $2,400,000 paid in cash. The purchase price was
determined through arms length negotiations between the Company
and the former sole shareholder and officer of Vogue, on the
basis of the tangible assets of Vogue and the goodwill associated
with the business. Funding for the acquisition was provided by a
revolving credit facility established by the Company with ING.
On May 31, 1996, the Company entered into a Credit Agreement
with ING. Under the Credit Agreement, ING made a term loan of
$9,000,000 to the Company, and established a $6,000,000 revolving
credit facility for the Company. These funds have been used for
the acquisition of the IC Group, the acquisition of Vogue, and
working capital. In connection with this financing arrangement,
the Company granted to ING the Series E Warrant to purchase
575,000 shares of Series E Convertible Preferred Stock of the
Company at an exercise price of $0.02 per share. The Company has
placed a value of $1,757,000 on the Series E Warrant, based on an
independent appraisal, which it will amortize over the five year
payment period of the term loan as deferred financing costs. The
Series E Convertible Preferred Stock is convertible at the
election of the holder to Common Stock of the Company at the rate
of one share for one share, subject to adjustment based on anti-
dilution provisions. The Company also entered into a
registration rights agreement with ING pertaining to the Common
Stock of the Company issuable on conversion of the Series E
Convertible Preferred Stock. Under the terms of the Registration
Rights Agreement, the Company is required to file and keep
effective a shelf registration covering the Common Stock issuable
to ING. In the registration rights agreement, ING agrees not to
make any private or public sale of the Common Stock prior to May
31, 1997.
On June 14, 1996, the Company completed a private placement
of Series D Convertible Preferred Stock. The Company sold 80
shares of Series D Convertible Preferred Stock for $4,000,000,
which was used for the acquisition of the IC Group and working
capital. The face value for each share of Series D Convertible
Preferred Stock ($50,000), is convertible to Common Stock of the
Company at the lesser of $5.210625 or 80% of the market price for
the Company's Common Stock on the date of conversion. Dividends
are payable on the Series D Convertible Preferred Stock at the
rate of 8% per annum. In the event of conversion, the Company
may, at its election, issue Common Stock in payment of the
dividend. On conversion, the holders of the Series D Convertible
Preferred Stock are entitled to receive a warrant to purchase one
share of Common Stock for every four shares of Common Stock
issued on conversion exercisable on or before May 1, 1999, at an
exercise price of $4.25 per share. As of December 31, 1996, 43
shares of Series D Convertible Preferred Stock with a face value
of $2,150,000 had been converted to Common Stock at an average
conversion price of $2.91. In connection with the placement of
Series D Convertible Preferred Stock, the Company entered into a
registration rights agreement in which it agreed to use its best
efforts to file a registration statement on Form S-3 covering the
shares of Common Stock issuable on conversion of the Series D
Convertible Preferred Stock. The Company has complied with that
agreement.
In anticipation of the acquisition of the IC Group, the
Company completed an offshore offering to a limited group of
foreign investors in April 1996, to provide funding for the
purchase and other working capital needs. The Company sold 150
shares of Series C Convertible Preferred Stock for $3,000,000.
The face value for each share of Series C Convertible Preferred
Stock ($20,000), is convertible to Common Stock of the Company at
the lesser of $4.558125 or 80% of the market price for the
Company's Common Stock on the date of conversion. Dividends are
payable on the Series C Convertible Preferred Stock at the rate
of 8% per annum. In the event of conversion, the Company may, at
its election, issue Common Stock in payment of the dividend. As
of December 31, 1996, 145 shares of Series C Convertible
Preferred Stock with a face value of $2,900,000 had been
converted to Common Stock at an average conversion price of
$2.8068.
The Company's May 1996 acquisition of the IC Group was a
major step in establishing the Company as a full-service staffing
company serving the financial services industry, and marked the
Company's entrance into the temporary staffing industry. Based
on a market study obtained by the Company, the temporary staffing
industry is experiencing growth in revenues and earnings. Gross
revenues in the industry grew from $20 billion in 1991 to $40
billion in 1995, representing a compounded annual growth rate of
approximately 19%. It is estimated that this industry will grow
at an annual average rate of approximately 11% through the year
2000. This growth is attributable to a trend among employers to
control costs by reducing the number of employees and relying on
human resource management firms to provide temporary workers and
consultants as needed to satisfy staffing requirements as they
fluctuate between the peaks and valleys of the business cycle.
In an attempt to take advantage of this growth, the Company
will seek established temporary staffing and payrolling
businesses for possible acquisition throughout the United States.
Generally, the Company will seek businesses with gross annual
revenues of at least $2,000,000, that can increase the Company's
market share in areas where the Company is established or enable
the Company to enter the market in new geographical areas.
Consistent with the Company's history and experience in the
financial services industry, the Company has a strong interest in
acquiring businesses that have established clients in that
industry or are located in geographical areas where the financial
services industry has a significant or growing presence. It is
not anticipated that the Company will acquire any business with
which any of the Company's officers, directors, or principal
stockholders has any association, since the Company does not
believe any of such persons is associated with a temporary
staffing or payrolling business.
The Company has entered into a letter of intent for the
acquisition of a temporary staffing business based in North
Carolina. The acquisition is subject to negotiation of the final
terms of purchase, completion of the Company's review of the
business, and other contingencies. Under the letter of intent,
the Company is prohibited from disclosing the terms of purchase
and the name of the acquisition target unless and until the
contingencies have been resolved. The Company anticipates that
all contingencies will be satisfied and the acquisition completed
on or about March 31, 1997.
The Company is currently pursuing negotiations for the
acquisition of a temporary staffing business based in the
Northeastern United States. The acquisition is subject to
negotiation of the final terms of purchase, completion of the
Company's review of the business, obtaining a commitment for
financing for the acquisition, and other contingencies. While
negotiations are ongoing, the Company has agreed not to disclose
the proposed terms of purchase and the name of the acquisition
target. The Company is hopeful that that all contingencies can
be satisfied so that the acquisition can be consummated in the
second quarter of 1997. There is no assurance, however, that all
of the contingencies will be resolved and the acquisition
completed.
Pre-1996 Activities
In addition to the business operations of Whitney and
Furash, through the end of 1995 the Company was engaged in the
business of providing public relations, corporate consulting,
advertising, and financial notice services primarily to the
financial services industry. The advertising and financial
notice business was originally acquired in 1992. The public
relations business was acquired in early 1993, and the corporate
consulting business was developed internally from 1993 through
1994.
At the beginning of 1995, the Company discontinued the
corporate consulting business, the operations of which were
nominal. Pursuant to an Asset Purchase Agreement dated as of
December 31, 1995, the Company sold certain assets of the public
relations, advertising, and financial notice business to Citigate
Communications Group Limited, a limited company based in England
("Citigate"). Under the terms of the transaction, the Company
sold assets with a book value of approximately $9,420,000 to
Citigate in exchange for 64,000 ordinary shares of Citigate
valued at $2,368,000 (approximately 18.3% of Citigate's issued
and outstanding shares), payment or assumption of non-affiliated
obligations in the amount of approximately $8,660,000, and
payment of affiliated obligations in the amount of approximately
$531,000. In connection with the sale, the Company also wrote-
off approximately $2,470,000 of intangible assets. In December
1996, an agreement was reached (subject to certain conditions)
for the acquisition of Citigate by Incepta Group plc, a publicly
held company in the United Kingdom ("Incepta"). These conditions
were subsequently met in March 1997, so that the Company received
in exchange for its stock in Citigate $1,643,000 in cash,
8,677,111 ordinary shares of Incepta with a total market value at
March 17, 1997, of approximately $3,618,000, and up to an
additional 7,072,307 ordinary shares based on the performance of
Citigate during its fiscal year ending September 30, 1997. The
Incepta ordinary shares are subject to a restriction against
public sale or disposition for a term of two years. The
resulting gain will be recognized in the first quarter of 1997.
In January 1995, the Company completed the acquisition of
Furash as a wholly owned subsidiary. The Company exchanged 6,858
shares of Series B Convertible Preferred Stock valued at
$2,400,000 for all of the capital stock of Furash. The
acquisition was accounted for as a purchase, and goodwill of
$1,784,000 arose from the transaction.
Human Resource Management Services
The human resource management services of the Company
provides businesses with staffing solutions to the complexities
and high costs related to employment and human resources. The
Company offers a broad range of employment-related services
consisting of human resource administration (including temporary
and permanent placement services), executive search, employment
regulatory compliance management, managed human resource
services, workers' compensation coverage, health care and other
employee benefits. These services are provided primarily to
clients in New York City and surrounding areas.
The Company believes its services assist businesses in: (i)
locating and employing persons who will contribute to the
clients' business; (ii) meeting temporary staffing needs as they
arise in the business; (iii) managing escalating costs associated
with workers' compensation, health insurance coverage, workplace
safety programs and employee-related litigation; (iv) providing
1099 consultants with competitive health care and related
benefits; and (v) reducing the time and effort required of
business management to deal with the increasingly complex and
regulatory environment affecting employment.
Whitney focuses on executive search services for middle and
upper sales and management level positions in the finance
industry, and provides this service in the United states, Japan,
Europe, Singapore, and Hong Kong. The Company has traditionally
focused its services, and marketing effort for such services, on
the financial services industry consisting of investment banking
firms, broker-dealers, banks and similar financial institutions.
The Company intends to continue to focus on this industry in the
foreseeable future. Whitney is compensated for its services on
the basis of a percentage of the first year compensation of the
candidate successfully placed with the client. The base
percentage is usually 33%, but may be reduced if the Company is
working on filling multiple positions for the client. The salary
range for the type of executive positions filled by Whitney is
between $100,000 and $2,000,000.
Headway focuses on providing temporary and permanent
placement and managed human resource services to a broad range of
industries, with a concentration in the financial services
industry. The acquisitions of the IC Group and Vogue by Headway
in 1996 will enable the Company to further develop this core
business. The long-term plan of the Company is to expand its
services primarily to the financial services industry throughout
the United States. Headway is compensated for its temporary
staffing services at an hourly rate, based on the compensation
paid to the temporary employee, the associated tax burden, a
contribution towards the Company's overhead expenses and a profit
margin that will allow the Company to achieve its overall
financial objectives. Hourly rates for the Company's temporary
employees range between $6.00 and $150.00, based on the training
and skill level of the employee. Headway also provides managed
human resource services through its Corporate Staffing
Alternatives ("CSA") division. CSA works with large corporations
to identify and address the issues surrounding contingent
employment and provide these workers with a full range of cost-
effective benefit programs.
The Company has developed what it believes to be strong
client relationships with Merrill Lynch & Co. and Montgomery
Securities, which accounted for 11% and 4% of the total dollar
amount of revenues earned by the Company for human resource
management services in 1996, respectively. Management believes
that the Company's relationship with these clients is good and
will remain strong in the foreseeable future. Nevertheless, the
Company is continually marketing its services to prospective
clients in order to diversify its client base. The Company is
also hopeful that future acquisitions will help to further
diversify its client base.
For the fiscal year ended December 31, 1996, human resource
management accounted for approximately $53,389,000 of the
Company's total revenue. Of this amount, 89% is attributable to
domestic operations, 9% to European operations, and 2% to
operations in Asia.
Advisory Services
Management and strategic advisory services are offered by
the Company in the United States through Furash, which is based
in Washington, D.C. These services are provided by Furash
primarily to banks, thrifts, and holding companies ranging in
size from $1 billion to $100 billion in assets; mortgage banks;
investment and brokerage firms; law firms with financial services
clients; private investors; insurance companies; regulatory
agencies; trade associations representing the industry; new
groups entering the industry; and international firms. The
Company advises its clients on all aspects of the financial
services industry, including client operations, new products and
services, marketing of products and services, cost containment
strategies, mergers and acquisitions, turnaround of troubled
institutions, technology and information planning, and regulatory
developments and trends. Most of the Company's clients originate
through referrals or from sources that know of the work and
reputation of Furash in the financial services industry.
Advisory services are performed on either a retainer or project
basis. In either case, budgets are established at the beginning
of the relationship and timetables and objectives are well
defined. Project assignment fees are billed to the client on a
monthly basis as time is incurred. For retainer relationships,
clients are provided with an estimated monthly usage of services
against which professional fees are billed. In both types of
assignments an up-front or initial payment may be requested.
This initial payment is typically one-third of total estimated
fees. Out-of-pocket expenses are billed at cost in addition to
professional fees.
Government Regulations
The temporary staffing operations of the Company are
affected by numerous federal, state and local laws relating to
labor, tax, insurance and employment matters. By entering into
an employment relationship with employees who work at client
company locations ("worksite employees"), the Company assumes
certain obligations and responsibilities of an employer under
these laws, which are subject to varying interpretations. The
Company believes that its operations are in compliance in all
material respects with all applicable federal and state statutes
and regulations.
Competition
The human resource management industry is highly fragmented,
with a very large number of companies providing similar
employment services. The Company encounters competition from
other employer organizations and from single-service and "fee for
service" companies such as payroll processing firms, insurance
companies and human resource consultants. In addition, the
Company may encounter substantial competition from new market
entrants. With respect to the placement services of Whitney,
management believes Korn-Ferry International, Spencer Stuart, and
Russell Reynolds Associates, Inc., are the principal competitors
of the Company in providing placement services to the financial
services industry in the United States.
In advisory services, the Company faces numerous
competitors, both large and small, including full line and
specialized management consultants, technology companies,
accounting firms, and individual practitioners.
The Company believes that its niche strategy of being a
quality, preeminent provider to a broad range of financial
services and related clients will allow it to remain competitive.
Employees
The Company presently has 150 full-time employees consisting
of four executive officers, 113 management and supervisory
employees, and 33 office employees. These numbers do not include
temporary employees and independent contractors employed by the
Company, who currently number approximately 1,700 persons. None
of the Company's employees is represented by a labor union, and
the Company considers its relations with its employees to be good
and has not experienced any work stoppages or slowdowns.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases its offices from unrelated parties. The
following table is a description of the locations, lease rates,
and expiration dates of the Company's office leases.
Location Monthly Rental Lease Term Expires
850 Third Avenue $75,000 October 2009
New York, New York
317 Madison Avenue $34,000 January 2007
New York, New York
2001 L Street N.W. $32,000 May 2005
Washington, D.C.
17 Buckingham Gate $12,000 February 2003
London, England
3-20 Toranomon 5- $ 9,000 October 1998
Chome
Minato-ku, Tokyo,
Japan
Ocean Tower, Room $ 7,000 March 1999
1004
Raffles Place,
Singapore
The Company receives monthly rental income based on a sub-
lease agreement with Citigate for the office space at 850 Third
Avenue. The monthly rental is $45,000, expiring December 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceedings, and to the best of its knowledge, no such
proceedings by or against the Company have been threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 6, 1996, a meeting of the Company's stockholders
was held at which the stockholders voted upon and approved each
of the following proposals:
(1) election of Edward E. Furash as a director to serve for
a term of two years by a vote of 5,023,314 shares for, 2,100
against, and 78,375 abstaining; election of Ehud D. Laska as a
director to serve for a term of two years by a vote of 5,022,414
shares for, 3,000 against, and 78,375 abstaining; election of G.
Chris Andersen as a director to serve for a term of one year by a
vote of 5,023,514 shares for, 1,900 against, and 78,375
abstaining; election of Richard B. Salomon as a director to serve
for a term of one year by a vote of 5,024,214 shares for, 1,200
against, and 78,375 abstaining; and, election of Gary S.
Goldstein and Barry S. Roseman as directors, each to serve for a
term of three years, by a vote of 2,276 shares of the Company's
Series A Convertible Preferred Stock, with no shares against or
abstaining.
(2) approval of the change of the state of incorporation of
the Company from Nevada to Delaware through a merger of the
Company with and into Headway Corporate Resources, Inc., a
Delaware company formed for that purpose, by a vote of 3,107,061
shares of Common Stock, 2,276 shares of Series A Convertible
Preferred Stock, 6,921 shares of Series B Preferred Stock, 23.4
shares of Series C Preferred Stock, and 45 shares of Series D
Preferred Stock for the proposal; 91,767 shares of Common Stock
against the proposal; and 1,904,961 shares of Common Stock
abstaining on the proposal, including 1,902,786 broker-dealer non-
votes;
(3) approval of the change of the Company's corporate name
to "Headway Corporate Resources, Inc.", by a vote of 5,033,097
shares of Common Stock for; 68,467 shares of Common Stock
against; and 419,094 shares of Common Stock abstaining on the
proposal, including 416,869 broker-dealer non-votes; and
(4) ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the year ended December
31, 1996, by a vote of 5,029,039 shares of Common Stock for;
73,075 shares of Common Stock against; and 418,544 shares of
Common Stock abstaining on the proposal, including 416,869 broker-
dealer non-votes.
PART III
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the respective periods
indicated, the prices of the Company's Common Stock in the over-
the-counter market, as reported and summarized by the Nasdaq
SmallCap Market System. Such prices are based on inter-dealer
bid prices, without markup, markdown, commissions, or adjustments
and may not represent actual transactions.
Calendar Quarter Ended Low Bid High Bid
March 31, 1995 $3.50 $4.75
June 30, 1995 $2.625 $4.125
September 30, 1995 $1.50 $3.00
December 31, 1995 $2.25 $3.75
March 31, 1996 $2.00 $4.375
June 30, 1996 $3.25 $6.00
September 30, 1996 $3.00 $4.9375
December 31, 1996 $3.375 $5.125
Since its inception, no dividends have been paid on the
Company's Common Stock. Cumulative dividends accrue on the
Series A Convertible Preferred Stock, Series C Convertible
Preferred Stock, and Series D Convertible Preferred Stock at a
rate of eight percent per annum on their respective liquidation
values. Dividends on Series A Convertible Preferred Stock are
payable semiannually out of funds legally available therefor.
Dividends on Series C Convertible Preferred Stock and Series D
Convertible Preferred Stock are payable in cash or Common Stock,
at the Company's election, at the time shares are converted to
Common Stock or redeemed by the Company. The Company intends to
retain any earnings not required for payment of dividends on
preferred stock for use in its business activities, so it is not
expected that any dividends on the Common Stock will be declared
and paid in the foreseeable future.
At December 31, 1996, there were approximately 207 holders
of record of the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
Results of Operations
Overview
During 1996, the Company completed the initial phase of
refocusing its efforts on its core business of human resources
management and advisory services. The Company completed the
acquisition of several staffing companies and is negotiating for
the acquisition of several others. The Company is expecting to
continue to grow in this area both internally and through
additional acquisitions. While there are a number of competitive
companies in the staffing industry, the Company believes that its
strategy of focusing on the financial services industry is a
significant point of differentiation.
On May 31, 1996, the Company completed the acquisition of
the IC Group for cash at a total price of $9,230,000, plus an
additional $500,000 payable only out of the future net earnings
of Irene Cohen Personnel, Inc. On October 21, 1996, Vogue was
purchased for cash of $2,400,000.
In December 1996, the Company signed a letter of
understanding with a significant temporary staffing company in
North Carolina. The transaction is expected to close by the end
of the first quarter of 1997. The Company is pursuing
negotiations to acquire a major Northeast staffing company, with
the goal of completing the acquisition in the second quarter of
1997.
In April and May of 1996, the Company obtained additional
equity financing through the sale of the Company's Series C and
Series D Convertible Preferred Stock. The Company also obtained
debt financing in the form of a term loan and a revolving credit
facility from ING. The Company will seek additional financing
from ING through an increase in the existing credit facility to
fund the purchase of the current acquisition targets.
On March 21, 1996, the Company completed the sale of
substantially all of its operating assets of its public
relations, advertising, and financial notice business to
Citigate. In exchange, the Company received approximately 18.3%
of the outstanding stock of Citigate. On December 4, 1996,
Citigate announced that it had reached an agreement to sell all
of its outstanding share capital to Incepta Group PLC. On March
13, 1997, the Company, which was carrying the investment in
Citigate stock at $2,368,000, received $1,643,000 in cash,
8,677,111 ordinary shares of Incepta with a total market value at
March 17, 1997, of approximately $3,618,000, and up to an
additional 7,072,307 ordinary shares based on the performance of
Citigate during its fiscal year ending September 30, 1997. The
Incepta ordinary shares are subject to a restriction against
public sale or disposition for a term of two years.
The services of the IC Group, Vogue, Whitney, and Furash are
targeted to the financial services industry, and it is expected
that this focus will continue in the current year. Accordingly,
the performance of the Company has been, and will continue to be
heavily dependent on the performance of the financial services
industry.
Consolidated
Consolidated revenue increased $41,705,000 to $57,197,000
for the year ended December 31, 1996, from $15,492,000 for the
year ended December 31, 1995. Of the increase, approximately $37
million is attributable to the temporary staffing companies
acquired in 1996. The balance of the increase relates to Whitney
which had a record year with revenue in excess of $16 million.
Furash experienced a decline in revenue in 1996.
Consolidated operating income increased $1,480,000 to
$2,943,000 for the year ended December 31, 1996, compared to
$1,463,000 for the year ended December 31, 1995. The significant
increase is attributable to the Company's acquisition of the IC
Group and the strong performance of Whitney.
The Company's operations were not significantly impacted by
inflation during the years ended December 31, 1996 and 1995, and
it is not anticipated that inflation will have any significant
impact on the Company's results of operations for at least the
next year.
Human Resource Management
Revenue from human resource management services increased
$42,394,000 to $53,389,000 for the year ended December 31, 1996,
from $10,996,000 for the year ended December 31, 1995. The
increase in revenue for 1996 is primarily attributable to the
acquisitions of the temporary staffing companies. The
acquisitions accounted for $37,082,000 of the revenue, while
Whitney contributed $16,308,000, an increase of $5,312,000 from
last year's revenue of $10,996,000. The increase in Whitney's
revenue is due to the strong performance in the financial
services industry and the related increase in hiring activities
of Whitney's clients.
Total operating expenses attributable to human resources
management services increased $39,764,000 to $49,262,000 for the
year ended December 31, 1996, as compared to $9,498,000 for the
same period last year. Of the increase, $35,965,000 relates to
the staffing companies acquired during the year of which
$29,703,000 is the direct cost of revenues relating to wages,
taxes and benefits of worksite employees. Whitney's operating
expenses increased $3,798,000 to $13,296,000 for the year ended
December 31, 1996 as compared to $9,498,000 for the same period
last year. The increase, which is primarily in compensation
expense, is directly attributable to the increase in revenue.
Asian operations resulted in an operating loss of $33,000
for 1996, as compared to a loss of $136,000 for 1995. This
improvement is attributable entirely to operating income in Japan
of $210,000. The Company's offices in Singapore and Hong Kong
incurred losses due to start up and related costs.
Revenue from operations in Europe was $4,557,000 for the
year ended December 31, 1996, compared to revenues of $3,327,000
in 1995. The increase was attributable to a strong performance
in the financial services sector in Europe. Operating expenses
which increased $1,213,000 to $4,522,000 in 1996 compared to
$3,309,000 for the same period in 1995 related to the increase in
revenue related compensation accruals. Included in the operating
expenses of Europe is a management charge from the Company of
$302,000 and $349,000 in 1996 and 1995 respectively. Operating
income was $35,000 for 1996 compared to operating income after
minority interest of $16,000 for 1995.
Operating income from human resource management services
increased $2,629,000 to $4,127,000 for the year ended December
31, 1996, compared to $1,498,000 for the same period in 1995.
The increase in operating income can be attributed to an increase
in Whitney operating income of $1,515,000 resulting from the
increase in revenue and $1,114,000 from the newly acquired
staffing companies.
Advisory Services
Revenues from advisory services offered by Furash declined
$688,000 to $3,808,000 for the year ended December 31, 1996 as
compared to $4,496,000 for the same period in 1995. The loss of
a major client accounted for approximately $596,000 of the
decline. In addition, there was a decline in billable hours for
certain key consultants involved in the development of new
business lines.
Operating expenses decreased $21,000 to $4,503,000 for the
year ended December 31, 1996 compared to $4,524,000 for the same
period in 1995. The Company implemented a reorganization plan in
the second half of 1996 resulting in a refocusing of the
Company's product line and a reduction to the operating expense
structure for 1997.
Furash had an operating loss for the year ended December 31,
1996, of $695,000 compared to operating loss of $28,000 for the
same period in 1995. For the second half of 1996 Furash had
operating income of $156,000. Management believes that the
reorganization plan has been successful and the Company will
continue to show improvement throughout 1997.
Liquidity and Capital Resources
In May 1996, the Company obtained $6,267,000 in additional
equity financing through the sale of the Company's Series C and
Series D Convertible Preferred Stock. The company also entered
into a financing relationship in the form of a $9,000,000 term
loan and a $6,000,000 revolving credit facility from ING Capital
Corporation. The Company used a portion of this capital for the
acquisition of the IC Group and Vogue and for general working
capital. The term loan is payable quarterly over a five year
term commencing September 30, 1996, and bears interest at the
LIBOR rate plus 3.25%. The revolving credit facility bears
interest at the prime rate plus 1.25% At December 31, 1996
$8,500,000 was outstanding on the term loan and $3,850,000 was
outstanding on the revolving credit facility. The Company is
seeking additional financing from ING through an increase in the
existing credit facility, in order to complete the pending
acquisitions. The term loan and revolving credit facility with
ING are secured by substantially all of the assets of the
Company.
Of the funds obtained through the sale of the preferred
stock and the financing arrangement, the Company used $12,139,000
for the acquisitions of the IC Group and Vogue and $286,000 for
property and equipment.
Cash generated from operating activities was $319,000 in
1996, and management is of the opinion that cash will be
available from its operations to meet its operating and capital
requirements in 1997, exclusive of pending acquisitions. In 1995
cash used for operating activities was $2,241,000 primarily as a
result of the losses attributable to the discontinued operations.
The Company had working capital of $1,648,000 at the end of 1996,
compared to $1,494,000 at December 31, 1995. Management
anticipates that the improvement in working capital will continue
in 1997 if the Company's performance continues at present levels.
As a result, cash flow from operations in 1997 should be
available for meeting payment obligations and working capital
needs as they arise.
Total cash generated from financing activities was
$12,542,000 for the year ended December 31, 1996, compared to
$3,014,000 generated from financing activities in 1995.
Financing activities included the net proceeds from the ING
financing arrangement of $12,850,000 and the sale of the
Company's preferred stock of $6,267,000, and repayment of loans
outstanding prior to the ING financing of $5,675,000.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company appear
at the end of this report beginning with the Index to
Consolidated Financial Statements on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
In September 1996, the accounting firm of Ernst & Young LLP
was approved by the Board of Directors of the Company, upon
recommendation by the Audit Committee, to serve as independent
auditors of the Company for 1996, which was ratified by the
stockholders of the Company in November 1996. This change in
independent auditors was previously reported in a report on Form
8-k dated September 16, 1996, filed with the Securities and
Exchange Commission.
PART III
The information required by each of the Items listed below
is incorporated herein by reference to the definitive proxy
statement of the Company for the 1997 annual meeting of
stockholders, which the Company proposes to file with the
Securities and Exchange Commission on or before April 30, 1997:
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the Exchange
Act;
Item 10. Executive Compensation;
Item 11. Security Ownership of Certain Beneficial Owners
and Management; and
Item 12. Certain Relationships and Related Transactions.
ITEM 13.
EXHIBITS AND REPORTS ON FORM 8-K
Copies of the following documents are included as exhibits
to this report pursuant to Item 601 of Regulation S-B.
Exhibits.
Exhibit SEC Ref. Title of Document Location
No. No.
1 (3)(i) Certificate of Incorporation, This
Filing
2 (3)(ii) By-Laws This
Filing
3 (4) Certificate of Designation This
of Preferred Stock Filing
4 (4) Form of Registration Rights Initial
Agreement with purchasers of FM S-3
Series Ex#7
D Convertible Preferred Stock
(1)
5 (2) Stock Purchase Agreement dated Fm8-K
April 10, 1996 (2) Ex#1
6 (2) Asset Purchase Agreement dated Fm8-K
May 31, 1996 (2) Ex#2
7 (4) Credit Agreement dated Fm8-K
May 31, 1996 (2) Ex#6
8 (4) Revolving Note dated May 31, Fm8-K
1996(2) Ex#7
9 (4) Term Note dated May 31, 1996(2) Fm8-K
Ex#8
10 (4) Security Agreement dated Fm8-K
May 31, 1996(2) Ex#9
11 (4) Warrant Agreement dated Fm8-K
May 31, 1996(2) Ex#10
12 (4) Registration Rights Agreement Fm8-K
dated May 31, 1996(2) Ex#11
13 (11) Computation of Net Income Per This
Common Share Filing
14 (21) Subsidiaries of the Company This
Filing
15 (23) Consent of Ernst & Young LLP This
Filing
16 (23) Consent of Moore Stephens P.C. This
Filing
17 (23) Consent of Kingston Smith, This
Chartered Accountants Filing
(1) This is the form of the registration rights agreement
entered into between the Company and purchasers of the Company's
Series D Convertible Preferred Stock, and is incorporated herein
by this reference from exhibit no. 7 of the Company's
registration statement on Form S-3, SEC File No. 333-08615, filed
on July 23, 1996.
(2) Each of these exhibits are included in the Company's current
report on Form 8-K, dated May 31, 1996, and filed with the
Commission on June 14, 1996, and are incorporated herein by this
reference. The reference under the column "Location" is to the
exhibit number in the report on Form 8-K.
FORM 8-K FILINGS
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HEADWAY CORPORATE RESOURCES,
INC.
By: Barry S. Roseman,
President
(Signature)
In accordance with the Exchange Act, this report has been
signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: March 27, 1997 Gary S. Goldstein (Signature)
Principal Executive Officer,
Director
Dated: March 27, 1997 Barry S. Roseman (Signature)
Principal Financial and
Accounting
Officer, Director
Dated: March 20, 1997 G. Chris Andersen (Signature)
Director
Dated: March 25, 1997 Edward E. Furash (Signature)
Director
Dated: March 25, 1997 Ehud D. Laska (Signature)
Director
Dated: March 24, 1997 Richard B. Salomon (Signature)
Director
Headway Corporate Resources, Inc.
Index to Consolidated Financial Statements
Contents
Report of Independent Auditors_Ernst & Young LLP F- 2
Report of Independent Auditors_Moore Stephens P.C F- 3
Report of Kingston Smith (formerly Letchfords) F- 4
Consolidated Balance Sheet as of December 31, 1996 F- 6
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 F- 8
Consolidated Statements of Stockholders' Equity for the years
ended
December 31, 1996 and 1995 F- 9
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 F-13
Notes to Consolidated Financial Statements F-15
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Headway Corporate Resources, Inc.
We have audited the consolidated balance sheet of Headway
Corporate Resources, Inc. as of December 31, 1996 and the related
consolidated statements of operations, cash flows and
stockholders' equity for the year then ended. These financial
statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
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 financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Headway Corporate Resources, Inc. at
December 31, 1996 and the consolidated results of their
operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 14, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Headway Corporate Resources, Inc.
We have audited the accompanying consolidated statements of
operations, stockholders' equity, and cash flows of Headway
corporate Resources, Inc. and subsidiaries (formerly AFGL
International, Inc. and Subsidiaries) for the year ended December
31, 1995. 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 the foreign subsidiary of the Company, which
statements reflect total revenues of $3,765,738 for the year
ended December 31, 1995. Those statements were audited by other
auditors whose report has been furnished to us, an our opinion,
insofar as it relates to the amounts included for the foreign
subsidiary, 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 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 audit and the report of the other auditors provide 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 consolidated
results of operations and cash flows of Headway Corporate
Resources, Inc. and subsidiaries for the year ended December 31,
1995 in conformity with generally accepted accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
March 27, 1996
<PAGE>
AUDITORS REPORT TO THE DIRECTORS
WHITNEY PARTNERS INC.
On 29 August 1996 Letchfords reported, as auditors, to the
members of Whitney Group (Europe) Limited on the U.K. financial
statements for the year to 31, December 1995. Since this date
Letchfords have merged their accountancy practice with that of
Kingston Smith.
Letchfords' audit report on the UK financial statements of the
Whitney Group (Europe) Limited was as follows:
We have audited the financial statements set out on pages 3
to 10 which have been prepared under the historical cost
convention and the accounting policies set out on page 6.
Respective Responsibilities of Directors and Auditors
As described on page 1 the company's directors are
responsible for the preparation of financial statements. It
is our responsibility to form an 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 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
judgments 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 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.
Opinion
In our opinion the financial statements give a true and fair
view of the state of the company's affairs as at 31 December
1995 and of its profit for the year then ended and have been
properly prepared in accordance with the provisions of the
Companies Act 1985 applicable to small companies.
The above audit report was made on the basis of work undertaken
by Letchfords in accordance with U.K. Auditing Standards using
U.K. Accounting Principles.
Letchfords determined that there are no material differences
between the U.K. auditing Standards used in conducting their
audit and U.S. Generally Accepted Auditing Standards.
Additionally, the U.K. Accounting Principles used by Letchfords
in preparing the accompanying financial statements are
substantially the same as U.S. Generally Accepted Accounting
Principles.
KINGSTON SMITH 105 St. Peters Street
Chartered Accountants St. Albans
Herts
AL1 3EJ
26 March 1997 United Kingdom
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Balance Sheet
December 31, 1996
Assets
Current assets:
Cash and cash equivalents $1,008,00
0
Accounts receivable, trade, net of allowance for
doubtful accounts of $122,000 12,403,00
0
Deferred income taxes 519,000
Prepaid expenses and other current assets 434,000
Total current assets 14,364,00
0
Property and equipment, net 1,589,000
Cash surrender value of officers' life insurance 426,000
Due from related party 178,000
Intangibles, net of accumulated amortization of 12,028,00
$583,000 0
Investment_at cost 2,368,000
Deferred financing costs 2,416,000
Deferred income taxes 734,000
Other assets 566,000
Total assets $34,669,0
00
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Balance Sheet (continued)
December 31, 1996
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $3,024,00
0
Line of credit 3,850,000
Capital lease obligations, current portion 87,000
Notes and loans payable, current portion 1,500,000
Accrued payroll 3,876,000
Income taxes payable 379,000
Total current liabilities 12,716,000
Notes and loans payable, less current portion 7,250,000
Capital lease obligations, less current portion 110,000
Deferred rent 1,169,000
Stockholders' equity
Preferred stock_$.0001 par value, 5,000,000
shares authorized, none issued or outstanding -
Series A, 8% cumulative convertible preferred
stock_$.0001 par value, 2,800 shares
authorized, issued and outstanding (aggregate 700,000
liquidation value $700,000)
Series B, convertible preferred stock_$.0001 par
value, 6,858 shares authorized, issued and
outstanding (aggregate liquidation value 2,400,000
$2,400,000)
Series C, convertible preferred stock_$.0001 par
value, 24 shares authorized, 5 issued and 100,000
outstanding
Series D, convertible preferred stock_$.0001 par
value, 44 shares authorized, 37 issued and 1,850,000
outstanding
Series E, convertible preferred stock_$.0001 par
value, 575,000 shares authorized, none issued -
and outstanding
Common stock_$.0001 par value, 20,000,000 shares
authorized, 6,301,448 shares issued and 1,000
outstanding
Additional paid-in capital 8,371,000
Cumulative translation adjustments 80,000
Notes receivable_preferred stock (457,000)
Retained earnings 379,000
Total stockholders' equity 13,424,000
Total liabilities and stockholders' equity $34,669,0
00
See accompanying notes.
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Statements of Operations
Year ended December 31
1996 1995
Revenues:
Human resources management $53,389,0 $10,996,00
00 0
Advisory services 3,808,000 4,496,000
57,197,000 15,492,000
Operating expenses:
Direct cost of human resources 29,703,000 -
management
General and administrative 23,873,000 13,744,000
Depreciation and amortization 678,000 285,000
54,254,000 14,029,000
Operating income from continuing 2,943,000 1,463,000
operations
Other expenses (income):
Interest expense 1,157,000 93,000
Interest income (96,000) (75,000)
Other expense, net - 12,000
1,061,000 30,000
Income from continuing operations
before income tax expense and 1,882,000 1,433,000
minority interest
Income tax expense (benefit):
Current 1,269,000 884,000
Deferred (569,000) (320,000)
700,000 564,000
Income from continuing operations 1,182,000 869,000
Discontinued operations :
Loss from operations of discontinued
segment (net of income tax benefit - (1,672,000)
of $919,000)
Loss on disposal of segment (net of
income tax benefit of $37,000) - (286,000)
(Loss) from discontinued operations - (1,958,000)
(Loss) income before minority - (1,089,000)
interest
Minority interest in loss of
consolidated subsidiary - 5,000
Net income (loss) 1,182,000 (1,084,000)
Deemed dividend on preferred stock (1,470,000) -
Preferred dividend requirements (276,000) (56,000)
Net (loss) available for common $(564,000) $(1,140,00
stockholders 0)
Primary earnings (loss) per common
share:
Continuing operations $ (.08) $ .15
Net income (loss) $ (.08) $ (.20)
Fully diluted earnings (loss)
per common share:
Continuing operations $ - $ .13
See accompanying notes.
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Statements of Stockholders' Equity
Series A Series B
Convertible Convertible
Preferred Stock Preferred Stock
Share Amount Share Amount
s s
Balance_December 31, 1994 2,800 $ - $
700,000 -
Issuance of preferred stock - - 6,858 2,400,000
Preferred stock dividends_
$20 per share - - - -
Translation Adjustments - - - -
Net (loss) for the year - - - -
Balance_December 31, 1995 2,800 700,000 6,858 2,400,000
Issuance of preferred stock - - - -
Conversion of preferred stock - - - -
Change in par value - - - -
Retirement of treasury stock - - - -
Repayment of loan to purchase
stock - - - -
Warrants issued in connection
with financing transactions - - - -
Expenses incurred in
connection with equity - - - -
transactions
Preferred stock dividends - - - -
Translation adjustments - - - -
Net income for the year - - - -
Balance_December 31, 1996 2,800 $ 6,858 $
700,000 2,400,000
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Statements of Stockholders' Equity (continued)
<TABLE>
<CAPTION> Series C Series D
Convertible Convertible
Preferred Stock Preferred Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance_December 31, 1994 - $ - $ -
-
Issuance of preferred stock - - - -
Preferred stock dividends_
$20 per share - - - -
Translation Adjustments - - - -
Net (loss) for the year - - - -
Balance_December 31, 1995 - - - -
Issuance of preferred stock 150 3,000,000 80 4,000,000
Conversion of preferred stock (145) (2,900,00 (43) (2,150,00
0) 0)
Change in par value - - - -
Retirement of treasury stock - - - -
Repayment of loan to purchase
stock - - - -
Warrants issued in connection
with financing transactions - - - -
Expenses incurred in
connection with equity - - - -
transactions
Preferred stock dividends - - - -
Translation adjustments - - - -
Net income for the year - - -
Balance_December 31, 1996 5 $ 37 $1,850,0
100,000 00
</TABLE>
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Statements of Stockholders' Equity (continued)
<TABLE>
<CAPTION> Notes
Receivable
Preferred Addition
Stock Common Stock al
Paid-in
Amount Shares Amount Capital
<S> <C> <C> <C> <C>
Balance_December 31, 1994 $ 4,597,35 $46,00 $
- 8 0 2,592,00
0
Issuance of preferred stock - - -
Preferred stock
dividends_$20 per share - - - -
Translation Adjustments - - - -
Net (loss) for the year - - - -
Balance_December 31, 1995 - 4,597,35 46,000 2,592,00
8 0
Issuance of preferred stock - - - -
Notes receivable for
preferred stock (507,000) - - -
Conversion of preferred - 1,818,05 - 5,178,00
stock 0 0
Change in par value - - (45,00 45,000
0)
Retirement of treasury stock - (113,960 - (577,000
) )
Repayment of loan to
purchase stock 50,000 - - -
Warrants issued in
connection with financing - - - 1,867,00
transactions 0
Expenses incurred in
connection with equity - - - (734,000
transactions )
Preferred stock dividends - - -
Translation adjustments - - -
Net income for the year - - -
Balance_December 31, 1996 $ 6,301,44 $ $
(457,000) 8 1,000 8,371,00
0
</TABLE>
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Statements of Stockholders' Equity (continued)
Cumulativ Retained Total
e Earnings Stockholder
Translati s'
on
Adjustmen (Deficit) Equity
t
Balance_December 31, 1994 $78,000 $ $
614,000 4,030,000
Issuance of preferred stock - - 2,400,000
Preferred stock
dividends_$20 per share - (56,000) (56,000)
Translation Adjustments 12,000 - 12,000
Net (loss) for the year - (1,085,00 (1,085,00
0) 0)
Balance_December 31, 1995 90,000 (527,000) 5,301,000
Issuance of preferred stock - - 7,000,000
Notes receivable for
preferred stock - - (507,000)
Conversion of preferred - - 128,000
stock
Change in par value - - -
Retirement of treasury stock - - (577,000)
Repayment of loan to
purchase stock - - 50,000
Warrants issued in
connection with financing - - 1,867,000
transactions
Expenses incurred in
connection with equity - - (734,000)
transactions
Preferred stock dividends - (276,000) (276,000)
Translation adjustments (10,000) - (10,000)
Net income for the year - 1,182,000 1,182,000
Balance_December 31, 1996 $80,000 $ $
379,000 13,424,00
0
See accompanying notes.
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Statements of Cash Flows
Year ended December
31
1996 1995
Operating activities
Income from continuing operations $ $874,000
1,182,000
Adjustments to reconcile income from
continuing operations to net cash
provided by (used for) operating
activities:
Minority interest in (loss) of
consolidated subsidiary - (5,000)
Depreciation and amortization 1,099,000 285,000
Deferred income taxes (569,000) (320,000)
Noncash compensation - 130,000
Changes in assets and liabilities:
Accounts receivable (4,163,00 (2,072,000
0) )
Prepaid expenses and other current 622,000 (396,000)
assets
Other assets (329,000) 50,000
Accounts payable and accrued 347,000 823,000
expenses
Accrued payroll 2,092,000 (904,000)
Income taxes payable (1,000) 138,000
Deferred rent 39,000 1,118,000
Net cash_continuing operations 319,000 (279,000)
(Loss) from discontinued operations (1,958,000
)
Adjustments to reconcile (loss) from
discontinued operations to net cash
(used for) by operating activities:
Loss on asset disposals - 286,000
Depreciation and amortization - 555,000
Net change in assets and liabilities - (845,000)
Net cash_discontinued operations - (1,962,000
)
Net cash provided by (used in)
operating activities 319,000 (2,241,000
)
Investing activities
Expenditures for property and (286,000) (1,456,000
equipment )
Repayment from employees 50,000 (50,000)
Advances to employees (257,000) 192,000
Due from related parties (167,000) (32,000)
Cash acquired through acquisitions - 311,000
Cash paid for acquisitions (12,139,0 -
00)
Increase in cash surrender value
of officers life insurance (107,000) (77,000)
Net cash (used in) investing (12,906,0 (1,112,000
activities 00) )
<PAGE>
Headway Corporate Resources, Inc.
Consolidated Statements of Cash Flows (continued)
Year ended December 31
1996 1995
Financing activities
Cash pledged $ $ 500,000
85,000
Net change in revolving credit line - 325,000
Proceeds from notes 12,850,000 2,500,000
Repayment of notes (5,675,000 (154,000)
)
Payment of capital lease obligations (72,000) (101,000)
Payments of loan acquisition fees (857,000) -
Sale of preferred stock 6,267,000 -
Cash dividends paid (56,000) (56,000)
Net cash provided by financing 12,542,000 3,014,000
activities
Effect of exchange rate changes on
cash and cash equivalents (10,000) 12,000
(Decrease) in cash and cash (55,000) (327,000)
equivalents
Cash and cash equivalents at
beginning of year 1,063,000 1,390,000
Cash and cash equivalents at end of $ $1,063,00
year 1,008,000 0
Supplemental disclosures of cash
flow information
Cash paid during the years for:
Interest $ $ 79,000
736,000
Income taxes $ $ 349,000
1,043,000
Supplemental schedule of noncash investing and financing
activities
In December 1996, an officer and a former employee sold 113,960
shares of common stock valued at $577,000 to the Company, which
was used to reduce amounts due to the Company from these
individuals.
Effective January 1995, the Company issued 6,858 shares of Series
B convertible preferred stock valued at $2,400,000 in connection
with the acquisition of Furash and Company, Inc.
During 1995, the Company acquired $539,000 of equipment through
financing arrangements of which $247,000 related to continuing
operations.
See accompanying notes.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. Organization
Headway Corporate Resources, Inc. (formerly AFGL International,
Inc.) and its wholly-owned subsidiaries, Whitney Partners, Inc.
and its United Kingdom and Asian subsidiaries ("WPI"), Furash &
Company, Inc. ("FCI"), and Headway Corporate Staffing Services,
Inc. ("HCSSI"), and its wholly-owned subsidiaries, Irene Cohen
Temps ("ICT"), Corporate Staffing Alternatives ("CSA"), Certified
Technical Staffing ("CTS"), and Headway Personnel, Inc. d.b.a.
Irene Cohen Personnel, Inc. ("ICP"), (collectively referred to as
the "Company") provide a wide range of human resource management
and advisory services. WPI is engaged in providing human resource
management, primarily in the financial services market, with
offices and principal markets in New York, London, Tokyo and Hong
Kong. FCI is engaged in providing management and consulting
advisory services, primarily to the financial services market,
throughout the United States, through its office in Washington,
D.C. HCSSI provides temporary and permanent staffing and related
services, primarily in the New York, New Jersey and Connecticut
tri-state area, through its office in New York City.
Effective January 1, 1996, the Company disposed of substantially
all of the operating assets of its subsidiary AFGL Inc. The
disposal of the subsidiaries' operating assets was reflected as
discontinued operations as of December 31, 1995. At December 31,
1995, the Company owned 76.58% of the United Kingdom subsidiary
of WPI. Effective January 1, 1996, WPI acquired the remaining
minority interest in its United Kingdom subsidiary.
Through its newly formed subsidiary, HCSSI, the Company purchased
all of the capital stock of ICT, CSA, and CTS and certain assets
of ICP in May 1996 and certain assets from another temporary
staffing agency in October 1996.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Headway Corporate Resources, Inc. and its subsidiaries after
elimination of all intercompany accounts and transactions.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Recognition of Income
WPI's services are primarily engaged on a retainer basis. Income
from retainer contracts, which provide for periodic billings over
periods of up to one year, is recognized as earned based on the
terms of the contract.
FCI recognizes revenue when services are performed.
Temporary staffing revenue is recognized when the temporary
personnel perform the related services and revenue from permanent
placement services is recognized when the placement is employed.
Cash Equivalents
Cash equivalents are comprised of certain highly liquid
investments with a maturity of three months or less when
purchased.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed utilizing straight-line and accelerated methods over the
estimated useful lives of the assets which range from three to
seven years. Leasehold improvements are amortized utilizing the
straight-line method over the leaseholds' useful life or the term
of the lease, whichever is less.
Deferred Rent
The Company leases premises under leases which provide for
periodic increases over the lease term. Pursuant to Statement of
Financial Accounting Standard No. 13, "Accounting for Leases,"
the Company records rent expense on a straight-line basis. The
effect of these differences is recorded as deferred rent.
Deferred Taxes
The Company provides for deferred taxes pursuant to Statement of
Financial Accounting Standard No. 109, "Accounting for Income
Taxes," which requires the recognition of deferred taxes
utilizing the liability method.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Cumulative Translation Adjustments
Balance sheet accounts of WPI's United Kingdom and Asian
subsidiaries are translated using year end exchange rates.
Statement of operations accounts are translated at monthly
average exchange rates. The resulting translation adjustment is
recorded as a separate component of stockholders' equity.
Goodwill
Goodwill is amortized utilizing the straight-line method over a
period of 20 years. The Company periodically evaluates the
carrying value and the periods of amortization of goodwill based
on the current and expected future non-discounted income from
operations of the entities giving rise to the goodwill to
determine whether events and circumstances warrant revised
estimates of carrying value or useful lives.
Deferred Financing Costs
Deferred financing costs are amortized utilizing the straight-
line method over the term of the related debt.
Earnings Per Share
Primary earnings per share of common stock are based on the
weighted average number of common shares outstanding for each
period presented. Common stock equivalents are included if
dilutive. Fully diluted earnings per share of common stock
amounts are based on an increased number of shares that would be
outstanding assuming conversion of the convertible preferred
stock at the highest potential conversion rate. Net income has
been adjusted for the dividend requirements on the convertible
preferred stock. The number of shares used in the computation of
primary earnings per share was 6,643,326 and 5,610,048 at
December 31, 1996 and 1995, respectively. The number of shares
used in the computation of fully diluted earnings per share was
6,942,464 at December 31, 1995.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk include cash and cash equivalents
and accounts receivable arising from its normal business
activities. The Company places its cash and cash equivalents with
high credit quality financial institutions.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The Company believes that its credit risk regarding accounts
receivable is limited due to the large number of entities
comprising the Company's customer base. In addition, the Company
routinely assesses the financial strength of its customers, and
based upon factors surrounding the credit risk of its customers,
establishes an allowance for uncollectible accounts, where
appropriate and, as a consequence, believes that its accounts
receivable credit risk exposure is limited.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Stock Based Compensation
The Company accounts for its stock-based compensation plans using
the provision of Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25").
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation ("SFAS 123")." Under the provisions
of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair-value based method or continue
measuring compensation expense for those plans using the
intrinsic value method prescribed in APB 25. SFAS 123 requires
that companies electing to continue using the intrinsic value
method make pro forma disclosures of net income and earnings per
share as if the fair-value based method of accounting had been
applied. The Company has elected to account for stock based
compensation in accordance with the provisions of APB 25. See
Note 9.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
3. Property and Equipment
Property and equipment at December 31, 1996 consist of the
following:
Leasehold improvements $ 665,000
Furniture and fixtures 747,000
Office and computer equipment 1,305,000
2,717,000
Less accumulated depreciation and amortization (1,128,000
)
$1,589,00
0
4. Due from Related Parties and Related Party Transactions
Due from related party represents the balance ($178,000 at
December 31, 1996) due from the Chairman from a loan of
$1,066,000. This loan bears interest at 6.53% per annum, with
principal due in $100,000 annual installments from May 1, 1994
through 2003, and is stated net of a $750,000 reserve. Interest
on this loan and other advances to the Chairman were repaid in
1996 with the proceeds received by the Chairman upon the sale of
shares of the company's common stock back to the Company.
Interest paid to the Company amounted to $63,000 and $12,000 for
the years ended December 31, 1996 and 1995, respectively.
A director of the Company is an employee of an entity that
provides financial advisory services to the Company. Total
amounts paid to this entity in 1996 and 1995 for such services
amounted to $582,500 and $80,000, respectively. In addition, for
services provided in 1996, this entity received warrants to
purchase 240,000 shares of common stock at $4.25 per share. Such
warrants were valued at $270,000. Financial advisory services
provided in 1996 related to the Company's equity and debt
financings and, accordingly, these expenses were allocated
between share issuance expenses ($160,000) and financing expenses
($110,000).
During the year ended December 31, 1996, the Company paid
approximately $246,000 and $286,000, respectively, for
professional and consulting services to related parties.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
5. Credit Facilities
Under the terms of a credit agreement entered into with ING U.S.
Capital Corporation ("ICC") on May 31, 1996, the Company received
a revolving line of credit of $6,000,000 and a term loan of
$9,000,000. In connection with this financing arrangement, the
Company granted to ICC a Series E Warrant to purchase 575,000
shares of Series E Convertible Preferred Stock of the Company at
$.02 per share exercisable at any time through May 31, 2004. At
December 31, 1996, such warrants could be converted into
approximately 572,000 shares of common stock. The Series E
Warrant was valued by an independent appraiser at $1,757,000 and
is being amortized over the period of the term loan.
The revolving line of credit is due on demand and bears interest
at the bank's prime rate plus 1-1/4% per annum (9.5% at December
31, 1996). The term loan requires quarterly installments of
principal and interest through June 2001 and bears interest at
LIBOR plus 3-1/4% per annum (8.87% at December 31, 1996).
Substantially all assets of the Company have been pledged as
collateral for this agreement. The agreement places limits on
annual capital expenditures and requires the Company to meet
certain financial ratios, as defined. In addition, ICC has issued
a letter of credit under the line of credit for $200,000 in
connection with an operating lease agreement entered into by the
Company.
Annual maturities of the term loan as of December 31, 1996 are as
follows:
Fiscal year:
1997 $1,250,00
0
1998 1,650,000
1999 1,950,000
2000 2,350,000
2001 1,300,000
$8,500,00
0
In connection with the Company's May 31, 1996 acquisition the
Company assumed a loan, which had a $250,000 balance at December
31, 1996. This loan bears interest at 8.25% per annum and is due
in December 1997.
At December 31, 1995 the Company had outstanding borrowings, with
interest rates varying from prime plus 1% to prime plus 2%,
aggregating $2,552,000, all of which were repaid during 1996.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
6. Acquisitions
In January 1995, the Company completed the acquisition of FCI,
exchanging 6,858 shares of Series B convertible preferred stock
for all of the capital stock of FCI. The 6,858 shares of Series B
convertible preferred stock are convertible into a minimum of
628,600 shares and a maximum of 685,744 shares of the Company's
common stock, and were valued at $2,400,000. Goodwill resulting
from the transaction was $1,784,000.
On May 31, 1996, the Company acquired all of the capital stock of
ICT, CSA and CTS and certain assets of ICP for cash of $9,230,000
plus $500,000, payable based upon future earnings derived from
the use of the assets acquired. The purchase price for the
capital stock, including transaction expenses of $491,000,
exceeded net assets acquired, resulting in goodwill of
$6,651,000.
The pro forma unaudited consolidated results of operations for
the years ended December 31, 1996 and 1995 assuming consummation
of the above-mentioned transactions as of the beginning of the
periods are as follows:
Year ended December
31
1996 1995
Total revenue $80,325,0 $54,345,00
00 0
Net income 1,346,000 887,000
Net (loss) applicable to common (204,000) (580,000)
shareholders
Net (loss) per share (.02) (.07)
In October 1996, the Company purchased certain assets of another
temporary staffing agency for cash of $2,418,000, including
transaction expenses of $18,000 of which $280,000 was allocated
to a covenant not-to-compete. Goodwill resulting from this
transaction amounted to $2,118,000. The convent not-to-compete
is being amortized over four years. This acquisition was not
significant to the results of operations of the Company.
The aforementioned acquisitions have been accounted for as
purchases and have been included in the Company's operations from
the dates of the respective purchases.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity
The Company has outstanding, 2,800 shares of Series A 8%
cumulative convertible preferred stock. Each share of Series A
preferred stock is convertible into 476 shares of common stock of
which 125 shares were convertible in August 1996 and the balance
is convertible in August 1997. The Company has the right to
redeem the preferred stock at a price equal to the liquidation
preference of $250 per shares at any time prior to conversion.
In 1995, 6,858 shares of Series B convertible preferred stock
were issued for all of the capital stock of FCI. The Series B
preferred stock is convertible into a minimum of 628,600 shares
and a maximum of 685,744 shares of common stock and participates
fully with the common stock in all dividends.
In April 1996, the Company issued 150 shares of Series C 8%
convertible preferred stock for $3,000,000 under Regulation S of
the Securities Act. The Series C preferred stock is convertible
to common stock of the Company at lesser of $4.558125 or 80% of
the market price of Company's common stock. At December 31, 1996,
the holders of 145 shares of Series C preferred stock had
converted their shares into common stock. Warrants to purchase
240,000 shares of common stock at $4.25 per share were issued to
related parties for services rendered in connection with this
transaction.
In June 1996, the company completed a private placement of 80
shares of Series D 8% convertible preferred stock for $4,000,000.
The Series D preferred stock is convertible to common stock of
the Company at lesser of $5.21065 or 80% of the market price of
the Company's common stock. In addition, on conversion, the
holders of Series D convertible preferred stock are entitled to
receive a warrant to purchase one share of common stock at an
exercise price of $4.25 per share, for every four shares of
common stock issued upon conversion. The guaranteed discount on
conversion ($1,000,000) and, the valuation of warrants to be
issued upon conversion which amounted to $470,000 (based on an
independent appraisal), was deemed to be a dividend for purposes
of calculating net income available to common stockholders.
Accordingly, a deemed dividend of $1,470,000 was recorded and
shown as a reduction to earnings available to common
shareholders. At December 31, 1996, the holders of 43 shares of
Series D preferred stock had converted their shares into common
stock, and warrants to purchase 184,470 shares at $4.25 per share
were issued.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity (continued)
On November 6, 1996, the stockholders of the Company approved a
change in the state of incorporation of the Company from Nevada
to Delaware through a merger of the Company (then AFGL
International, Inc., a Nevada corporation) into Headway Corporate
Resources, Inc., a Delaware corporation formed for that purpose.
In the merger, all outstanding capital shares have exchanged on a
one share for one share basis, and the only change in the capital
of the Company was reduction of the par value for all capital
shares to $.0001 per share. The accompanying financial statements
give retroactive effect to this transaction.
In December 1996, an officer and a former employee of the Company
sold 113,960 shares of common stock at the then current market
price of $577,000 to the Company. Such amount was used to reduce
amounts due to the Company from these individuals. The shares
purchased by the Company were retired in 1996.
In May 1996, the Company loaned a total of $507,000 to ten
employees and certain directors of the Company at 8% interest per
annum payable quarterly over a term of five years. The funds were
used by the employees and directors to purchase a total of 2,170
shares of the Company's Series A Convertible Preferred Stock from
the then current Series A Convertible Preferred stockholder. The
loans are collateralized by the Series A Stock purchased and
additional assets with a value in excess of the principal amount
of each loan.
In April 1996, the Company issued warrants to purchase 200,000
shares of common stock at $3.50 per share as consideration for
services rendered in connection with equity financing obtained by
Company and investor relations services.
At December 31, 1996 approximately 8,194,000 shares of common
stock have been reserved for future issuance upon conversion of
preferred stock and exercise of options and warrants as follows:
Conversion of Series A Preferred Stock 1,333,000
Conversion of Series B Preferred Stock 686,000
Conversion of Series C Preferred Stock 27,000
Conversion of Series D Preferred Stock 500,000
Warrants issued and issuable upon conversion of
Series D Preferred Stock 310,000
Series E Warrants 572,000
Stock Incentive Plan 3,772,000
Other Warrants 994,000
8,194,000
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
The components of income before income taxes consists of the
following:
December 31
1996 1995
Domestic $1,843,000 $1,422,000
Foreign 39,000 11,000
$1,882,000 $1,433,000
Income tax expense from continuing operations consists of the
following:
December 31
1996 1995
Current:
Domestic $1,231,000 $ 851,000
Foreign 38,000 33,000
1,269,000 884,000
Deferred (benefit):
Domestic (569,000) (320,000)
Foreign - -
Total deferred (benefit) (569,000) (320,000)
$ 700,000 $ 564,000
As of December 31, 1996 the Company has available, federal net
operating loss carryovers of approximately $569,000. Such net
operating loss carryovers are limited to usage, as a result of
ownership changes, to approximately $67,000 per year which will
begin to expire in 2004. In addition, the Company has state and
local net operating loss carryovers of approximately $2,500,000
expiring through 2011.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
The components of deferred tax assets and liabilities are as
follows:
December 31
1996 1995
Deferred tax assets:
Net operating loss $495,000 $
330,000
Goodwill - 121,000
Deferred charges 828,000 517,000
Reserves 362,000 282,000
Gross deferred tax assets 1,685,000 1,250,000
Valuation allowance (193,000) (262,000)
1,492,000 988,000
Deferred tax liabilities:
Property and equipment (80,000) (8,000)
Intangibles (28,000) (93,000)
Cash to accrual adjustments (131,000) (203,000)
(239,000) (304,000)
$1,253,0 $
00 684,000
The Company recorded a reduction in its valuation allowance of
$69,000 during the year ended December 31, 1996 because it
anticipates sufficient income from operations to realize its
deferred tax asset in the future. The change in valuation
allowance amounted to $237,000 for the year ended December
31,1995.
A reconciliation of the statutory Federal income tax rate to the
effective rates is as follows:
December 31
1996 1995
Statutory rate 34.0% 34.0%
State and local income taxes (net of
federal tax benefit) 23.0% 3.5
Deferred tax benefit (net) (20.0%) -
Other - 1.9
Effective tax rate 37.0% 39.4%
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
9. Stock Incentive Plan
On October 20, 1993, the Company adopted its Stock Incentive Plan
("Plan"). The Plan provides for the grant of awards in the form
of options to purchase shares of common stock. The maximum number
of shares issuable under the Plan was 5,000,000, but was subject
to reductions based upon the failure to achieve specified income
levels. Pursuant to those provisions, the number of shares
issuable was reduced to 3,771,567. The Plan provides for the
granting of stock options, stock appreciation rights and stock
awards. Stock options intended to be incentive stock options will
be granted at prices equal to at least market price on the date
of the grant. A summary of the activity in the Plan is as
follows:
Number Weighted
of Shares Average
Exercise
Price
Outstanding at December 31, 1994 607,750 $2.81
Granted 210,000 2.99
Canceled (224,250) 2.90
Outstanding at December 31, 1995 593,500 2.86
Granted 719,950 3.28
Canceled (92,503) 2.85
Outstanding at December 31, 1996 1,220,947 3.12
Exercisable at December 31, 127,833 2.82
1995
Exercisable at December 31,1996 374,225 2.74
In connection with the acquisition of FCI, the Company
established the Furash Stock Incentive Plan which provided for
the issuance of up to 171,432 shares of common stock in a form to
be determined by the FCI committee. A maximum of 42,858 shares
per year for four years may be issued, provided certain revenue
criteria are met. For the year ended December 31, 1995, 65,000
options were issued in lieu of shares. No shares were earned in
1996.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
9. Stock Incentive Plan (continued)
Stock Based Compensation
Pro forma information regarding net income and earnings per share
is required by SFAS 123, and has been determined as if the
Company had accounted for its employee stock options under the
fair value method of SFAS 123. 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
1995 and 1996:
Assumption 1996 1995
Risk-free rate 6.6% 6.6%
Dividend yield 0% 0%
Volatility factor of the expected
market price of the Company's .5 .5
common stock
Average life 3 years 3 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options and stock
appreciation rights.
For purposes of pro forma disclosures, the estimated fair value
of the options and stock appreciation rights is amortized to
expense over the vesting period of the options and stock
appreciation rights. The Company's pro forma information follows:
1996 1995
Pro forma net (loss) $(897,0 $(1,173,
00) 000)
Pro forma net (loss) per $ $
share (.13) (.21)
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
9. Stock Incentive Plan (continued)
The weighted average fair value of options granted during the
years ended December 31, 1996 and 1995 were $1.32 and $1.20
respectively. The weighted-average remaining contractual life of
options exercisable at December 31, 1996 is 8.1 years.
10. Leases
The Company leases office space under operating leases which
expire through 2009. The leases provide for additional rent based
on increases in operating costs and real estate taxes. The
Company also leases equipment under capital leases expiring at
various times through 1999.
Future minimum lease payments under capital leases and
noncancelable operating leases (shown net of $537,000 of sublease
income per annum through 2000) with remaining terms of one year
or more are as follows at December 31, 1996:
Capital Operating
Leases Leases
1997 $103,000 $1,209,000
1998 98,000 1,367,000
1999 20,000 1,319,000
2000 - 1,396,000
2001 - 1,944,000
Thereafter - 11,100,000
Total minimum lease payments 221,000 $18,335,000
Less amounts representing interest 24,000
Present value of net minimum lease $197,000
payments
Less current portion 87,000
Long-term portion $110,000
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
10. Leases (continued)
Included in property and equipment at December 31, 1996 are
assets recorded under capital lease with a cost of $329,000 and
accumulated depreciation and amortization of $126,000.
Amortization of assets recorded under capital leases is included
with depreciation expense.
Rent expense, including escalation charges, for the years ended
December 31, 1996 and 1995 was $1,524,000 (net of sublease income
of $628,000) and $930,000 (net of sublease income of $49,000),
respectively.
11. Retirement Plan
The Company's 401(k) Plan, covering substantially all its
domestic employees, requires the Company to make matching
contributions equal to 25% of the employees' contributions.
Company contributions into the plan, which have been charged to
operations, totaled $55,000 and $65,000 for the years ended
December 31, 1996 and 1995, respectively. In addition, the
Company has another 401 (k) plan for employees of HCSSI and its
subsidiaries. No contributions were made to this plan.
12. Commitments and Contingencies
The Company has long-term employment agreements with certain
officers and employees providing for base compensation and
bonuses, as defined. The base compensation related to such
agreements are as follows: $1,678,000 (1997); $1,678,000 (1998);
$807,000 (1999); $578,000 (2000) and $241,000 (2001).
In addition, certain officers and employees are entitled to
bonuses if certain revenue and profitability targets are met.
Such bonuses amounted to $859,000 and $0 for the years ended
December 31, 1996 and 1995, respectively.
13. Major Customer
For the year ended December 31, 1996, the Company had one
customer which accounted for 11% of revenues.
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
14. Segment and Geographic Information
In 1996, the Company's operations are classified into two
industry segments; human resource management and advisory
services. The following is a summary of segment and geographic
information:
<TABLE>
<CAPTION>
United Europe Asia Consolidat
States ed
<S> <C> <C> <C> <C>
Revenue:
Human resource
management $47,742,0 $ $1,090,0 $53,389,0
00 4,557,000 00 00
Advisory services 3,808,000 - - 3,808,000
Totals 51,550,00 4,557,000 1,090,000 57,197,000
0
Income (loss) from
operations:
Human resource
management 4,127,000 35,000 (33,000) 4,129,000
Advisory services (695,000) - - (695,000)
Corporate (491,000) - - (491,000)
Totals 2,941,000 35,000 (33,000) 2,943,000
Other expense 1,065,000 (4,000) - 1,061,000
(income)
Income before income
tax expense 1,876,000 39,000 (33,000) 1,882,000
Identifiable assets:
Human resource 24,700,00 1,642,000 143,000 26,485,000
management 0
Advisory services 2,257,000 - - 2,257,000
Corporate 5,927,000 - - 5,927,000
Totals 32,884,00 1,642,000 143,000 34,669,000
0
Depreciation and
amortization:
Human resource
management 462,000 49,000 3,000 514,000
Advisory services 164,000 - - 164,000
Corporate 421,000 - - 421,000
Totals 1,047,000 49,000 3,000 1,099,000
Capital expenditures:
Human resource 116,000 51,000 - 167,000
management
Advisory services 119,000 - - 119,000
Totals $ $ 51,000 $ - $ 286,000
235,000
</TABLE>
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
14. Segment and Geographic Information (continued)
In 1995, the Company's continuing operations were comprised of
two industry segments: human resource management and advisory
services. The Company's marketing/communications segment was
discontinued on December 15, 1995 and is not presented in the
following summary. The following is a summary of geographic
information:
<TABLE>
<CAPTION> United
States Europe Asia Consolida
ted
<S> <C> <C> <C> <C>
Revenue:
Human resource
management $ $3,327,0 $1,183,0 $
6,486,000 00 00 10,996,00
0
Advisory services 4,496,000 - - 4,496,000
Totals 10,982,00 3,327,000 1,183,000 15,492,00
0 0
Income (loss) from
operations:
Human resource
management 1,618,000 16,000 (136,000) 1,498,000
Advisory services (28,000) - - (28,000)
Corporate (7,000) - - (7,000)
Totals 1,583,000 16,000 (136,000) 1,463,000
Other expenses - - - 30,000
(income)
Income before income
tax expense - - - 1,433,000
Identifiable assets:
Human resource
management 5,114,000 1,101,000 202,000 6,417,000
Advisory services 1,314,000 - - 1,314,000
Corporate 2,043,000 - - 2,043,000
Totals 8,471,000 1,101,000 202,000 9,774,000
Depreciation and
amortization:
Human resource
management 68,000 63,000 6,000 137,000
Advisory services 148,000 - - 148,000
Totals 216,000 63,000 6,000 285,000
Capital expenditures:
Human resource
management 977,000 79,000 - 1,056,000
Advisory services 129,000 - - 129,000
Totals $ $ 79,000 $ - $1,185,000
1,106,000
</TABLE>
<PAGE>
Headway Corporate Resources, Inc.
Notes to Consolidated Financial Statements (continued)
15. Discontinued Operations
On December 15, 1995, the Company adopted a formal plan to
discontinue its marketing communications segment which the
Company operated through its subsidiary, AFGL. The marketing
communications segment conducted their operations primarily in
the New York City and San Francisco areas. The decision to
discontinue the segment was precipitated by the inability to
attain profitable operations. The Company entered into an
agreement to exchange substantially all of the subsidiary's
operating assets to Citigate Communications Group Limited
("Citigate") for an 18.3% interest in Citigate valued at
$2,368,000 and the assumption by Citigate of $9,191,000 in
liabilities. The exchange was consummated in March 1996
retroactive to January 1, 1996. Net sales of the segment for the
years ended December 31, 1996 and 1995 were $0 and $5,990,000,
respectively. This amount is not included in net sales in the
statement of operations.
16. Subsequent Events
In March 1997, Citigate was acquired by Incepta Group, plc.
("Incepta"), a United Kingdom public company. The Company
received 13,653,926 shares of Incepta in exchange for its
investment in Citigate. An additional 7,072,307 shares of Incepta
is receivable in May 1998 if Incepta meets certain earnings
targets. The Company sold 4,951,930 shares for approximately
$1,643,000 in March 1997. The gain from this transaction will be
recognized in 1997.
4
5
Exhibit No. 1
Headway Corporate Resources, Inc.
Form 10-KSB
File No. 0-23170
CERTIFICATE OF INCORPORATION
OF
HEADWAY CORPORATE RESOURCES, INC.
ARTICLE I
NAME
The name of the Corporation is Headway Corporate Resources,
Inc.
ARTICLE II
REGISTERED OFFICE AND AGENT FOR SERVICE
The address of the Corporation's registered office in the
State of Delaware is in the county of New Castle, at 1013 Centre
Road, Wilmington, Delaware 10805. The name of its registered
agent at such address is Corporation Service Company.
ARTICLE III
CORPORATE PURPOSES
The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
1. Shares, Classes and Series Authorized.
The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 25,000,000
shares. Stockholders shall not have any preemptive rights, nor
shall stockholders have the right to cumulative voting in the
election of directors or for any other purpose. The classes and
the aggregate number of shares of stock of each class which the
Corporation shall have authority to issue are as follows:
(a) 20,000,000 shares of Common Stock, $0.0001 par value
("Common Stock").
(b) 5,000,000 shares of Preferred Stock, $0.0001 par value
("Preferred Stock").
2. Powers and Rights of the Preferred Stock.
The Preferred Stock may be issued from time to time in one
or more series, with such distinctive serial designations as may
be stated or expressed in the resolution or resolutions providing
for the issue of such stock adopted from time to time by the
Board of Directors; and in such resolution or resolutions
providing for the issuance of shares of each particular series,
the Board of Directors is also expressly authorized to fix: the
right to vote, if any; the consideration for which the shares of
such series are to be issued; the number of shares constituting
such series, which number may be increased (except as otherwise
fixed by the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time by
action of the Board of Directors; the rate of dividends upon
which and the times at which dividends on shares of such series
shall be payable and the preference, if any, which such dividends
shall have relative to dividends on shares of any other class or
classes or any other series of stock of the Corporation; whether
such dividends shall be cumulative or noncumulative, and if
cumulative, the date or dates from which dividends on shares of
such series shall be cumulative; the rights, if any, which the
holders of shares of such series shall have in the event of any
voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding up of the
affairs of the Corporation; the rights, if any, which the holders
of shares of such series shall have to convert such shares into
or exchange such shares for shares of any other class or classes
or any other series of stock of the Corporation or for any debt
securities of the Corporation and the terms and conditions,
including price and rate of exchange, of such conversion or
exchange; whether shares of such series shall be subject to
redemption, and the redemption price or prices and other terms of
redemption, if any, for shares of such series including, without
limitation, a redemption price or prices payable in shares of
Common Stock; the terms and amounts of any sinking fund for the
purchase or redemption of shares of such series; and any and all
other designations, preferences, and relative, participating,
optional or other special rights, qualifications, limitations or
restrictions thereof pertaining to shares of such series'
permitted by law.
3. Issuance of the Common Stock and the Preferred Stock.
The Board of Directors of the Corporation may from time to
time authorize by resolution the issuance of any or all shares of
the Common Stock and the Preferred Stock herein authorized in
accordance with the terms and conditions set forth in this
Certificate of Incorporation for such purposes, in such amounts,
to such persons, corporations or entities, for such
consideration, and in the case of the Preferred Stock, in one or
more series, all as the Board of Directors in its discretion may
determine and without any vote or other action by the
stockholders, except as otherwise required by law. The capital
stock, after the amount of the subscription price, or par value,
has been paid in shall not be subject to assessment to pay the
debts of the Corporation.
ARTICLE V
BOARD OF DIRECTORS
The governing board of the Corporation shall be known as
directors, and the number of directors may from time to time be
increased or decreased in such manner as shall be provided by the
Bylaws of the Corporation, provided that the number of directors
may not be less than one nor more than fifteen. Effective upon
filing of this Certificate, the members of the board of directors
shall be divided into three classes, designated as Class 1, Class
2, and Class 3 as follows:
Class 1
Gary S. Goldstein 850 Third Avenue, 11th Floor
New York, NY 10022
Barry S. Roseman 850 Third Avenue, 11th Floor
New York, NY 10022
Class 2
Ehud D. Laska 630 Third Avenue
New York, NY 10111
Edward E. Furash 2001 L Street, N. W.
Washington, DC 20036
Class 3
G. Chris Andersen 1330 Avenue of the Americas
New York, NY 10019
Richard B. Salomon 620 Fifth Avenue
New York, NY 10020
Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the
entire board of directors. The Class 1 directors shall be deemed
elected for a three-year term, Class 2 Directors for a two-year
term, and Class 3 directors for a one-year term. At each
succeeding annual meeting of shareholders commencing in 1997,
successors to the Class of directors whose term expires at that
annual meeting of shareholders shall be elected for a three-year
term. If the number of directors has changed, any increase or
decrease shall be appointed among the Classes so as to maintain
the number of directors in each Class as nearly equal as
possible, and any additional director of any Class elected to
fill a vacancy resulting from an increase in such a Class shall
hold office for a term that shall coincide with the remaining
term of that Class, unless otherwise required by law, but in no
case shall a decrease in the number of directors in a Class
shorten the term of an incumbent director. A director shall hold
office until the date of the annual meeting of shareholders upon
which his term expires and until his successor shall be elected
and qualified, subject, however, to his prior death, resignation,
retirement, disqualification, or removal from office. A director
may be removed from office only for cause and at a meeting of
shareholders called expressly for that purpose, by a vote of the
holders of a majority of the shares entitled to vote at an
election of directors.
ARTICLE VI
POWERS OF BOARD OF DIRECTORS
The property and business of the Corporation shall be
controlled and managed by or under the direction of its Board of
Directors. In furtherance, and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of
Directors is expressly authorized:
(a) To make, alter, amend or repeal the Bylaws of the
Corporation; provided, that no adoption, amendment, or repeal of
the Bylaws shall invalidate any act of the board of directors
that would have been valid prior to such adoption, amendment, or
repeal.;
(b) To determine the rights, powers, duties, rules and
procedures that affect the power of the board of directors to
manage and direct the property, business, and affairs of the
Corporation, including the power to designate and empower
committees of the board of directors, to elect, appoint and
empower the officers and other agents of the Corporation, and to
determine the time and place of, and the notice requirements for
board meetings, as well as the manner of taking board action; and
(c) To exercise all such powers and do all such acts as may
be exercised by the Corporation, subject to the provisions of the
laws of the State of Delaware, this Certificate of Incorporation,
and the Bylaws of the Corporation.
ARTICLE VII
INDEMNIFICATION
The Corporation shall indemnify and may advance expenses to
its officers and directors to the fullest extent permitted by law
in existence either now or hereafter.
ARTICLE VIII
LIMITATION ON PERSONAL LIABILITY FOR DIRECTORS
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for
breach of a fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which
the director derived any improper personal benefit. If the
Delaware General Corporation Law is amended hereafter to
authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so
amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at
the time of such repeal or modification.
ARTICLE IX
CERTIFICATE SUBJECT TO AMENDMENT
The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by
statute or by the Certificate of Incorporation, and except as
otherwise provided by this Certificate of Incorporation, all
rights conferred upon stockholders herein are granted subject to
this reservation.
ARTICLE X
INCORPORATOR
The sole incorporator of the Corporation is:
Mark E. Lehman 8 E. Broadway, Suite 620
Salt Lake City, UT 84111
IN WITNESS WHEREOF, the undersigned, acting as the sole
incorporator of the Corporation, signs this Certificate of
Incorporation as his act and deed this 7th day of October, 1996.
Mark E. Lehman (Signature)
14
15
Exhibit No. 2
Headway Corporate Resources, Inc.
Form 10-KSB
File No. 0-23170
BYLAWS OF
HEADWAY CORPORATE RESOURCES, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of
the Corporation shall be in the county of New Castle, at 1013
Centre Road, Wilmington, Delaware 10805. The name of its
resident agent at such address is Corporation Service Company.
Section 2. Other Offices. Other offices may be
established by the Board of Directors at any place or places,
within or without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders
shall be held either at the principal executive office or any
other place within or without the State of Delaware which may be
designated either by the Board of Directors pursuant to authority
hereinafter granted to said Board, or by the written consent of
all stockholders entitled to vote thereat, given either before or
after the meeting and filed with the Secretary of the
Corporation; provided, however, that if no place is designated or
so fixed, stockholder meetings shall be held at the principal
executive office of the Corporation.
Section 2. Annual Meetings. The annual meetings of the
stockholders shall be held each year on a date and a time
designated by the Board of Directors. At the annual meeting of
stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought
before an annual meeting, business must be specified in the
Notice of Meeting given by or at the direction of the Board of
Directors, otherwise properly brought before the meeting by or at
the direction of the Board of Directors or otherwise properly
brought before the meeting by a stockholder. For business to be
properly brought before the annual meeting by a stockholder,
including the nomination of a director, the stockholder must have
given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive
offices of the Corporation not more than five business days after
the giving of notice of the date and place of the meeting to the
stockholders. A stockholder's notice to the Secretary shall
inform as to each matter the stockholder proposes to bring before
the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder proposing such business,
(iii) the class and numbers of shares of the Corporation which
are beneficially owned by the stockholder and (iv) any material
interest of the stockholder in such business. Notwithstanding
anything in the Bylaws to the contrary, no business shall be
conducted at the annual meeting except in accordance with the
procedures set forth in this Section. The chairman of the annual
meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section, and if he
should so determine, he shall so declare to the meeting and any
such business not properly before the meeting shall not be
transacted.
Section 3. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes whatsoever, may be
called at any time by the Chairman of the Board, the President or
by a majority of the Board of Directors, or by such other person
as the Board of Directors may designate.
For business to be properly brought before a special meeting
by a stockholder, including the nomination of a director, the
stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the
principal executive offices of the Corporation not more than five
business days after the giving of notice of the date and place of
the meeting to the stockholders. A stockholder's notice to the
Secretary shall inform as to each matter the stockholder proposes
to bring before a special meeting (i) a brief description of the
business desired to be brought before the special meeting and the
reasons for conducting such business at the special meeting, (ii)
the name and record address of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder and (iv) any
material interest of the stockholder in such business.
Section 4. Notice of Stockholders' Meetings. Written
notice of each annual or special meeting signed by the President
or a Vice President, or the Secretary, or an Assistant Secretary,
or by such other person or persons as the Directors shall
designate, shall be delivered personally to, or shall be mailed
postage prepaid, to each stockholder of record entitled to vote
at such meeting. If mailed, the notice shall be directed to the
stockholder at his address as it appears upon the records of the
Corporation, and service of such notice by mail shall be complete
upon such mailing, and the time of the notice shall begin to run
from the date it is deposited in the mail for transmission to
such stockholder. Personal delivery of any such notice to any
officer of a corporation or association, or to any member of a
partnership, shall constitute delivery of such notice to such
corporation, association or partnership. All such notices shall
be delivered or sent to each stockholder entitled thereto not
less than ten nor more than sixty days before each annual or
special meeting, and shall specify the purpose or purposes for
which the meeting is called, the place, the day and the hour of
such meeting.
Any stockholder may waive notice of any meeting by a writing
signed by him, or his duly authorized attorney, either before or
after the meeting.
Section 5. Voting. At all meetings of stockholders,
every stockholder entitled to vote shall have the right to vote
in person or by written proxy the number of shares standing in
his own name on the stock records of the Corporation. There
shall be no cumulative voting. Such vote may be viva voce or
ballot; provided, however, that all elections for Directors must
be by ballot upon demand made by a stockholder at any election
and before the voting begins.
Section 6. Quorum. The presence in person or by proxy
of the holders of a majority of the shares entitled to vote at
any meeting shall constitute a quorum for the transaction of
business. The stockholders present at a duly called or held
meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 7. Ratification and Approval of Actions at
Meetings. Whenever the stockholders entitled to vote at any
meeting consent, either by: (a) A writing on the records of the
meeting or filed with the Secretary; (b) Presence at such meeting
and oral consent entered on the minutes; or (c) Taking part in
the deliberations at such meeting without objection; the doings
of such meeting shall be as valid as if had at a meeting
regularly called and noticed. At such meeting, any business may
be transacted which is not excepted from the written consent or
to the consideration of which no objection for want of notice is
made at the time. If any meeting be irregular for want of notice
or of such consent, provided a quorum was present at such
meeting, the proceedings of the meeting may be ratified and
approved and rendered likewise valid and the irregularity or
defect therein waived by a writing signed by all parties having
the right to vote at such meeting. Such consent or approval of
stockholders may be by proxy or attorney, but all such proxies
and powers of attorney must be in writing.
Section 8. Proxies. At any meeting of the stockholders,
any stockholder may be represented and vote by a proxy or proxies
appointed by an instrument in writing, which instrument shall be
filed with the Secretary of the Corporation. In the event that
any such instrument in writing shall designate two or more
persons to act as proxies, a majority of such persons present at
the meetings, or, if only one shall be present, then that one
shall have and may exercise all of the powers conferred by such
written instrument upon all of the persons so designated unless
the instrument shall otherwise provide. No such proxy shall be
valid after the expiration of six months from the date of its
execution, unless coupled with an interest, or unless the person
executing it specifies therein the length of time for which it is
to continue in force, which in no case shall exceed seven years
from the date of its execution. Subject to the above, any proxy
duly executed is not revoked and continues in full force and
effect until an instrument revoking it or a duly executed proxy
bearing a later date is filed with the Secretary of the
Corporation.
Section 9. Action Without a Meeting. Any action which
may be taken by the vote of stockholders at a meeting, may be
taken without a meeting if authorized by the written consent of
stockholders holding at least a majority of the voting power;
provided that if any greater proportion of voting power is
required for such action at a meeting, then such greater
proportion of written consents shall be required. This general
provision for action by written consent shall not supersede any
specific provision for action by written consent contained in the
Delaware General Corporation Law. In no instance where action is
authorized by written consent need a meeting of stockholders be
called or noticed.
ARTICLE III
DIRECTORS
Section 1. Powers. Incorporation, these Bylaws, and the
provisions of the Delaware General Corporation Law as to action
to be authorized or approved by the stockholders, and subject to
the duties of Directors as prescribed by these Bylaws, all
corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation must be managed
and controlled by, the Board of Directors. Without prejudice to
such general powers, but subject to the same limitations, it is
hereby expressly declared that the Directors shall have the
following powers:
First. To select and remove all officers, agents and
employees of the Corporation, prescribe such powers and duties
for them as may not be inconsistent with law, the Certificate of
Incorporation or the Bylaws, fix their compensation and require
from them security for faithful service.
Second. To conduct, manage and control the affairs and
business of the Corporation, and to make such rules and
regulations therefor not inconsistent with law, the Certificate
of Incorporation or the Bylaws, as they may deem best.
Third. To change the registered office of the Corporation
in the State of Delaware from one location to another, and the
registered agent in charge thereof, as provided in Article I,
Section 1, hereof; to fix and locate from time to time one or
more subsidiary offices of the Corporation within or without the
State of Delaware, as provided in Article I, Section 2, hereof,
to designate any place within or without the State of Delaware,
for the holding of any stockholders' meeting or meetings; and to
adopt, make and use a corporate seal, and to prescribe the forms
of certificates of stock, and to alter the form of such seal and
of such certificates from time to time, as in their judgment they
may deem best, provided such seal and such certificates shall at
all times comply with the provisions of law.
Fourth. To authorize the issuance of shares of stock of the
Corporation from time to time, upon such terms as may be lawful,
in consideration of cash, services rendered, personal property,
real property or leases thereof, or in the case of shares issued
as a dividend, against amounts transferred from surplus to
capital.
Fifth. To borrow money and incur indebtedness for the
purpose of the Corporation, and to cause to be executed and
delivered therefor, in the corporate name, promissory notes,
bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations or other evidence of debt and securities therefor.
Sixth. To make the Bylaws of the Corporation, subject to
the Bylaws, if any, adopted by the stockholders.
Seventh. To, by resolution or resolutions passed by a
majority of the whole Board, designate one or more committees,
each committee to consist of one or more of the Directors of the
Corporation, which, to the extent provided in the resolution or
resolutions, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the
Corporation, and may have power to authorize the seal of the
Corporation to be affixed to all papers on which the Corporation
desires to place a seal. Such committee or committees shall have
such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 2. Number and Qualification of Directors. The
number of Directors constituting the whole Board shall be not
less than one nor more than fifteen. The first Board shall
consist of six directors. Thereafter, within the limits above
specified, the number of Directors shall be determined by
resolution of the Board of Directors or by the stockholders at
the annual meeting. All directors must be at least 18 years of
age. Unless otherwise provided in the Certificate of
Incorporation, directors need not be stockholders.
Section 3. Election, Classification and Term of Office.
Each Director shall be elected at each annual meeting of
stockholders by a plurality of votes cast at the election, but if
for any reason the Directors are not elected at the annual
meeting of stockholders, each Director may be elected at any
special meeting of stockholders by a plurality of votes cast at
the election.
The Board of Directors shall be divided into three classes
to be designated as follows: Class 1, Class 2 and Class 3, each
of which shall be as nearly equal in number as possible. Each
Director shall serve for a term ending on the date of the third
annual meeting of stockholders following the meeting at which
such Director was elected; provided, however, that each initial
Director in Class 1 shall hold office until the annual meeting of
stockholders in 1999; each initial Director in Class 2 shall hold
office until the annual meeting of stockholders in 1998; and each
initial Director in Class 3 shall hold office until the annual
meeting of stockholders in 1997.
In the event of any increase or decrease in the authorized
number of Directors: (a) each Director then serving as such shall
nevertheless continue as a Director of the class of which he is a
member until the expiration of his current term, or his earlier
resignation, removal from office or death, and (b) the newly
created or eliminated directorships resulting from such increase
or decrease shall be apportioned by the Board of Directors (which
is in existence immediately prior to such an increase or
decrease) among the three classes of Directors so as to maintain
such classes as nearly equal as possible. Notwithstanding the
foregoing, each Director shall hold office until his successor is
elected and qualified.
Section 4. Vacancies. Vacancies in the Board of
Directors may be filled by a majority of the remaining Directors,
though less than a quorum, or by a sole remaining Director, and
each Director so elected shall hold office until his successor is
elected at an annual or a special meeting of the stockholders.
A vacancy or vacancies in the Board of Directors shall be
deemed to exist in case of the death, resignation or removal of
any Director, or if the authorized number of Directors be
increased.
If the Board of Directors accepts the resignation of a
Director tendered to take effect at a future time, the Board or
the stockholder shall have power to elect a successor to take
office when the resignation is to become effective, and such
successor shall hold office during the remainder of the resigning
Director's term of office.
Section 5. Place of Meeting. Regular meetings of the
Board of Directors shall be held at any place within or without
the State of Delaware as designated from time to time by
resolution of the Board or by written consent of all members of
the Board. In the absence of such designation regular meetings
shall be held at the principal executive office of the
Corporation. Special meetings of the Board may be held either at
a place so designated or at the principal executive office.
Members of the Board, or any committee designated by the
Board, may participate in a meeting of such Board or committee by
means of a conference telephone network or a similar
communications method by which all persons participating in the
meeting can hear each other. Such participation shall constitute
presence in person at such meeting. Each person participating in
such meeting shall sign the minutes thereof, which minutes may be
signed in counterparts.
Section 6. Organization Meeting. Immediately following
each annual meeting of stockholders, the Board of Directors shall
hold a regular meeting for the purpose of organization, election
of officers, and the transaction of other business. Notice of
such meetings is hereby dispensed with.
Section 7. Special Meetings. Special meetings of the
Board of Directors for any purpose or purposes may be called at
any time by the Chairman of the Board, President or by any two or
more Directors.
Written notice of the time and place of special meetings
shall be delivered personally to the Directors or sent to each
Director by mail or other form of written communication (such as
by telegraph, Federal Express package, or other similar forms of
written communication), charges prepaid, addressed to him at his
address as it is shown upon the records of the Corporation, or if
it is not so shown on such records or is not readily
ascertainable, at the place in which the meetings of the
Directors are regularly held. In case such notice is mailed or
otherwise communicated in writing, it shall be deposited in the
United States mail or delivered to the appropriate delivering
agent at least seventy-two hours prior to the time of the holding
of the meeting. In case such notice is Personally delivered, it
shall be so delivered at least twenty-four hours prior to the
time of the holding of the meeting. Such mailing, personal
delivery or other written communication as above provided shall
be due, legal and personal notice to such Director.
Section 8. Notice of Adjournment. Notice of the time
and place of holding an adjourned meeting need not be given to
absent Directors if the time and place be fixed at the meeting
adjourned.
Section 9. Ratification and Approval. Whenever all
Directors entitled to vote at any meeting consent, either by: (a)
A writing on the records of the meeting or filed with the
Secretary; (b) Presence at such meeting and oral consent entered
on the minutes; or (c) Taking part in the deliberations at such
meeting without objection; the doings of such meeting shall be as
valid as if had at a meeting regularly called and noticed. At
such meeting any business may be transacted which is not excepted
from the written consent or to the consideration of which no
objection for want of notice is made at the time.
If any meeting be irregular for want of notice or of such
consent, provided a quorum was present at such meeting, the
proceedings of the meeting may be ratified and approved and
rendered likewise valid and the irregularity or defect therein
waived by a writing signed by all Directors having the right to
vote at such meeting.
Section 10. Action Without a 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 a written consent thereto is signed by all the members
of the Board or of such committee. Such written consent shall be
filed with the minutes of proceedings of the Board or committee.
Section 11. Quorum. A majority of the authorized number
of Directors shall be necessary to constitute a quorum for the
transaction of business, except to adjourn as hereinafter
provided. Every act or decision done or made by a majority of
the Directors present at a meeting duly assembled at which a
quorum is present shall be regarded as the act of the Board of
Directors, unless a greater number be required by law or by the
Certificate of Incorporation.
Section 12. Adjournment. A quorum of the Directors may
adjourn any Directors' meeting to meet again at a stated day and
hour provided, however, that in the absence of a quorum, a
majority of the Directors present at any Directors' meeting,
either regular or special, may adjourn from time to time until a
quorum shall be present.
Section 13. Fees and Compensation. The Board shall have
the authority to fix the compensation of Directors. The
Directors may be paid their expenses, if any, of attendance at
each meeting of the Board and may be paid a fixed sum for
attendance at each meeting of the Board or a stated salary as
Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity as an officer,
agent, employee or otherwise, and receiving the compensation
therefor. Members of committees may be compensated for attending
committee meetings.
Section 14. Removal. Any Director may be removed from
office with or without cause by the vote of stockholders
representing not less than two-thirds of the issued and
outstanding capital stock entitled to voting power.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Corporation
shall be a President, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board of
Directors, one or more additional Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, a
Chairman of the Board, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this
Article. Officers other than the Chairman of the Board need not
be Directors. One person may hold two or more offices.
Section 2. Election. The officers of this Corporation,
except such officers as may be appointed in accordance with the
provisions of Section 3 or Section 5 of this Article, shall be
chosen annually the Board of Directors and each shall hold his
office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and
qualified.
Section 3. Subordinate Officers, Etc. The Board of
Directors may appoint such other officers as the business of the
Corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are
provided in these Bylaws or as the Board of Directors may from
time to time determine.
Section 4. Removal and Resignation. Any officer may be
removed, either with or without cause, by a majority of the
Directors at the time in office. Any officer may resign at any
time by giving written notice to the Board of Directors, the
President or the Secretary of the Corporation. Any such
resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because
of death, resignation, removal, disqualification or any other
cause shall be filled in the manner prescribed in the Bylaws for
regular appointments to such office.
Section 6. Chairman of the Board. The Chairman of the
Board, if there be such a position, shall preside at all meetings
of the Board of Directors and exercise and perform such other
powers and duties as may be from time to time assigned to him by
the Board of Directors or prescribed by these Bylaws.
Section 7. President. Subject to such supervisory
powers, if any, as may be given by the Board of Directors to the
Chairman of the Board, the President shall, subject to the
control of the Board of Directors, have general supervision,
direction and control of the business and officers of the
Corporation. In the absence of the Chairman of the Board, or if
there be none, he shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors. He
shall be ex officio a member of all committees, including the
executive committee, if any, and shall have the general powers
and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and
duties as may be prescribed by the Board of Directors or by these
Bylaws.
Section 8. Vice-President. In the absence or disability
of the President, the Vice Presidents, in order of their rank as
fixed by the Board of Directors, or if not ranked, the Vice
President designated by the Board of Directors, shall perform all
the duties of the President, and when so acting shall have all
the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be prescribed
for them respectively by the Board of Directors or these Bylaws.
Section 9. Secretary. The Secretary shall keep, or
cause to be kept, a book of minutes at the principal executive
office or such other place as the Board of Directors may order,
of all meetings of Directors, committees and stockholders, with
the time and place of holding, whether regular or special, and if
special, how authorized, the notice thereof given, the names of
those present at Directors' and committee meetings, the number of
shares present or represented at stockholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the
principal executive office (1) a share register, or a duplicate
share register, revised annually, showing the names of the
stockholders, alphabetically arranged, and their places of
residence, the number and classes of shares held by each, the
number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered
for cancellation; (2) a copy of the Certificate of Incorporation
and all amendments thereto certified by the Secretary of State;
and (3) a copy of the Bylaws and all amendments thereto certified
by the Secretary.
The Secretary shall give, or cause to be given, notice of
all the meetings of the stockholders, committees and Board of
Directors required by the Bylaws or by law to be given, and he
shall keep the seal of the Corporation in safe custody, and shall
have such other powers and perform such other duties as may be
prescribed by the Board of Directors or the Bylaws.
Section 10. Treasurer. The Treasurer shall keep and
maintain, or cause to be kept and maintained, adequate and
correct accounts of the properties and business transactions of
the Corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus
and surplus arising from a reduction of stated capital, shall be
classified according to source and shown in a separate account.
The books of account shall at all times be open to inspection by
any Director.
The Treasurer shall deposit all monies and other valuables
in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He
shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, shall render to the President and
Directors, whenever they request it, an account of all of his
transactions as Treasurer and of the financial condition of the
Corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or
the Bylaws.
ARTICLE V
MISCELLANEOUS
Section 1. Record Date and Closing Stock Books. The
Board of Directors may fix a day, not more than sixty (60) days
prior to the holding of any meeting of stockholders, and not
exceeding thirty (30) days preceding the date fixed for the
payment of any dividend or distribution or for the allotment of
rights, or when any change or conversion or exchange of shares
shall go into effect, as a record date for the determination of
the stockholders entitled to notice of and to vote at any such
meeting, or entitled to receive any such dividend or
distribution, or any such allotment of rights, or to exercise the
rights in respect to any such change, conversion or exchange of
shares, and in such case only stockholders of record on the date
so fixed shall be entitled to notice of and to vote at such
meetings, or to receive such dividend, distribution or allotment
of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any shares on the books of the
Corporation after any record date is fixed as aforesaid. The
Board of Directors may close the books of the Corporation against
transfers of shares during the whole or any part of any such
period.
Section 2. Inspection of Corporate Records.
Stockholders shall have the right to inspect such corporate
records at such times and based upon such limitations of such
rights as may be set forth in the Delaware General Corporation
Law from time to time.
Section 3. Checks, Drafts, Etc. All checks, drafts or
other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the
Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.
Section 4. Contract, Etc., How Executed. The Board of
Directors, except as otherwise provided in these Bylaws may
authorize any officer or officers, agent or agents to enter into
any contract, deed or lease or execute any instrument in the name
of and on behalf of the Corporation, and such authority may be
general or confined to specific instances; and unless so
authorized by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit
to render it liable for any purpose or to any amount.
Section 5. Certificates of Stock. A certificate or
certificates for certificated shares of the capital stock of the
Corporation shall be issued to each stockholder when any such
shares are fully paid up. All such certificates shall be signed
by the Chairman of the Board, President or a Vice President, and
by the Treasurer, Secretary or an Assistant Secretary, or be
authenticated by facsimiles of their respective signatures;
provided, however, that every certificate authenticated by a
facsimile of a signature must be countersigned by a transfer
agent or transfer clerk, and by a registrar, which registrar
cannot be the Corporation itself.
Certificates for certificated shares may be issued prior to
full payment under such restrictions and for such purposes as the
Board of Directors or the Bylaws may provide; provided, however,
that any such certificate so issued prior to full payment shall
state the amount remaining unpaid and the terms of payment
thereof.
The Board of Directors is hereby authorized, pursuant to the
provisions of Delaware General Corporation Law Section 158, to
issue uncertificated shares of some or all of the shares of any
or all of its classes or series.
Section 6. Representation of the Shares of Other
Corporation. The President or any Vice President, and the
Secretary or Assistant Secretary, of this Corporation are
authorized to vote, represent and exercise on behalf of this
Corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this
Corporation. The authority herein granted to said officers to
vote or represent on behalf of this Corporation any and all
shares held by this Corporation in any other corporation or
corporations may be exercised either by such officers in person
or by any person authorized so to do by proxy or power of
attorney duly executed by said officers.
ARTICLE VI
AMENDMENTS
Section 1. Power of Stockholders. New Bylaws may be
adopted or these Bylaws may be amended or repealed by the vote of
stockholders entitled to exercise a majority of the voting power
of the Corporation or by the written assent of such stockholders.
Section 2. Power of Directors. Subject to the right of
stockholders as provided in Section 1 of this Article VI to
adopt, amend or repeal Bylaws, Bylaws may be adopted, amended or
repealed by the Board of Directors.
ARTICLE VII
TRANSACTIONS INVOLVING DIRECTORS AND OFFICERS
Section 1. Validity of Contracts and Transactions. No
contract or transaction between the Corporation and one or more
of its Directors or officers, or between the Corporation and any
other corporation, firm, association, or other organization in
which one or more of its Directors or officers are Directors or
officers or are financially interested, shall be void or voidable
solely for this reason, or solely because the Director or officer
is present at or participates in the meeting of the Board of
Directors or committee that authorizes or approves the contract
or transaction, or because their votes are counted for such
purpose, provided that:
(a) the material facts as to his, her, or their
relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the
committee and noted in the minutes, and the Board of Directors or
committee, in good faith, authorizes the contract or transaction
in good faith by the affirmative vote of a majority of
disinterested directors, even though the disinterested directors
are less than a quorum;
(b) the material facts as to his, her, or their
relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved
or ratified in good faith by the majority of shares entitled to
vote, counting the votes of the common or interested directors or
officers; or
(c) the contract or transaction is fair as to the
Corporation as of the time it is authorized or approved.
Section 2. Determining Quorum. Common or interested
directors may be counted in determining the presence of a quorum
at a meeting of the board of directors or of a committee which
authorizes, approves or ratifies the contract or transaction.
ARTICLE VIII
INSURANCE AND OTHER FINANCIAL ARRANGEMENTS
The Corporation may purchase and maintain insurance or make
other financial arrangements on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a
Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise for any
liability asserted against him and liability and expenses
incurred by him in his capacity as a Director, officer, employee
or agent, or arising out of his status as such, whether or not
the Corporation has the authority to indemnify him against such
liability and expenses. The insurance or other financial
arrangements may be provided by the Corporation or by any other
person or entity approved by the Board of Directors including a
subsidiary of the corporation.
Such other financial arrangements made by the Corporation
may include the following:
(a) The creation of a trust fund;
(b) The establishment of a program of self-insurance;
(c) The securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the
Corporation; or
(d) The establishment of a letter of credit, guaranty or
surety. No financial arrangement may provide protection for a
person adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable for intentional
misconduct, fraud or a knowing violation of law, except with
respect to the advancement of expenses or indemnification ordered
by a court as provided in Article IX hereof.
ARTICLE IX
INDEMNIFICATION
Section 1. Action Not By Or On Behalf Of Corporation.
The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or
was a Director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), fees, judgments, fines, and
amounts paid in settlement, actually and reasonably incurred by
him in connection with the action, suit or proceeding if he acted
in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Corporation, and with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent
does not, of itself, create an presumption that the person did
not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was
unlawful.
Section 2. Action By Or On Behalf Of Corporation. The
Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is
or was a Director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise against
expenses, including amounts paid in settlement and attorneys'
fees actually and reasonably incurred by him in connection with
the defense or settlement of the action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, except that
indemnification may not be made for any claim, issue or matter as
to which such a person shall have been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to the Corporation or for amounts paid in
settlement to the Corporation, unless and only to the extent that
the court in which the action or suit was brought or other court
of competent jurisdiction determines upon application that, in
view of all of the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as
the court deems proper.
Section 3. Successful Defense. To the extent that a
Director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in Section 1 or 2 of this Article
IX, or in defense of any claim, issue or matter therein, he must
be indemnified by the Corporation against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection with the defense.
Section 4. Determination Of Right To Indemnification In
Certain Circumstances. Any indemnification under Section I or 2
of this Article IX, unless ordered by a court or advanced
pursuant to this Article IX, must be made by the Corporation only
as authorized in the specific case upon a determination that
indemnification of the Director, officer, employee or agent is
proper in the circumstances. The determination must be made by
the Stockholders, the Board of Directors by a majority vote of a
quorum consisting of Directors who were not parties to the act,
suit or proceeding, or if a majority vote of a quorum of
Directors who were not parties to the act, suit or proceeding so
orders, by independent legal counsel in a written opinion, or if
a quorum consisting of directors who were not parties to the act,
suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
Section 5. Advance Payment of Expenses. Expenses of
officers and Directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by the Corporation as
they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or
on behalf of the Director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that
he is not entitled to be indemnified by the Corporation as
authorized in this Article. The provisions of this subsection
(5) of this Article IX shall not affect any rights to advancement
of expenses to which corporate personnel other than Directors or
officers may be entitled under any contract or otherwise by law.
Section 6. Not Exclusive.
(a) The indemnification and advancement of expenses
authorized in or ordered by a court pursuant to any other section
of this Article IX or any provision of law:
(i) does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation or any statute,
bylaw, agreement, vote of stockholders or disinterested Directors
or otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection
2 of this Article IX or for the advancement of expenses made
pursuant to this Article IX may not be made to or on behalf of
any Director or officer if a final adjudication establishes that
his acts or omissions involved intentional misconduct, fraud or a
knowing violation of the law and was material to the cause of
action; and
(ii) continues for a person who has ceased to be a Director,
officer, employee or agent and inures to the benefit of the
heirs, executors and administrators of such a person.
(b) Without limiting the foregoing, the Corporation is
authorized to enter into an agreement with any Director, officer,
employee or agent of the Corporation providing indemnification
for such person against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement that result from
any threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative or investigative,
including any action by or in the right of the Corporation, that
arises by reason of the fact that such person is or was a
Director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, to the full extent
allowed by law, except that no such agreement shall provide for
indemnification for any actions that constitute intentional
misconduct, fraud, or a knowing violation of law and was material
to the cause of action.
Section 7. Certain Definitions. For the purposes of
this Article IX, (a) any Director, officer, employee or agent of
the Corporation who shall serve as a director, officer, employee
or agent of any other corporation, joint venture, trust or other
enterprise of which the Corporation, directly or indirectly, is
or was a stockholder or creditor, or in which the Corporation is
or was in any way interested, or (b) any Director, officer,
employee or agent of any subsidiary corporation, joint venture,
trust or other enterprise wholly owned by the Corporation, shall
be deemed to be serving as such Director, officer, employee or
agent at the request of the Corporation, unless the Board of
Directors of the Corporation shall determine otherwise. In all
other instances where any person shall serve as director,
officer, employee or agent of another corporation, joint venture,
trust or other enterprise of which the Corporation is or was a
stockholder or creditor, or in which it is or was otherwise
interested, if it is not otherwise established that such person
is or was serving as such director, officer, employee or agent at
the request of the Corporation, the Board of Directors of the
Corporation may determine whether such service is or was at the
request of the Corporation, and it shall not be necessary to show
any actual or prior request for such service. For purposes of
this Article IX references to a corporation include all
constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporation so that any person
who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or
agent of another corporation, joint venture, trust or other
enterprise shall stand in the same position under the provisions
of this Article IX with respect to the resulting or surviving
corporation as he would if he had served the resulting or
surviving corporation in the same capacity. For purposes of this
Article IX, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the
corporation" shall include any service as a Director, officer,
employee or agent of the Corporation which imposes duties on, or
involves services by, such Director, officer, employee, or agent
with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article IX.
28
35
Exhibit No. 3
Headway Corporate Resources, Inc.
Form 10-KSB
File No. 0-23170
HEADWAY CORPORATE RESOURCES, INC.
CERTIFICATE OF DESIGNATION OF NUMBER, POWERS, PREFERENCES
AND RELATIVE, PATICIPATING, OPTIONAL, AND OTHER SPECIAL
RIGHTS, AND THE QUALIFICATIONS LIMITATIONS, RESTRICTIONS,
AND OTHER DISTINGUICHING CHARACTERISTICS OF
SERIES A CONVERTIBLE PREFERRED STOCK
SERIES B CONVERTIBLE PREFERRED STOCK
SERIES C CONVERTIBLE PREFERRED STOCK
SERIES D CONVERTIBLE PREFERRED STOCK
SERIES E CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151(g) of the General Corporation Law of
the State of Delaware
HEADWAY CORPORATE RESOURCES, INC., a corporation organized
and existing under the laws of the state of Delaware (the
"Corporation"), in accordance with Section 151(g) of the General
Corporation Law of Delaware, DOES HEREBY CERTIFY:
1. The Certificate of Incorporation of the Corporation
(the "Certificate of Incorporation"), fixes the total number of
shares of all classes of capital stock which the Corporation
shall have the authority to issue at Twenty-Five Million
(25,000,000) shares, of which Five Million (5,000,000) shares
shall be shares of Preferred Stock, par value $.0001 per share
(herein referred to as "Preferred Stock"), and Twenty Million
(20,000,000) shares shall be shares of Common Stock, par value
$.0001 per share (herein referred to as "Common Stock").
2. The Certificate of Incorporation expressly grants to
the Board of Directors of the Corporation authority to provide
for the issuance of said Preferred Stock in one or more series,
with such voting powers, if any, and with such designations,
preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or
revolutions providing for the issue thereof adopted by the Board
of Directors and as are not stated and expressed in the
Certificate of Incorporation.
3. Pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation, the Board of
Directors, on October 18, 1996, by unanimous written consent,
duly authorized and adopted the following resolutions providing
for issue of the following series of its Preferred Stock
a series to be designated "Series A Convertible Preferred
Stock";
a series to be designated "Series B Convertible Preferred
Stock";
a series to be designated "Series C Convertible Preferred
Stock";
a series to be designated "Series D Convertible Preferred
Stock"; and
a series to be designated "Series E Convertible Preferred
Stock".
"RESOLVED, that issue of five series of Preferred Stock,
$.0001 par value per share, of the Corporation consisting of
Twenty-Eight Hundred (2,800) shares designated as "Series A
Preferred Stock", Sixty-Eight Hundred Fifty-Eight (6,858) shares
designated as "Series B Preferred Stock", Twenty-Four (24) shares
designated as "Series C Preferred Stock", Forty-Four (44) shares
designated as "Series D Preferred Stock", and Five Hundred
Seventy-Five Thousand (575,000) shares designated as "Series E
Preferred Stock", is hereby provided for, and the voting power,
designation, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or
restrictions thereof, of such series shall be as set forth below,
and upon the effective date each of said series' shall be deemed
to be included in and be a part of the Certificate of
Incorporation pursuant to the provisions of Sections 104 and 151
of the General Corporation Law of the State of Delaware:
SECTION I. SERIES A PREFERRED STOCK
Designation; Number of Shares. The designation of such
series of Preferred Stock shall be "Series A Convertible
Preferred Stock" (hereinafter referred to as the "Series A
Stock") and the number of authorized shares constituting the
Convertible Preferred Stock is Two Thousand Eight Hundred
(2,800). The Series A Stock shall be deemed a separate class of
Preferred Stock apart from any other series of Preferred Stock.
Part 1. Dividends.
1A. Entitlement. The holders of Series A Stock shall be
entitled to receive cumulative cash dividends when and as
declared by the Corporation's Board of Directors out of funds
available therefor under applicable law. Such dividends shall be
paid to the holders of record at the close of business on the
date specified by the Board of Directors at the time such
dividend is declared; provided, however, that such date shall not
be more than sixty (60) days nor less than ten (10) days prior to
each respective Dividend Payment Date (as defined below under
this Section I).
1B. Accrual Rate. Dividends on each share of Series A
Stock shall accrue cumulatively on a daily basis at the rate of
8.00% per annum of the Liquidation Value (as defined below under
this Section I) thereof, but not including such portion of the
Liquidation Value, if any, which constitutes accrued and unpaid
dividends, from and including the date of issuance of such share
to and including the date on which the Redemption Price (as
defined below under this Section I) of such share is paid or the
date on which such share in converted into Common Stock. Such
dividends shall accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends. The
date on which the Corporation initially issues any share of the
Series A Stock will be deemed to be its "date of issuance"
regardless of the number of times transfer of any such share is
made on the stock records maintained by or for the Corporation
and regardless of the number of certificates which may be issued
to evidence any such share.
1C. Dividend Payment Dates. Dividends on the Series A
Stock shall be payable semi-annually on June 30 and December 31
of each year (the "Dividend Payment Dates"). All dividends which
have accrued on each share of Series A Stock outstanding during
the six-month period ending upon each such Dividend Payment Date
will be added to the Liquidation Value of such share and will
remain a part thereof until such dividends are paid.
1D. Certain Restrictions. The Corporation shall not,
without the prior written consent of the holders of a majority of
Series A Stock, (i) declare, order or pay any dividend (other
than dividends payable solely in shares of stock) on any Junior
Securities (as defined below under this Section I) or (ii) redeem
any shares of Junior Securities, unless and until the Corporation
shall have redeemed all of the outstanding Series A Stock in
accordance with Part 3 of Section I, below.
1E. Distribution of Partial Dividend Payments; Fractional
Shares. If at any time the Corporation pays less than the total
amount of dividends then accrued with respect to the Series A
Stock, such payment will be distributed ratably among the holders
of such Series A Stock based upon the aggregate accrued but
unpaid dividends on such Series A Stock held by each holder.
Each fractional share of Series A Stock outstanding, if any,
shall be entitled to a ratably proportionate amount of all
dividends to which each outstanding full share of such Series A
Stock is entitled hereunder.
Part 2. Liquidation.
Upon any liquidation, dissolution or winding up of the
Corporation, the holders of Series A Stock will be entitled to be
paid, before any distribution or payment is made upon any Junior
Securities, an amount in cash equal to the aggregate Liquidation
Value of all shares of Series A Stock outstanding, and the
holders of Series A Stock will not be entitled to any further
payment. If upon any such liquidation, dissolution or winding up
of the Corporation, the Corporation's assets to be distributed
among the holders of Series A Stock are insufficient to permit
payment to such holders of the aggregate amount which they are
entitled to be paid, then the entire assets to be distributed
will be distributed ratably among such holders based upon the
aggregate Liquidation Value of the Series A Stock held by each
such holder. The Corporation will mail written notice of such
liquidation, dissolution or winding up not less than 30 days
prior to the payment date stated therein, to each record holder
of Series A Stock. Neither the consolidation or merger of the
Corporation into or with any other corporation or corporations,
nor the sale or transfer by the Corporation of all or any part of
its assets, nor the reduction of the capital stock of the
Corporation, will be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of Part 2 of
this Section I.
Part 3. Redemptions.
3A. For each share of Series A Stock which is to be
redeemed, the Corporation will be obligated on the Redemption
Date (as defined below) to pay to the holder thereof (upon
surrender by such holder at the Corporation's principal office or
to the corporation's transfer agent of the certificate(s)
representing such shares of Series A Stock) an amount in
immediately available funds equal to the Liquidation Value
thereof. If the funds of the Corporation legally available for
redemption of Series A Stock on any Redemption Date are
insufficient to redeem the total number of shares of Series A
Stock to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of
shares of Series A Stock ratably among the holders of the Series
A Stock to be redeemed based upon the Liquidation Value of such
Series A Stock held by each such holder. At any time thereafter
when additional funds of the Corporation are legally available
for the redemption of Series A Stock, such funds will immediately
be used to redeem the balance of the Series A Stock which the
Corporation has become obligated to redeem on any Redemption Date
but which it has not redeemed.
3B. Notice of Redemption. The Corporation will mail
written notice of each redemption of Series A Stock to each
record holder of Series A Stock not more than sixty (60) nor less
then twenty (20) days prior to the date on which such redemption
in to be made. In case fewer than the total number of shares of
Series A Stock represented by any certificate are redeemed, a new
certificate representing the number of unredeemed shares of
Series A Stock will be issued to the holder thereof without cost
to such holder within ten business days after surrender of the
certificate representing the redeemed Series A Stock.
3C. Redemption Date. On the date on which the Liquidation
value of any Series A Stock is paid all rights, including, but
not limited to any right of conversion, of the holder of such
Series A Stock will cease, and such Series A Stock will not be
deemed to be outstanding.
3D. Redeemed or Otherwise Acquired Shares. Any shares of
Series A Stock which are redeemed or otherwise acquired by the
Corporation shall be canceled, may not be reissued as Series A
Stock, and shall be returned to the status of authorized and
unissued shares of Preferred Stock without designation as to
series.
3E. Optional Redemption. The Corporation may at any time
redeem all or any portion of the Series A Stock at a price per
share equal to the Liquidation Value thereof, including any
accrued and unpaid dividends.
3F. Redemptions upon Certain Voluntary Corporate Actions.
Upon the occurrence of a Fundamental Change, the Corporation
shall redeem all of the outstanding Series A Stock at a price per
share equal to the Liquidation Value thereof including any
accrued and unpaid dividends to the Redemption Date. The term
"Fundamental Change" means (a) a sale or transfer of all or
substantially all of the assets of the Corporation on a
consolidated basis in any transaction or series of related
transactions (other than sales in the ordinary course of
business) and (b) any merger or consolidation to which the
Corporation is a party, except for a merger in which the
Corporation is the surviving corporation and, after giving effect
to such merger, the holders of the Corporation's outstanding
capital stock (on a fully-diluted basis) immediately prior to
such merger will own the Corporation's outstanding capital stock
(on a fully-diluted basis) having a majority of the ordinary
voting power to elect the Corporation's board of directors.
Part 4. Events of Noncompliance
4A. Definition. An Event of Noncompliance will be deemed
to have occurred if:
(i) the Corporation fails to make any redemption payment
with respect to the Series A Stock which it is obligated to make
hereunder, whether or not such payment in legally permissible;
(ii) the Corporation fails to pay dividends to the holders
of Series A Stock for two (2) consecutive Dividend Payment Dates;
(iii) the Corporation makes an assignment for the benefit
of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is
entered adjudicating the Corporation bankrupt or insolvent; or
any order for relief with respect to the Corporation is entered
under the Federal Bankruptcy Code; or the Corporation petitions
or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Corporation or of any
substantial part of the assets of the Corporation, or commences
any proceeding relating to the, Corporation under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction or any such
petition or application is filed, or any such proceeding is
commenced, against the Corporation and either (a) the Corporation
by any act indicates its approval thereof, consent thereto or
acquiescence therein or (b) such petition, application or
proceeding is not dismissed within sixty (60) days.
4B. Consequences of Certain Events of Noncompliance.
(i) If an Event of Noncompliance has occurred and continued
for a period of 30 days, the holder or holders of a majority of
the Series A Stock then outstanding may demand (by written notice
delivered to the Corporation) (a) immediate acceleration of the
right to convert the Series A Stock into shares of Common Stock
under Part 6B of this Section I, below, such that 100% of the
Series A Stock shall be vested in such holder or holders and
eligible for conversion into Common Stock on the date of such
written notice, which notice may include a written notice of
conversion of all or a portion of such shares pursuant to Part 6A
of this Section I, below.
(ii) If an Event of Noncompliance has occurred and
continued for a period of 30 days, the holder or holders of a
majority of the Series A Stock then outstanding (the "Holder")
may also demand that the Board of Directors be deemed dissolved
and all positions vacated. In this connection, the Holder may
schedule a meeting of all stockholders of the Corporation upon at
least twenty-four (24) hours advance notice either in writing,
telegram or by a telephonic communication to all stockholders at
which meeting a new Board of Directors shall be elected.
Notwithstanding anything to the contrary in the herein or in the
Corporation's By-laws, it is expressly agreed that the Holder
acting in person or by proxy may elect a majority of the members
of the Board of Directors. The remaining members of the Board of
Directors may be elected or designated by holders of a majority
of the Common Stock. Upon such election, the Board of Directors,
by majority vote, may conduct the business and affairs of the
Corporation and may also terminate the employment of any employee
of the Corporation or his or her official position with the
Corporation, or both, subject to any existing employment
agreements. The Holders' directors shall serve as directors
until such time as the Event of Noncompliance has been remedied
or the Series A Stock converted entirely to Common Stock or
redeemed in full, at which time such directors shall resign.
(iii) If any Event of Noncompliance exists, each Holder
will also have any other rights which such holder may have been
afforded under any contract or agreement at any time and any
other rights which such Holder may have pursuant to applicable
law.
Part 5. Voting Rights. The voting powers of the holders of
Series A Stock include:
(i) the right, as a class, to elect two (2) directors to
the Corporation's Board of Directors; and
(ii) the exclusive right, as a class, to approve any
enlargement of the Corporation's Board of Directors in excess of
nine (9) directors.
Except an otherwise provided herein and as otherwise
provided by law, the Series A Stock will have no other voting
rights.
Part 6. Conversion Rights.
6A. Conversion Procedure. Subject to the provisions set
forth below, each share of Series A Stock shall be convertible at
the option of the holder thereof, in the manner hereinafter set
forth, into that number of fully paid and nonassessable shares of
Common Stock determined as set forth below.
Any holder of Series A Stock desiring to convert such shares
into shares of Common Stock shall surrender the certificate or
certificates for the shares being converted, duly endorsed or
assigned to the Corporation or in blank, at the principal office
of the Corporation or at a bank or trust company appointed by the
Corporation for that purpose, accompanied by a written notice of
conversion specifying the number of shares of Series A Stock to
be converted and the name or names in which such holder wishes
the certificate or certificates for shares of Common Stock to be
issued; in case such notice shall specify a name or names other
than that of such holder, such notice shall be accompanied by
payment of all transfer taxes payable upon the issue of shares of
Common Stock in such name or names. After receipt of such notice
of conversion, the Corporation shall either:
(i) within sixty (60) days after receipt of such notice,
issue and deliver or cause to be issued and delivered to such
holder a certificate or certificates for shares of Common Stock
resulting from such conversion; or
(ii) within sixty (60) days after receipt of such notice,
redeem all or any portion of the Series A Stock specified in the
aforementioned notice at an amount in immediately available funds
equal to the Liquidation Value thereof, including any accrued and
unpaid dividends.
In case less than all of the shares of Series A Stock represented
by a certificate are to be converted by a holder, upon such
conversion the Corporation shall also deliver or cause to be
delivered to such holder a certificate or certificates for the
shares of Series A Stock not so converted.
6B. Basic Conversion Rights. The right to convert the
Series A Stock into shares of Common Stock shall vest immediately
on issuance with respect to 26.27% of the shares of Series A
Stock issued to each holder, and shall vest with respect to the
remaining shares of Series A Stock of all holders outstanding on
August 31, 1997. If shares of Cumulative Preferred Stock are
held by more than one holder, each such holder shall be entitled
to convert only the applicable percentage of such shares held by
such holder. Each share of Series A Stock is convertible into
476 newly issued shares of Common Stock of the Corporation.
6C. Fundamental Changes. In case the Corporation shall
effect any capital reorganization of the Common Stock or shall
consolidate, merge or engage in a statutory share exchange with
or into any other corporation (other than a consolidation, merger
or share exchange in which the Corporation is the surviving
corporation and each share of Common Stock outstanding
immediately prior to such consolidation or merger is to remain
outstanding immediately after such consolidation or merger) or
shall sell or transfer all or substantially all its assets to any
other corporation, lawful provision shall be made as a part of
the terms of such transaction whereby the holders of shares of
the Series A Stock shall receive upon conversion thereof, in lieu
of each share of Common Stock which would have been issuable upon
conversion of such stock if converted immediately prior to the
consummation of such transaction, the same kind and amount of
stock (or other securities, cash or property, if any) as may be
issuable or distributable in connection with such transaction
with respect to each share of Common Stock outstanding at the
effective time of such transaction.
6D. Conversion Date. Conversion shall be deemed to have
been made as of the date of surrender of certificates for the
shares of Series A Stock to be converted, and the giving of
written notice, as prescribed in Part 6A of this Section I, or as
otherwise prescribed by Part 4B(i) of Section I, above, and the
person entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder
of such Common Stock on such date. The Corporation shall not be
required to deliver certificates for shares of its Common Stock
while the stock transfer books for such stock or for the Series A
Stock are duly closed for any purpose, but certificates for
shares of Common Stock shall be issued and delivered as soon as
practicable after the opening of such books.
6E. Converted Shares and Common Stock Held for Conversion.
Any shares of Series A Stock which at any time have been
converted shall be canceled, may not be reissued as Series A
Stock, and shall be returned to the status of authorized and
unissued shares of Preferred Stock without designation as to
series. The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common
Stock, for the purpose of issuance upon conversion of shares of
Series A Stock, the full number of shares of Common Stock then
issuable or which may become issuable upon the conversion of all
shares of Series A Stock then outstanding and shall take all
action necessary so that shares of Common Stock so issued will be
validly issued, fully paid and nonassessable.
6F. Taxes. The Corporation will pay any and all stamp or
similar taxes that may be payable in respect of the issuance or
delivery of shares of Common Stock on conversion of shares of
Series A Stock. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock
in a name other than that in which the shares of Series A Stock
so converted were registered, and no such issuance or delivery
shall be made unless and until the person requesting such
issuance has paid to the Corporation the amount of any such tax
or has established to the satisfaction of the Corporation that
such tax has been paid.
Part 7. Definitions Applicable to Section I.
"Business Day" shall mean a day other than a Saturday,
Sunday or other day on which commercial banks in New York, New
York are authorized or required by law to close.
"Common Stock" means the Common Stock, $0.0001 par value per
share, of the Corporation and any capital stock of any class of
the Corporation hereafter authorized which is not limited to a
fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in
the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"Junior Securities" means any of the Corporation's equity
securities other than the Series A Stock.
"Liquidation Value" of any Series A Stock as of any
particular date will be equal to $250 per share plus all unpaid
cumulative dividends on the Series A Stock.
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture,
an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Redemption Date" as to any Series A Stock means the date
specified in the notice of any redemption at the Corporation's
option or the applicable date specified herein in the case of any
other redemption; provided that no such date will be a Redemption
Date unless the applicable Liquidation Value is actually paid in
full on such date, and, if not so paid in full, the Redemption
Date will be the date on which Such Liquidation Value is fully
paid.
Part 8. Amendment and Waiver. No amendment, modification or
waiver will be binding or effective with respect to any provision
of this Section I without the prior written consent of the
holders of a majority of the Series A Stock outstanding at the
time such action is taken; provided that no such action will
change the amount payable on redemption of the Series A Stock or
the times at which redemption of the Series A Stock is to occur,
or the percentage required to approve such change, without the
prior written consent of the holders of at least two-thirds of
the Series A Stock then outstanding; and, provided further, that
no change in the terms hereof may be accomplished by merger or
consolidation of the Corporation with another corporation unless
the Corporation has obtained the prior written consent of the
holders of the applicable percentage of the Series A Stock then
outstanding.
Part 9. Ranking. For purposes hereof, all Junior Securities
shall be deemed to rank junior to the Series A Stock as to
dividends or distribution of assets upon liquidation, dissolution
or winding up.
II. SERIES B PREFERRED STOCK
Designation; Number of Shares. The designation of such
series of Preferred Stock (which includes all sub-series) shall
be "Series B Convertible Preferred Stock" (hereinafter referred
to as the "Series B Stock") and the number of authorized shares
constituting the Series B Stock is Six Thousand Eight Hundred
Fifty-Eight (6,858). Of the Series B Stock, Six Thousand Two
Hundred Eighty-Six (6,286) shares are designated as "Series B-1
Convertible Preferred Stock" (hereinafter referred to as the
"Series B-1 Stock"), Three Hundred Forty-Three (343) shares are
designated as "Series B-2 Convertible Preferred Stock"
(hereinafter referred to as the "Series B-2 Stock"), and Two
Hundred Twenty-Nine (229) shares are designated as "Series B-3
Convertible Preferred Stock" (hereinafter referred to as the
"Series B-3 Stock"). The Series B Stock shall be deemed a
separate class of Preferred Stock, and each sub-series of the
Series B Stock shall be apart from any other series of Preferred
Stock.
Part 1. Liquidation.
Upon any liquidation, dissolution, or winding up of the
Corporation, the holders of Series B Stock will be entitled to be
paid, after any distribution or payment is made upon any Series A
Stock and before any distribution or payment is made upon Junior
Securities (as defined below under this Section II), an amount in
cash equal to the aggregate Liquidation Value (as defined below
under this Section II) of all shares of Series B Stock
outstanding, and the holders of Series B Stock will not be
entitled to any further payment. If upon any such liquidation,
dissolution, or winding up of the Corporation, the Corporation's
assets to be distributed among the holders of Series B Stock are
insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid, then the entire assets
to be distributed will be distributed ratably among such holders
based upon the aggregate Liquidation Value of the Series B Stock
held by each such holder. The Corporation will mail written
notice of such liquidation, dissolution, or winding up not less
then 30 days prior to the payment date stated therein, to each
record holder of Series B Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or
corporations, nor the sale or transfer by the Corporation of all
or any part of its assets, nor the reduction of the capital stock
of the Corporation, will be deemed to be liquidation,
dissolution, or winding up of the Corporation within the meaning
of Part 1 of this Section II.
Part 2. Conversion Rights.
2A. Conversion Procedure. Subject to the provisions set
forth below, each share of Series B Stock shall be convertible at
the option of the holder thereof, in the manner hereinafter set
forth, into that number of fully paid and nonassessable shares of
Common Stock determined as set forth below.
Any holder of Series B Stock desiring to convert such shares
into shares of Common Stock shall surrender the certificate or
certificates for the shares being converted, duly endorsed or
assigned to the Corporation or in blank, at the principal office
of the Corporation or at the bank or trust company appointed by
the Corporation for that purpose, accompanied by a written notice
of conversion specifying the number of shares of Series B Stock
to be converted and the name or names in which such holder wishes
the certificate or certificates for shares of Common Stock to be
issued; in case such notice shall specify a name or names other
then that of such transfer taxes payable upon the issue of shares
of Common Stock in such name or names. After the receipt of such
notice of conversion, the Corporation shall, within thirty (30)
days after receipt of such notice, issue and deliver or cause to
be issued and delivered to such holder a certificate or
certificates for shares of Common Stock resulting from such
conversion. In case less than all of the shares of Series B
Stock represented by a certificate are to be converted by a
holder, upon such conversion the Corporation shall also deliver
or cause to be delivered to such holder a certificate or
certificates for the shares of Series B stock not so converted.
2B. Conversion of Series B-1 Stock. The right to convert
the Series B-1 Stock into shares of Common Stock shall vest
immediately on the date of issuance of the Series B-1 Stock.
Each share of Series B-1 Stock is convertible into One Hundred
(100) newly issued shares of Common Stock of the Corporation (the
"B-1 Conversion Rate").
2C. Conversion of Series B-2. The right to convert the
Series B-2 Stock into shares of Common Stock shall vest
immediately on the date of issuance of the Series B-2. Each
share of Series B-2 Stock is convertible into Twenty-Six (26)
newly issued share of Common Stock of the Corporation (the "B-2
Conversion Rate"), which is subject to adjustment as provided in
Part 2C of this Section II.
(i) In the event the gross revenue of Furash & Company,
Inc. ("FCI"), the wholly-owned subsidiary of the Corporation
acquired under that certain Agreement and Plan of Exchange dated
December 23, 1994, to which the Corporation and FCI are parties
("Exchange Agreement"), for the calendar year ending December 31,
1996, equals or exceeds $4,000,000, as determined by the
Corporation's independent accountants in accordance with
Generally Accepted Accounting Principles, the B-2 Conversion Rate
for each share of Series B-2 Stock shall automatically be
increased on April 30, 1997, by an amount equal to 8,572 divided
by the number of shares of Series B-2 Stock outstanding on April
30, 1997. In the event the gross revenue of FCI for the calendar
year ending December 31, 1996, exceeds $2,500,000 (but is less
than $4,000,000), as determined by the Corporation's independent
accountants in accordance with Generally Accepted Accounting
Principles, the B-2 Conversion Rate for each share of Series B-2
Stock shall automatically be increased on April 30, 1997, by an
amount determined by dividing 8,572 by the number of shares of
Series B-2 Stock outstanding on April 30, 1997, and multiplying
the result by a fraction, the numerator of which is the amount by
which gross revenues exceed $2,500,000 for the calendar year
ending December 31, 1996, and the denominator of which is
$1,500,000. In the event the gross revenue of FCI for the
calendar year ending December 31, 1996, does not exceed
$2,500,000, there will be no adjustment in the B-2 Conversion
Rate.
(ii) In the event the gross revenue of FCI for the calendar
year ending December 31, 1997, equals or exceeds $4,000,000, as
determined by the Corporation's independent accountants in
accordance with Generally Accepted Accounting Principles, the B-2
Conversion Rate for each share of Series B-2 Stock shall
automatically be increased on April 30, 1998, by an amount equal
to 8,572 divided by the number of shares of Series B-2 Stock
outstanding on April 30, 1998. In the event the gross revenue of
FCI for the calendar year ending December 31, 1997, exceeds
$2,500,000 (but is less than $4,000,000), as determined by the
Corporation's independent accountants in accordance with
Generally Accepted Accounting Principles, the B-2 Conversion Rate
for each share of Series B-2 Stock shall automatically be
increased on April 30, 1998, by an amount determined by dividing
8,572 by the number of shares of Series B-2 Stock outstanding on
April 30, 1998, and multiplying the result by a fraction, the
numerator of which is the amount by which gross revenues exceed
$2,500,000 for the calendar year ending December 31, 1997, and
the denominator of which is $1,500,000. In the event the gross
revenue of FCI for the calendar year ending December 31, 1997,
does not exceed $2,500,000, there will be no adjustment in the B-
2 Conversion Rate.
(iii) In the event the gross revenue of FCI for the
calendar year ending December 31, 1998, equals or exceeds
$4,000,000, as determined by the Corporation's independent
accountants in accordance with Generally Accepted Accounting
Principles, the B-2 Conversion Rate for each share of Series B-2
Stock shall automatically be increased on April 30, 1999, by an
amount equal to 8,572 divided by the number of shares of Series B-
2 Stock outstanding on April 30, 1999. In the event the gross
revenue of FCI for the calendar year ending December 31, 1998,
exceeds $2,500,000 (but is less than $4,000,000), as determined
by the Corporation's independent accountants in accordance with
Generally Accepted Accounting Principles, the B-2 Conversion Rate
for each share of Series B-2 Stock shall automatically be
increased on April 30, 1999, by an amount determined by dividing
8,572 by the number of shares of Series B-2 Stock outstanding on
April 30, 1999, and multiplying the result by a fraction, the
numerator of which is the amount by which gross revenues exceed
$2,500,000 for the calendar year ending December 31, 1998, and
the denominator of which is $1,500,000. In the event the gross
revenue of FCI for the calendar year ending December 31, 1998,
does not exceed $2,500,000, there will be no adjustment in the B-
2 Conversion Rate.
(iv) In the event the employment of Edward E. Furash
("Furash") under that certain employment agreement between FCI
and Furash included as an exhibit to the Exchange Agreement (the
"Employment Agreement"), is terminated by FCI during the initial
four year term thereof ("Initial Term") for reasons other than
cause as defined in paragraph 14 of the Employment Agreement, or
is terminated during the Initial Term by either FCI or Furash
pursuant to paragraph 15 of the Employment Agreement, the B-2
Conversion Rate for each share of Series B-2 Stock shall
automatically be increased on the date of such termination by an
amount determined by multiplying 8,572 by the number of calendar
years remaining in the unexpired Initial Term of the Employment
Agreement after the date of termination (with each partial
calendar year in the unexpired Initial Term counted as one full
year), and dividing the product by the number of shares of Series
B-2 Stock outstanding on the date of termination.
2D. Conversion of Series B-3. The right to convert the
Series B-3 Stock into shares of Common Stock shall vest
immediately on the date of issuance of the Series B-3. Each
share of Series B-3 Stock is convertible into Twenty-Six (26)
newly issued share of Common Stock of the Corporation (the "B-3
Conversion Rate"), which is subject to adjustment as provided in
Part 2D of this Section II.
(i) In the event the gross revenue of FCI for the calendar
year ending December 31, 1996, equals or exceeds $4,000,000, as
determined by the Corporation's independent accountants in
accordance with Generally Accepted Accounting Principles, the B-3
Conversion Rate for each share of Series B-3 Stock shall
automatically be increased on April 30, 1997, by an amount equal
to 5,714 divided by the number of shares of Series B-3 Stock
outstanding on April 30, 1997. In the event the gross revenue of
FCI for the calendar year ending December 31, 1996, exceeds
$2,500,000 (but is less than $4,000,000), as determined by the
Corporation's independent accountants in accordance with
Generally Accepted Accounting Principles, the B-3 Conversion Rate
for each share of Series B-3 Stock shall automatically be
increased on April 30, 1997, by an amount determined by dividing
5,714 by the number of shares of Series B-3 Stock outstanding on
April 30, 1997, and multiplying the result by a fraction, the
numerator of which is the amount by which gross revenues exceed
$2,500,000 for the calendar year ending December 31, 1996, and
the denominator of which is $1,500,000. In the event the gross
revenue of FCI for the calendar year ending December 31, 1996,
does not exceed $2,500,000, there will be no adjustment in the B-
3 Conversion Rate.
(ii) In the event the gross revenue of FCI for the calendar
year ending December 31, 1997, equals or exceeds $4,000,000, as
determined by the Corporation's independent accountants in
accordance with Generally Accepted Accounting Principles, the B-3
Conversion Rate for each share of Series B-3 Stock shall
automatically be increased on April 30, 1998, by an amount equal
to 5,714 divided by the number of shares of Series B-3 Stock
outstanding on April 30, 1998. In the event the gross revenue of
FCI for the calendar year ending December 31, 1997, exceeds
$2,500,000 (but is less than $4,000,000), as determined by the
Corporation's independent accountants in accordance with
Generally Accepted Accounting Principles, the B-3 Conversion Rate
for each share of Series B-3 Stock shall automatically be
increased on April 30, 1998, by an amount determined by dividing
5,714 by the number of shares of Series B-3 Stock outstanding on
April 30, 1998, and multiplying the result by a fraction, the
numerator of which is the amount by which gross revenues exceed
$2,500,000 for the calendar year ending December 31, 1997, and
the denominator of which is $1,500,000. In the event the gross
revenue of FCI for the calendar year ending December 31, 1997,
does not exceed $2,500,000, there will be no adjustment in the B-
3 Conversion Rate.
(iii) In the event the gross revenue of FCI for the
calendar year ending December 31, 1998, equals or exceeds
$4,000,000, as determined by the Corporation's independent
accountants in accordance with Generally Accepted Accounting
Principles, the B-3 Conversion Rate for each share of Series B-3
Stock shall automatically be increased on April 30, 1999, by an
amount equal to 5,714 divided by the number of shares of Series B-
3 Stock outstanding on April 30, 1999. In the event the gross
revenue of FCI for the calendar year ending December 31, 1998,
exceeds $2,500,000 (but is less than $4,000,000), as determined
by the Corporation's independent accountants in accordance with
Generally Accepted Accounting Principles, the B-3 Conversion Rate
for each share of Series B-3 Stock shall automatically be
increased on April 30, 1999, by an amount determined by dividing
5,714 by the number of shares of Series B-3 Stock outstanding on
April 30, 1999, and multiplying the result by a fraction, the
numerator of which is the amount by which gross revenues exceed
$2,500,000 for the calendar year ending December 31, 1998, and
the denominator of which is $1,500,000. In the event the gross
revenue of FCI for the calendar year ending December 31, 1998,
does not exceed $2,500,000, there will be no adjustment in the B-
3 Conversion Rate.
(iv) In the event the employment of Furash under the
Employment Agreement, is terminated by FCI during the initial
four year term thereof ("Initial Term") for reasons other than
cause as defined in paragraph 14 of the Employment Agreement, or
is terminated during the Initial Term by FCI pursuant to
paragraph 15 of the Employment Agreement, the B-3 Conversion Rate
for each share of Series B-3 Stock shall automatically be
increased on the date of such termination by an amount determined
by multiplying 5,714 by the number of calendar years remaining in
the unexpired Initial Term of the Employment Agreement after the
date of termination (with each partial calendar year in the
unexpired Initial Term counted as one full year), and dividing
the product by the number of shares of Series B-3 Stock
outstanding on the date of termination.
2E. Fundamental Changes. In case the Corporation shall
effect any stock split, reverse stock split, or capital
reorganization of the Common Stock, or shall consolidate, merge,
or engage in a statutory share exchange with or into any other
corporation (other than a consolidation, merger, or share
exchange in which the Corporation is the surviving corporation
and each share of Common Stock outstanding immediately prior to
such consolidation or merger is to remain outstanding immediately
after such consolidation or merger) or shall sell or transfer all
or substantially all its assets to any other corporation, lawful
provision shall be made as a part of the terms of such
transaction whereby the holders of shares of the Series B Stock
shall receive upon conversion thereof, in lieu of each share of
Common Stock which would have been issuable upon conversion of
such stock if converted immediately prior to the consummation of
such transaction, the same kind and amount of stock (or other
securities, cash, or property, if any) as may be issuable or
distributable in connection with such transaction with respect to
each share of Common Stock outstanding at the effective time of
such transaction.
2F. Conversion Date. Conversion shall be deemed to have
been made as of the date of surrender of certificates for the
shares of Series B Stock to be converted, and the giving of
written notice as prescribed in Part 2A of this Section II, and
the person entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as the record
holder of such Common Stock on such date. The Corporation shall
not be required to deliver certificates for shares of its Common
Stock while the stock transfer books for such stock or for the
Series B Stock are duly closed for any purpose, but certificates
for shares of Common Stock shall be issued and delivered as soon
as practicable after the opening of such books.
2G. Converted Shares and Common Stock Held for Conversion.
Any shares of Series B Stock which at any time have been
converted shall be canceled, may not be reissued as Series B
Stock, and shall be returned to the status of authorized and
unissued shares of Preferred Stock without designation as to
series. The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common
Stock, for the purpose of issuance upon conversion of shares of
Series B Stock then outstanding and shall take all action
necessary so that shares of Common Stock so issued will be
validly issued, fully paid and nonassessable.
2H. Taxes. The Corporation will pay any and all stamp or
similar taxes that may be payable in respect of the issuance or
delivery of shares of Common Stock on conversion of shares of
Series B Stock. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Convertible
Stock so converted were registered, and no such issuance or
delivery shall be made unless and until the person requesting
such issuance has paid to the Corporation the amount of any such
tax or has established to the satisfaction of the Corporation
that such tax has been paid.
Part 3. Dividends.
The holders of Series B Stock shall be entitled to
participate fully with the Common Stock in all dividends, whether
payable in cash, Common Stock, or other property of the
Corporation, when and as declared by the Corporation's Board of
Directors. The dividend payable on each share of Series B-1, B-
2, and B-3 Stock outstanding on the record date for determining
those persons entitled to receive a dividend on Common Stock (or
on the date the dividend is paid if no record date is set), shall
be equal to the product of the dividend per share of Common Stock
multiplied by the B-1, B-2, and B-3 Conversion Rates, as the case
may be, in effect on such record date (or on the date the
dividend is paid if no record date is set) after giving taking
into account all adjustments to such Conversion Rates required to
be made under Part 2 of this Section II, above, as of such record
date (or on the date the dividend is paid if no record date is
set). No dividends shall be paid on the Series B Stock unless
all dividends on the Corporation's Series A Convertible Preferred
Stock ("Series A Stock"), have been paid or reserved in
accordance with the terms of the Series A Stock.
Part 4. Voting Rights.
Each share of Series B Stock shall have that number of votes
equal to the number of shares of Common Stock issuable on
conversion of the Series B Stock as of the record date or any
such other date with respect to which a determination is made of
the Persons and number of shares entitled to be voted at any
meeting of the stockholders of the Corporation or sign a written
consent to action without a meeting, after giving taking into
account all adjustments to such Conversion Rates required to be
made under Part 2 of this Section II, above. The holders thereof
shall have the right to vote (but not as a separate class, except
to the extent required by law) on all matters subject to vote at
any meeting of the stockholders of the Corporation or submitted
for stockholder approval by written consent.
Part 5. Definitions Applicable to Section II.
"Business Day" shall mean a day other than a Saturday,
Sunday or other day on which commercial banks in New York, New
York are authorized by law to close.
"Common Stock" means the Common Stock, $0.0001 par value per
share, of the Corporation and any capital stock of any class of
the Corporation hereafter authorized which is not limited to a
fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in
the distribution or assets upon any liquidation, dissolution, or
winding up of the Corporation.
"Junior Securities" means any of the Corporation's equity
securities other than the Series A Stock and Series B Stock.
"Liquidation Value" of any Series B Stock as of any
particular date will be equal to $350 per share.
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture,
an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
III. SERIES C PREFERRED STOCK
Designation; Number of Shares. The designation of such
series of Preferred Stock (which includes all sub-series) shall
be "Series C Convertible Preferred Stock" (hereinafter referred
to as the "Series C Stock") and the number of authorized shares
constituting the Series C Stock is Twenty-Four (24). The Series
C Stock shall be deemed a separate class of Preferred Stock, and
shall be apart from any other series of Preferred Stock.
Part 1. Liquidation.
Upon any liquidation, dissolution, or winding up of the
Corporation, the holders of Series C Stock will be entitled to be
paid, after any distribution or payment is made upon any Series A
Stock and Series B Stock and before any distribution or payment
is made upon Junior Securities (as defined below under this
Section III), an amount in cash equal to the aggregate
Liquidation Value (as defined below under this Section III) of
all shares of Series C Stock outstanding, and the holders of
Series C Stock will not be entitled to any further payment. If
upon any such liquidation, dissolution, or winding up of the
Corporation, the Corporation's assets to be distributed among the
holders of Series C Stock are insufficient to permit payment to
such holders of the aggregate amount which they are entitled to
be paid, then the entire assets to be distributed will be
distributed ratably among such holders based upon the aggregate
Liquidation Value of the Series C Stock held by each such holder.
The Corporation will mail written notice of such liquidation,
dissolution, or winding up not less then 30 days prior to the
payment date stated therein, to each record holder of Series C
Stock. Neither the consolidation or merger of the Corporation
into or with any other corporation or corporations, nor the sale
or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, will
be deemed to be liquidation, dissolution, or winding up of the
Corporation within the meaning of Part 1 of this Section III.
Part 2. Dividends.
2A. Entitlement. The holders of Series C Stock, shall be
entitled to receive cumulative dividends. Such dividends shall
be paid to the holders in cash or in-kind through the issuance of
Common Stock, as determined at the election of the Corporation,
on conversion of the Series C Stock in accordance with Part 3 of
Section III, below, except as provided in Part 5 of Section III,
below.
2B. Accrual Rate. Dividends on each share of Series C
Stock shall accrue on a daily basis at the rate of 8.000% per
annum of the Face Value (as defined below under this Section
III), from and including the Date of Issuance of such share to
and including the date on which the Redemption Price (as defined
below) of such share is paid or the date on which such share is
converted into Common Stock. Such dividends shall accrue whether
or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally
available for the payment of dividends. The date on which the
Corporation initially issues any share of the Series C Stock will
be deemed to be its "Date of Issuance" as that term is uses
herein, regardless of the number of times transfer of any such
share is made on the stock records maintained by or for the
Corporation and regardless of the number of certificates which
may be issued to evidence any such share.
Part 3. Conversion Rights.
3A. Conversion Procedure. Subject to the provisions set
forth below, each share of Series C Stock shall be convertible at
the option of the holder thereof, in the manner hereinafter set
forth, into that number of fully paid and nonassessable shares of
Common Stock determined as set forth below. Any holder of Series
C Stock desiring to convert such shares into shares of Common
Stock shall surrender the certificate or certificates for the
shares being converted, duly endorsed or assigned to the
Corporation or in blank, at the principal office of the
Corporation or at the bank or trust company appointed by the
Corporation for that purpose, accompanied by a written notice of
conversion specifying the number of shares of Series C Stock to
be converted (provided that the number of shares tendered for
conversion at any one time shall not be less than $100,000 in
Face Value) and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be
issued. The date of execution of the notice of conversion and
delivery thereof to the Corporation by facsimile transmission at
(212) 508-3540 shall be the "Conversion Date"; provided, that if
the certificate representing the shares of Series C Stock to be
converted as stated in the notice of conversion is not received
by the Corporation or its designated agent within three business
days of receiving said facsimile transmission, the Conversion
Date shall be the date on which the Series C Stock certificates
are actually received by the Corporation or agent. After the
receipt of such notice of conversion and the certificates for the
Series C Stock converted, the Corporation shall promptly issue
and deliver or cause to be issued and delivered to such holder a
certificate or certificates for shares of Common Stock resulting
from such conversion. In case less than all of the shares of
Series C Stock represented by a certificate are to be converted
by a holder, upon such conversion the Corporation shall also
deliver or cause to be delivered to such holder a certificate or
certificates for the shares of Series C Stock not so converted.
The Corporation shall pay all transfer agent fees and expenses
payable upon the conversion of Series C Stock.
3B. Conversion Rate. The number of shares issuable on
conversion of the Series C Stock shall be determined by dividing
the Face Value of the Series C Stock being converted plus (if the
Corporation elects to paid accrued dividends in-kind with Common
Stock) the amount of accrued dividends on such Face Amount as of
the Conversion Date, by the lesser of (i) $4.558125, or (ii) 80%
of the market price on the Conversion Date. For purposes of Part
3B of this Section III, "market price" on a given date shall be
the average closing bid prices of the Common Stock for the five
NASDAQ trading days immediately preceding the applicable date as
reported by the National Association of Securities Dealers
Automated Quotation System or such other inter-dealer quotation
system as may report quotations on the Common Stock. In the
event any fractional share of Common Stock would become issuable
under the calculation contained in Part 3B of this Section III,
the number of shares issuable shall be rounded up to the nearest
whole number.
3C. Conversion Dates The right to convert the Series C
Stock into shares of Common Stock shall vest over a 95-day period
following the Date of Issuance as set forth below:
(i) With respect to 33% of the shares of Series C Stock
held, 42 days following the Date of Issuance;
(ii) With respect to 33% of the shares of Series C Stock
held, 65 days following the Date of Issuance; and
(iii) With respect to 34% of the shares of Series C
Stock held, 95 days following the Date of Issuance.
3D. Fundamental Changes. In case the Corporation shall
effect any stock split, reverse stock split, or capital
reorganization of the Common Stock, or shall consolidate, merge,
or engage in a statutory share exchange with or into any other
corporation (other than a consolidation, merger, or share
exchange in which the Corporation is the surviving corporation
and each share of Common Stock outstanding immediately prior to
such consolidation or merger is to remain outstanding immediately
after such consolidation or merger) or shall sell or transfer all
or substantially all its assets to any other corporation, lawful
provision shall be made as a part of the terms of such
transaction whereby the holders of shares of the Series C Stock
shall receive upon conversion thereof, in lieu of each share of
Common Stock which would have been issuable upon conversion of
such stock if converted immediately prior to the consummation of
such transaction, the same kind and amount of stock (or other
securities, cash, or property, if any) as may be issuable or
distributable in connection with such transaction with respect to
each share of Common Stock outstanding at the effective time of
such transaction.
3E. Converted Shares and Common Stock Held for Conversion.
Any shares of Series C Stock which at any time have been
converted shall be canceled, may not be reissued as Series C
Stock, and shall be returned to the status of authorized and
unissued shares of Preferred Stock without designation as to
series. The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common
Stock, for the purpose of issuance upon conversion of shares of
Series C Stock then outstanding and shall take all action
necessary so that shares of Common Stock so issued will be
validly issued, fully paid and nonassessable.
Part 4. Voting Rights.
The Series C Stock shall have no voting rights, except as
required in the specific instance by the Delaware Revise Statutes
and except the right to approve by majority vote of the holders
of the Series C Stock: the authorization and issuance of any
class or series of Preferred Stock senior to the Series C Stock
which is not authorized and issued as of March 1, 1996; any
amendment, modification, or repeal of the articles of
incorporation of the Corporation if the powers, preferences, or
special rights of the Series C Stock would be adversely affected;
and, the imposition of any restriction on the Series C Stock,
other than restrictions arising under the Delaware Revised
Statutes or existing under the articles of incorporation as in
effect at March 1, 1996.
Part 5. Redemption.
5A. Redemption Price. For each share of Series C Stock
which is to be redeemed, the Corporation will be obligated on the
Redemption Date (as defined below) to pay to the holder thereof
(upon surrender by such holder at the Corporation's principal
office or to the Corporation's transfer agent of the certificates
representing such shares of Series C Stock) an amount in
immediately available funds equal to the Face Value thereof plus
all accrued dividends as of the Redemption Date; provided, that
if redemption is effected pursuant to Part 5F of this Section
III, the amount payable on the Redemption Date shall be 120% of
the Face Value plus all accrued dividends as of that date.
5B. Notice of Redemption. The Corporation will mail
written notice of each redemption of Series C Stock to each
record holder of Series C Stock not more than sixty (60) nor less
than ten (10) days prior to the date on which such redemption is
to be made. The date specified in such notice for redemption is
herein referred to as the "Redemption Date."
5C. Termination of Rights. On the Redemption Date all
rights pertaining to the Series C Stock, including, but not
limited to, any right of conversion, will cease, and such Series
C Stock will not be deemed to be outstanding.
5D. Redeemed or Otherwise Acquire Shares. Any shares of
Series C Stock which are redeemed or otherwise acquired by the
Corporation shall be canceled, may not be reissued as Series C
Stock, and shall be returned to the status of authorized and
unissued shares of Preferred Stock without designation as to
series.
5E. Optional Redemption. Except as provided in Part 5F of
this Section III, the Corporation may, at any time after April 1,
1997, redeem all or any portion of the Series C Stock.
5F. Redemption upon Specific Event. In the event any
shares of the Series C Stock are submitted for conversion under
Part 3 of this Section III and the market price for the Common
Stock on the Conversion Date as determined under Part 3B of this
Section III is less than $2.00 per share, the Corporation may, at
its option, elect to redeem the Series C Stock tendered for
conversion rather than convert the shares.
Part 6. Definitions Applicable to Section III.
"Business Day" shall mean a day other than a Saturday,
Sunday or other day on which commercial banks in New York, New
York are authorized by law to close.
"Common Stock" means the Common Stock, $0.0001 par value per
share, of the Corporation and any capital stock of any class of
the Corporation hereafter authorized which is not limited to a
fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in
the distribution or assets upon any liquidation, dissolution, or
winding up of the Corporation.
"Face Value" of any Series C Stock as of any particular date
will be equal to $20,000 per share.
"Junior Securities" means any of the Corporation's equity
securities other than the Series A Stock and Series B Stock.
"Liquidation Value" of any Series C Stock as of any
particular date will be equal to $20,000 per share.
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture,
an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
IV. SERIES D PREFERRED STOCK
Designation; Number of Shares. The designation of such
series of Preferred Stock shall be "Series D Convertible
Preferred Stock" (hereinafter referred to as the "Series D
Stock") and the number of authorized shares constituting the
Series D Stock is Forty-Four (44). The Series D Stock shall be
deemed a separate class of Preferred Stock, and shall be apart
from any other series of Preferred Stock.
Part 1. Liquidation.
Upon any liquidation, dissolution, or winding up of the
Corporation, the holders of Series D Stock will be entitled to be
paid, after any distribution or payment is made upon any Senior
Securities and before any distribution or payment is made upon
Junior Securities (as defined below under this Section IV), an
amount in cash equal to the aggregate Liquidation Value (as
defined below under this Section IV) of all shares of Series D
Stock outstanding, and the holders of Series D Stock will not be
entitled to any further payment. If upon any such liquidation,
dissolution, or winding up of the Corporation, the Corporation's
assets to be distributed among the holders of Series D Stock are
insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid, then the entire assets
to be distributed will be distributed ratably among such holders
based upon the aggregate Liquidation Value of the Series D Stock
held by each such holder. The Corporation will mail written
notice of such liquidation, dissolution, or winding up not less
then 30 days prior to the payment date stated therein, to each
record holder of Series D Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or
corporations, nor the sale or transfer by the Corporation of all
or any part of its assets, nor the reduction of the capital stock
of the Corporation, will be deemed to be liquidation,
dissolution, or winding up of the Corporation within the meaning
of Part 1 of this Section IV.
Part 2. Dividends.
2A. Entitlement. The holders of Series D Stock, shall be
entitled to receive cumulative dividends. Such dividends shall
be paid to the holders in cash or in-kind through the issuance of
Common Stock, as determined at the election of the Corporation,
on conversion of the Series D Stock in accordance with Part 3 of
Section IV, below, except as provided in Part 5 of Section IV,
below.
2B. Accrual Rate. Dividends on each share of Series D
Stock shall accrue on a daily basis at the rate of 8.000% per
annum of the Face Value (as defined below under this Section IV),
from and including the Date of Issuance of such share to and
including the date on which the Redemption Price (as defined
below) of such share is paid or the date on which such share is
converted into Common Stock. Such dividends shall accrue whether
or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally
available for the payment of dividends. The date on which the
Corporation initially issues any share of the Series D Stock will
be deemed to be its "Date of Issuance" as that term is used
herein, regardless of the number of times transfer of any such
share is made on the stock records maintained by or for the
Corporation and regardless of the number of certificates which
may be issued to evidence any such share.
Part 3. Conversion Rights.
3A. Conversion Procedure. Subject to the provisions set
forth below, each share of Series D Stock shall be convertible at
the option of the holder thereof, in the manner hereinafter set
forth, into that number of fully paid and nonassessable shares of
Common Stock determined as set forth below. Any holder of Series
D Stock desiring to convert such shares into shares of Common
Stock shall surrender the certificate or certificates for the
shares being converted, duly endorsed or assigned to the
Corporation or in blank, at the principal office of the
Corporation or at the bank or trust company appointed by the
Corporation for that purpose, accompanied by a written notice of
conversion specifying the number of shares of Series D Stock to
be converted (provided that the number of shares tendered for
conversion at any one time shall not be less than $100,000 in
Face Value) and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be
issued. The date of execution of the notice of conversion and
delivery thereof to the Corporation by facsimile transmission at
(212) 508-3540 shall be the "Conversion Date"; provided, that if
the certificate representing the shares of Series D Stock to be
converted as stated in the notice of conversion is not received
by the Corporation or its designated agent within three business
days of receiving said facsimile transmission, the Conversion
Date shall be the date on which the Series D Stock certificates
are actually received by the Corporation or agent. After the
receipt of such notice of conversion and the certificates for the
Series D Stock converted, the Corporation shall promptly issue
and deliver or cause to be issued and delivered to such holder a
certificate or certificates for shares of Common Stock resulting
from such conversion. In case less than all of the shares of
Series D Stock represented by a certificate are to be converted
by a holder, upon such conversion the Corporation shall also
deliver or cause to be delivered to such holder a certificate or
certificates for the shares of Series D Stock not so converted.
The Corporation shall pay all transfer agent fees and expenses
payable upon the conversion of Series D Stock.
3B. Conversion Rate. The number of shares issuable on
conversion of the Series D Stock shall be determined by dividing
the Face Value of the Series D Stock being converted plus (if the
Corporation elects to paid accrued dividends in-kind with Common
Stock) the amount of accrued dividends on such Face Amount as of
the Conversion Date, by the lesser of (i) $5.210625, or (ii) 80%
of the market price on the Conversion Date. For purposes of Part
3B of this Section IV, "market price" on a given date shall be
the average closing bid prices of the Common Stock for the five
NASDAQ trading days immediately preceding the applicable date as
reported by the National Association of Securities Dealers
Automated Quotation System or such other inter-dealer quotation
system as may report quotations on the Common Stock. In the
event any fractional share of Common Stock would become issuable
under the calculation contained in this Part 3B of this Section
IV, the number of shares issuable shall be rounded up to the
nearest whole number.
3C. Conversion Dates The right to convert the Series D
Stock into shares of Common Stock shall vest over a 100-day
period following the Date of Issuance as set forth below:
(i) With respect to 50% of the shares of Series D Stock
held, shall commence 70 days following the Date of Issuance; and
(ii) With respect to any remaining shares of Series D Stock
held, shall commence 100 days following the Date of Issuance.
Any shares of Series D Stock that remain outstanding at 12:01
a.m., New York City time on June 1, 1998, shall there upon be
automatically converted to Common Stock without any action on the
part of the holder thereof, and all certificates that theretofore
represented shares of Series D Stock shall represent only the
right to receive shares of Common Stock on surrender of the
certificates to the Corporation as provided in Part 3 of this
Section IV.
3D. Fundamental Changes. In case the Corporation shall
effect any stock split, reverse stock split, or capital
reorganization of the Common Stock, or shall consolidate, merge,
or engage in a statutory share exchange with or into any other
corporation (other than a consolidation, merger, or share
exchange in which the Corporation is the surviving corporation
and each share of Common Stock outstanding immediately prior to
such consolidation or merger is to remain outstanding immediately
after such consolidation or merger) or shall sell or transfer all
or substantially all its assets to any other corporation, lawful
provision shall be made as a part of the terms of such
transaction whereby the holders of shares of the Series D Stock
shall receive upon conversion thereof, in lieu of each share of
Common Stock which would have been issuable upon conversion of
such stock if converted immediately prior to the consummation of
such transaction, the same kind and amount of stock (or other
securities, cash, or property, if any) as may be issuable or
distributable in connection with such transaction with respect to
each share of Common Stock outstanding at the effective time of
such transaction.
3E. Converted Shares and Common Stock Held for Conversion.
Any shares of Series D Stock which at any time have been
converted shall be canceled, may not be reissued as Series D
Stock, and shall be returned to the status of authorized and
unissued shares of Preferred Stock without designation as to
series.. The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common
Stock, for the purpose of issuance upon conversion of shares of
Series D Stock then outstanding and shall take all action
necessary so that shares of Common Stock so issued will be
validly issued, fully paid and nonassessable.
Part 4. Voting Rights.
The Series D Stock shall have no voting rights, except as
required in the specific instance by the Delaware Revise Statutes
and except the right to approve by majority vote of the holders
of the Series D Stock: the authorization and issuance of any
class or series of Preferred Stock senior to the Series D Stock
which is not authorized as of June 1, 1996; any amendment,
modification, or repeal of the articles of incorporation of the
Corporation if the powers, preferences, or special rights of the
Series D Stock would be adversely affected; and, the imposition
of any restriction on the Series D Stock, other than restrictions
arising under the Delaware Revised Statutes or existing under the
articles of incorporation as in effect at June 1, 1996.
Part 5. Redemption.
5A. Redemption Price. For each share of Series D Stock
which is to be redeemed, the Corporation will be obligated on the
Redemption Date (as defined below) to pay to the holder thereof
(upon surrender by such holder at the Corporation's principal
office or to the Corporation's transfer agent of the certificates
representing such shares of Series D Stock) an amount in
immediately available funds equal to 120% of the Liquidation
Value thereof plus all accrued dividends as of the Redemption
Date.
5B. Redemption upon Specific Event. In the event any
shares of the Series D Stock are submitted for conversion under
Part 3 of this Section IV and the market price for the Common
Stock on the Conversion Date as determined under Part 3B of this
Section IV is less than $2.00 per share, the Corporation may, at
its option, elect to redeem the Series D Stock tendered for
conversion rather than convert the shares.
5C. Notice of Redemption. The Corporation will mail
written notice of redemption of Series D Stock to the record
holder submitting the Series D Stock to the Corporation for
conversion not later than the close of the next Business Day
following the date on which the shares of Series D Stock are
tendered to the Corporation for conversion. The date specified
in such notice for redemption is herein referred to as the
"Redemption Date."
5D. Termination of Rights. On the Redemption Date all
rights pertaining to the Series D Stock, including, but not
limited to, any right of conversion, will cease, and such Series
D Stock will not be deemed to be outstanding.
5E. Redeemed or Otherwise Acquire Shares. Any shares of
Series D Stock which are redeemed or otherwise acquired by the
Corporation shall be canceled, may not be reissued as Series D
Stock, and shall be returned to the status of authorized and
unissued shares of Preferred Stock without designation as to
series.
Part 6. Definitions Applicable to Section IV.
"Business Day" shall mean a day other than a Saturday,
Sunday or other day on which commercial banks in New York, New
York are authorized by law to close.
"Common Stock" means the Common Stock, $0.0001 par value per
share, of the Corporation and any capital stock of any class of
the Corporation hereafter authorized which is not limited to a
fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in
the distribution or assets upon any liquidation, dissolution, or
winding up of the Corporation.
"Junior Securities" means any of the Corporation's equity
securities other than the Senior Securities.
"Liquidation Value" of any Series D Stock as of any
particular date will be equal to $50,000 per share.
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture,
an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Senior Securities" means the Corporation's Series A Stock,
Series B Stock, and Series C Stock.
V. SERIES E PREFERRED STOCK
Designation; Number of Shares. The designation of such
series of Preferred Stock shall be "Series E Convertible
Preferred Stock" (hereinafter referred to as the "Series E
Stock") and the number of authorized shares constituting the
Series E Stock is Five Hundred Seventy-Five Thousand (575,000).
The Series E Stock shall be deemed a separate class of Preferred
Stock, and shall be apart from any other series of Preferred
Stock.
Part 1. Liquidation.
Upon any liquidation, dissolution, or winding up of the
Corporation, the holders of Series E Stock will be entitled to be
paid, after any distribution or payment is made upon any Senior
Securities and before any distribution or payment is made upon
Junior Securities (as defined below under this Section V), an
amount in cash equal to the aggregate Liquidation Value (as
defined below under this Section V) of all shares of Series E
Stock outstanding, and the holders of Series E Stock will not be
entitled to any further payment. If upon any such liquidation,
dissolution, or winding up of the Corporation, the Corporation's
assets to be distributed among the holders of Series E Stock are
insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid, then the entire assets
to be distributed will be distributed ratably among such holders
based upon the aggregate Liquidation Value of the Series E Stock
held by each such holder. The Corporation will mail written
notice of such liquidation, dissolution, or winding up not less
than 30 days prior to the payment date stated therein, to each
record holder of Series E Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or
corporations, nor the sale or transfer by the Corporation of all
or any part of its assets, nor the reduction of the capital stock
of the Corporation, will be deemed to be liquidation,
dissolution, or winding up of the Corporation within the meaning
of Part 1 of this Section V.
Part 2. Conversion Rights.
2A. Conversion Procedure. Subject to the provisions set
forth below, each share of Series E Stock shall be convertible at
the option of the holder thereof, in the manner hereinafter set
forth, into that number of fully paid and nonassessable shares of
Common Stock determined as set forth below. Any holder of Series
E Stock desiring to convert such shares into shares of Common
Stock shall surrender the certificate or certificates for the
shares being converted, duly endorsed or assigned to the
Corporation or in blank, at the principal office of the
Corporation or at the bank or trust company appointed by the
Corporation for that purpose, accompanied by a written notice of
conversion specifying the number of shares of Series E Stock to
be converted and the name or names in which such holder wishes
the certificate or certificates for shares of Common Stock to be
issued; in case such notice shall specify a name or names other
than that of such transfer taxes payable upon the issue of shares
of Common Stock in such name or names. After the receipt of such
notice of conversion, the Corporation shall, within thirty (30)
days after receipt of such notice, issue and deliver or cause to
be issued and delivered to such holder a certificate or
certificates for shares of Common Stock resulting from such
conversion. In case less than all of the shares of Series E
Stock represented by a certificate are to be converted by a
holder, upon such conversion the Corporation shall also deliver
or cause to be delivered to such holder a certificate or
certificates for the shares of Series E stock not so converted.
2B. Conversion Privilege and Rate. The right to convert
the Series E Stock into shares of Common Stock shall vest
immediately on the date of issuance of the Series E Stock. Each
share of Series E Stock is convertible into One (1) newly issued
share of Common Stock of the Corporation (the "Conversion Rate"),
which is subject to adjustment as provided in Part 2C of this
Section V, below; provided, however, that shares of Series E
Stock may be converted into shares of Common Stock only after the
holder of such shares of Series E Stock shall have certified to
the Corporation that it is not a "bank holding company" or a
"subsidiary" of a "bank holding company" within the meaning of
Section 4 of the Bank Holding Company Act of 1954, as amended,
and Regulation Y promulgated thereunder, or one of the following
shall have occurred: (1) the bona fide sale to any purchaser
(including, without limitation, any underwriter) of such shares
of Series E Stock (x) pursuant to a registration statement
declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"),
covering the offer and sale of the Corporation's common stock in
a bona fide public offering, or (y) pursuant to Rules 144 and
144A promulgated under the Act, or in a public distribution
pursuant to Regulation A of the General Rules and Regulations
under the Act; (2) the bona fide sale to any purchaser of such
shares of Series E Stock in a transaction not involving a sale of
the Corporation's common stock to the public, provided that such
purchaser does not immediately after such transaction hold shares
of Common Stock (including any shares converting to Common Stock
in accordance herewith) equaling two percent (2%) or more of the
then-outstanding shares of Common Stock; or (3) the receipt by
the Corporation of (y) a staff opinion, ruling or other written
advice from the Board of Governors of the Federal Reserve System,
or from the appropriate Federal Reserve Bank, or (z) an opinion
of counsel experienced in bank regulatory matters, in each case
to the effect that such shares of Series E Stock may be converted
into shares of Common Stock without violation of Section 4 of the
Bank Holding Company Act of 1954, as amended, and Regulation Y
promulgated thereunder.
2C. Adjustment of Conversion Rate. The Conversion Rate is
subject to adjustment from time to time upon the occurrence of
any of the events enumerated in Part 2C of this Section V. Such
adjustments shall be made in respect of any such events occurring
from and after the date on which any warrants to purchase shares
of Series E Stock are first issued and shall be applicable to all
authorized shares of Series E Stock whether or not any such
shares are issued and outstanding.
a. Adjustment for Change in Capital Stock of the
Corporation. If the Corporation (i) pays a dividend or makes a
distribution on any class of its Common Stock in shares of any
class of its Common Stock, (ii) subdivides its outstanding shares
of any class of Common Stock into a greater number of shares,
(iii) combines its outstanding shares of any class of Common
Stock into a smaller number of shares, (iv) makes a distribution
on any class of its Common Stock in shares of its Stock other
than Common Stock, or (v) issues by reclassification of any class
of its Common Stock any shares of its Stock, then the Conversion
Rate in effect immediately prior to such action shall be
proportionately adjusted so that any holder of any Series E Stock
(a "Holder") thereafter exercised may receive the aggregate
number and kind of shares of capital stock of the Corporation
which it would have owned immediately following such action if
such Series E Stock had been issued and outstanding (if not then
issued and outstanding) and converted immediately prior to such
action. Such adjustment shall be made successively whenever any
event listed above shall occur, and shall become effective
immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case
of a subdivision, combination or reclassification. If after an
adjustment a Holder may receive shares of two or more classes of
capital stock of the Corporation, the Board of Directors of the
Corporation shall determine in the good faith exercise of its
reasonable business judgment the allocation of the adjusted
Conversion Rate between the classes of capital stock. After such
allocation, the exercise privilege and the Conversion Rate of
each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those in Part 2C of this
Section V.
b. Adjustment for Common Stock Issues. If the Corporation
issues shares of Common Stock for a consideration per share less
than the Fair Market Value per Share (as defined in paragraph (1)
of Part 2C of this Section V) on the date the Corporation fixes
the offering price of such additional shares, the Conversion Rate
shall be adjusted in accordance with the following formula:
E' = E x A
______
P
_
O + M
where:
E' = the adjusted Conversion Rate;
E = the then current Conversion Rate;
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares;
P = the aggregate consideration received for the issuance of such
additional shares;
M = the Fair Market Value per Share on the date the Corporation
fixes the offering price of such additional shares; and
A = the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after
such issuance. The provisions of this subsection (b) do not
apply (i) to any of the transactions described in subsection (a)
of Part 2C of this Section V or (ii) any transaction for which an
adjustment has been made pursuant to the provisions of paragraphs
(c) or (d) of Part 2C of this Section V or (iii) the issuance of
any Excluded Shares (as defined in paragraph (l) of Part 2C of
this Section V).
c. Adjustment for Convertible Securities Issues. If the
Corporation issues any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or
property, for shares of Stock, either immediately or upon the
occurrence of a specified date or a specified event ("Convertible
Securities"), other than shares of Series E Stock for which an
adjustment has been made pursuant to the provisions of subsection
(d) of Part 2C of this Section V, whether or not the right to
convert or exchange thereunder is immediately exercisable or is
conditioned upon the passage of time, the occurrence or
non-occurrence of some other event, or both, for a consideration
per share of Stock initially deliverable upon conversion or
exchange of such Convertible Securities less than the Fair Market
Value per Share on the date of issuance of such Convertible
Securities, the Conversion Rate shall be adjusted in accordance
with this formula:
E' = E x O + D
_____
P
_
O + M
where:
E' = the adjusted Conversion Rate;
E = the then current Conversion Rate;
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such Convertible Securities;
P = the aggregate consideration received for the issuance of such
Convertible Securities; and
M = the Fair Market Value per Share on the date of issuance of
such Convertible Securities; and
D = the maximum number of shares of Common Stock deliverable upon
exercise, conversion or in exchange of such Convertible
Securities at the Minimum Price.
In this subsection (c), the term "Minimum Price" means the lowest
price at which the Convertible Securities can be converted into
or exchanged for Common Stock, regardless of whether that is the
initial rate or is conditioned upon the passage of time, the
occurrence or non-occurrence of some other event, or both. The
adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such
issuance. If all of the Stock deliverable upon conversion or
exchange of such Convertible Securities has not been issued when
such Convertible Securities are no longer outstanding, then the
Conversion Rate shall promptly be readjusted to the Conversion
Rate which would then be in effect had the adjustment upon the
issuance of such Convertible Securities been made on the basis of
the actual number of shares of Stock issued upon conversion or
exchange of such Convertible Securities.
d. Adjustment for Right, Option and Warrant Issues. If
the Corporation issues any rights, options or warrants to
subscribe for or purchase or otherwise acquire Stock, whether or
not the right to exercise such rights, options or warrants is
immediately exercisable or is conditioned upon the passage of
time, the occurrence or non-occurrence of some other event, or
both (the "Option Securities"), for a consideration per share of
Stock initially deliverable upon exercise of such Option
Securities less than the Fair Market Value per Share on the date
of issuance of such Option Securities, the Conversion Rate shall
be adjusted in accordance with this formula:
E' = E x O + D
_____
P
_
O + M
where:
E' = the adjusted Conversion Rate;
E = the then current Conversion Rate;
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such Option Securities;
P = the aggregate consideration received for the issuance of such
Option Securities;
M = the Fair Market Value per Share on the date of issuance of
such Option Securities; and
D = the maximum number of shares of Common Stock deliverable upon
exercise, conversion or in exchange of such Option Securities at
the Minimum Price.
As used in this subsection (d), the term "Minimum Price" means
the lowest price at which the Option Securities may be exercised
to purchase or otherwise acquire Common Stock, regardless of
whether that is the initial price or is conditioned upon the
passage of time, the occurrence or non-occurrence of some other
event, or both. The adjustment shall be made successively
whenever any such issuance is made, and shall become effective
immediately after such issuance. If all of the Common Stock
deliverable upon exercise of such Option Securities has not been
issued when such Option Securities are no longer outstanding,
then the Conversion Rate shall promptly be readjusted to the
Conversion Rate which would then be in effect had the adjustment
upon the issuance of such Option Securities been made on the
basis of the actual number of shares of Common Stock issued upon
such exercise of such Option Securities.
e. Consideration Received. For purposes of any
computation respecting consideration received pursuant to any
subsection of Part 2C of this Section V, the following shall
apply:
(1) in the case of the issuance of shares of Common Stock
for cash, the consideration received shall be the amount of cash
received by the Corporation therefor, without deduction therefrom
of any reasonable expenses incurred by the Corporation in
connection therewith or any reasonable underwriters' discounts,
fees and commissions paid or allowed by the Corporation in
connection therewith.
(2) in the case of the issuance of shares of Common Stock
for a consideration consisting in whole or in part of other than
cash, the consideration other than cash shall be deemed to be the
fair market value thereof as determined by the Board of Directors
of the Corporation in the good faith exercise of its business
judgment, without deduction therefrom of any reasonable expenses
incurred by the Corporation in connection therewith. In any
circumstances in which the fair market value of any such
consideration is to be determined pursuant to this paragraph (2),
the Corporation shall give to the Holders (or, if such
determination affects less than all of the Holders, to the
Holders so affected) written notice of the proposed fair market
value, as determined in good faith by the Board of Directors of
the Corporation. If, within thirty (30) days after the date such
notice is given, the Corporation and such Holders agree upon the
fair market value then the fair market value for purposes of this
paragraph (2) shall be as so agreed. If such Holders and the
Corporation do not agree upon such fair market value within such
30-day period, then the Required Holders (as defined in paragraph
(l) of Part 2C of this Section V) and the Corporation shall
appoint a recognized investment banking firm of national
reputation, reasonably acceptable to the Required Holders and the
Corporation. If the Corporation and the Required Holders cannot
agree on the appointment of a mutually acceptable investment
banking firm, or if the firm so appointed declines or fails to
serve, then the Required Holders and the Corporation shall each
choose one such investment banking firm and the respective firms
so chosen shall appoint another recognized investment banking
firm of national reputation. The investment banking firm so
selected shall appraise the fair market value for the purposes of
this paragraph (2), and such investment banking firm shall make
such appraisal (which shall be in the form of a written report
signed by such investment banking firm) and, for the purposes of
determining the fair market value pursuant to this paragraph (2),
such appraised fair market value determined as herein provided
shall be final and conclusive on the Corporation and the Holders.
If the fair market value of the consideration as determined by
such investment banking firm is equal to or less than that
determined by the Board of Directors of the Corporation in
accordance with this paragraph (2), then all fees and expenses of
such investment banking firm shall be paid by the Required
Holders requesting such appraisal. If the appraised fair market
value of the consideration as determined by such investment
banking firm is greater than that determined by the Board of
Directors in accordance with this paragraph (2), then all fees
and expenses of such investment banking firm shall be paid by the
Corporation.
(3) in the case of the issuance of Convertible Securities
or securities issuable upon the exercise of Option Securities,
the aggregate consideration received therefor shall be deemed to
be the consideration received by the Corporation for the issuance
of such Convertible Securities, plus the consideration, if any,
received by the Corporation for the issuance of such Option
Securities, plus the additional minimum consideration, if any, to
be received by the Corporation upon the conversion, exchange or
exercise thereof (the consideration in each case to be determined
in the same manner as provided in clauses (1) and (2) of this
subsection (e)).
f. Special Adjustments. If the purchase price provided
for in any Option Securities, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible
Securities or the rate at which any Convertible Securities are
convertible into or exchangeable for Stock shall change, the
Conversion Rate in effect at the time of such event shall
forthwith be readjusted. The Conversion Rate shall be adjusted
to those amounts which would have been in effect at such time had
such Option Securities or Convertible Securities outstanding at
such time initially been granted, issued or sold and the
Conversion Rate initially adjusted as provided in the applicable
subsection of Part 2C of this Section V, whichever was
applicable, except that the minimum amount of additional
consideration payable and the total maximum number of shares
issuable shall be determined after giving effect to such event
(and any prior event or events).
g. When No Adjustment Required. No adjustment need be
made for a change in the par value or absence of par value of any
Common Stock. No adjustment in the Conversion Rate need be made
unless adjustment would require an increase or decrease of at
least 1% of the Conversion Rate. Any adjustments that are not
made but deferred pursuant to this subsection shall be carried
forward and taken into account in any subsequent adjustment.
h. Determination of Fair Market Value per Share; Notice of
Adjustment. Prior to issuing any shares of Common Stock, any
Convertible Securities or any Option Securities, the Corporation
shall cause the Board of Directors of the Corporation to
determine in good faith the Fair Market Value per Share, as of
the date on which the Corporation fixes the offering price of
such shares or as of the date of issuance of such Convertible
Securities or Option Securities, as the case may be. Within five
(5) days of such determination by the Board of Directors of the
Corporation, but in no event later than thirty (30) days prior to
issuance of such Common Stock, Convertible Securities or Option
Securities, the Corporation shall give the Holders written notice
of the proposed Fair Market Value per Share. If within such
thirty (30) day period, the Corporation and such Holders agree
upon the Fair Market Value per Share, then the Fair Market Value
per Share shall be as so agreed. If, within such thirty (30) day
period, the Corporation and the Required Holders (as defined in
paragraph (l) of Part 2C of this Section V) do not agree upon
such Fair Market Value per Share, then the Fair Market Value per
Share shall be determined as provided in clause (b) of the
definition thereof.
i. When Issuance or Payment May Be Deferred. In any case
in which Part 2C of this Section V shall require that an
adjustment in the Conversion Rate be made effective as of a
record date for a specified event, the Corporation may elect to
defer until the occurrence of such event (i) issuing to the
Holder of any Series E Stock converted after such record date the
shares of Stock issuable upon such conversion over and above the
shares of Stock issuable upon such conversion on the basis of the
Conversion Rate prior to such adjustment and (ii) paying to such
Holder any amount in cash in lieu of a fractional share pursuant
to paragraph (j), provided, however, that the Corporation shall
deliver to such Holder a bill or other appropriate instrument
evidencing such Holder's right to receive such additional shares
of stock and cash upon the occurrence of the event requiring such
adjustment.
j. Fractional Interests. The Corporation shall not be
required to issue fractional shares of Common Stock on the
conversion of the Series E Stock. If more than one share
certificate shall be presented for conversion in full at the same
time by the same Holder, the number of full shares of Common
Stock which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares issuable
on conversion of the Series E Stock evidenced by all share
certificates so presented. If any fraction of the shares of
Common Stock would, except for the provisions of Part 2C of this
Section V, be issuable on conversion of any shares of Series E
Stock (or specified portion thereof), the Corporation shall pay
an amount in cash equal to the Fair Market Value per Share on the
day immediately preceding the date the share certificate
evidencing such Series E Stock is presented for conversion,
multiplied by such fraction.
k. Par Value of Common Stock. Before taking any action
which (i) would cause an adjustment in the Conversion Rate
pursuant to Part 2C of this Section V such that the aggregate par
value of the shares of Common Stock (including fractional shares)
into which a share of Series E Stock is convertible is greater
than $0.02 per share or (ii) would otherwise result in the par
value of the Common Stock increasing to greater than $0.02 per
share, the Corporation shall receive the consent of the Required
Holders to such adjustment or change in the par value of the
Common Stock and shall take any corporate action necessary in
order that the Corporation may validly and legally issue fully
paid and nonassessable shares of Common Stock on the basis of the
Conversion Rate as so adjusted.
l. Definitions. For purposes of Part 2C of this Section
V, the following terms shall have the following meanings:
(1) "Excluded Shares" means (i) shares of Common Stock to
be issued upon exercise or conversion of the Corporation's Series
A Convertible Preferred Stock, Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock, Series D Convertible
Preferred Stock, Series E Stock, and warrants to purchase Series
E Stock, (ii) shares of Stock issued on exercise of warrants to
purchase Common Stock which the Board of Directors has, by
resolution duly adopted prior to May 31, 1996, authorized to be
granted or issued, not to exceed 809,711 shares, and (iii) shares
of Stock issued to officers, directors, or employees of, or
consultants to, the Corporation upon exercise of any stock option
granted on or prior to May 31, 1996, not in excess of 1,151,113
shares, plus shares issued or options granted to employees
pursuant to a stock option plan approved in good faith by the
Board of Directors of the Corporation after May 31, 1996, not
exceeding 500,000 shares.
(2) "Fair Market Value per Share" means the fair market
value of a share of Common Stock of the Corporation, and shall be
equal to the quotient of (i) the fair market value of the
Corporation and its subsidiaries taken as a whole on the date of
determination, taking into account all the factors relevant
thereto, including, without limitation, the highest of the prices
that could be obtained from an arms' length sale without time
constraints of (A) all or substantially all of the assets of the
Corporation and the subsidiaries subject to or after satisfaction
of all liabilities of the Corporation and the subsidiaries or (B)
all of the Fully Diluted Shares of Common Stock of the
Corporation, whether by stock sale, merger, consolidation or
otherwise, divided by (ii) the number of Fully Diluted Shares of
Common Stock on the date of determination. In no event shall the
Fair Market Value per Share be reduced or discounted on the basis
that any securities to be valued on the basis of such Fair Market
Value per Share may represent the fight to acquire a minority
interest in the Corporation or may not be freely transferable
under federal or state securities laws, or for any other reason.
The Fair Market Value per Share shall be determined as provided
in clause (X) or (Y) below, as applicable.
(X) In any circumstances in which the Fair Market
Value per Share is required to be determined, not later than ten
(10) days following the date as of which such determination is
required to be made, the Board of Directors of the Corporation
shall determine in good faith the Fair Market Value per Share,
and the Corporation shall give to the Holders (or, if such
determination affects less than all of the Holders, to the
Holders so affected) prompt written notice of such determination.
If within thirty (30) days after the date such notice is given,
the Corporation and the Required Holders agree upon the Fair
Value per Share, then the Fair Market Value per Share shall be as
so agreed. If within such 30-day period, the Corporation and the
Required Holders do not agree upon such Fair Market Value per
Share, then the Fair Market Value per Share shall be determined
as provided in clause (Y) of this definition.
(Y) If the Required Holders and the Corporation do not
agree upon such Fair Market Value per Share within the 30-day
period specified in clause (X) of this definition, then the
Required Holders and the Corporation shall appoint a recognized
investment banking firm of national reputation, reasonably
acceptable to the Required Holders and the Corporation. If the
Corporation and the Required Holders cannot agree on the
appointment of a mutually acceptable investment banking firm, or
if the firm so appointed declines or fails to serve, then the
Required Holders and the Corporation shall each choose one such
investment banking firm and the respective firms so chosen shall
appoint another recognized investment banking firm of national
reputation. The investment banking firm so selected shall
appraise the value of the Corporation (which shall be in the form
of a written report signed by such investment banking firm), and
such appraised value of the Corporation determined as herein
provided shall be final and conclusive and binding on the
Corporation and the Holders. If the appraised value of the
Corporation as determined by such investment banking firm is
equal to or less than that determined by the Board of Directors
of the Corporation in accordance with clause (X) of this
definition, then all fees and expenses of such investment banking
firm shall be paid by the Required Holders requesting such
appraisal. If the appraised value of the Corporation as
determined by such investment banking firm is greater than that
determined by the Board of Directors in accordance with clause
(X) of this definition, then all fees and expenses of such
investment banking firm shall be paid by the Corporation.
(3) "Fully Diluted Shares" means, as of any date of
determination, the number of shares of Common Stock of the
Corporation equal to the sum of (i) the number of shares of
Common Stock outstanding on such date of determination, plus (ii)
the number of shares issuable upon conversion of the Series E
Stock as of such date of determination, plus (iii) the number of
shares of Common Stock that would be issued in respect of all
Option Securities of the Corporation outstanding and immediately
exercisable as of such date of determination if such Option
Securities were to be converted into shares of Common Stock in
accordance with the following formula:
X = Y(A-B)
______
A
where:
X = the number of shares to be issued to the holders of such
Option Securities;
Y = the number of shares for which such Option Securities are
exercisable;
A = the Fair Market Value per Share determined on the basis of
the then outstanding Common Stock and assuming that all Option
Securities outstanding are converted to Common Stock as of the
date of determination: and
B = the exercise price for such Option Securities.
(4) "Required Holders" means the Holders holding at least
66-2/3% of the Series E Stock outstanding.
(5) "Stock" means any capital stock of the Corporation.
2D. Conversion Date. Conversion shall be deemed to have
been made as of the date of surrender of certificates for the
shares of Series E Stock to be converted, and the giving of
written notice as prescribed in Part 2A of this Section V, and
the person entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as the record
holder of such Common Stock on such date. The Corporation shall
not be required to deliver certificates for shares of its Common
Stock while the stock transfer books for such stock or for the
Series E Stock are duly closed for any purpose, but certificates
for shares of Common Stock shall be issued and delivered as soon
as practicable after the opening of such books.
2E. Converted Shares and Common Stock Held for Conversion.
Any shares of Series E Stock which at any time have been
converted shall be canceled, may not be reissued as Series E
Stock, and shall be returned to the status of authorized and
unissued shares of Preferred Stock without designation as to
series. The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common
Stock, for the purpose of issuance upon conversion of shares of
Series E Stock then outstanding and shall take all action
necessary so that shares of Common Stock so issued will be
validly issued, fully paid and nonassessable.
2F. Taxes. The Corporation will pay any and all stamp or
similar taxes that may be payable in respect of the issuance or
delivery of shares of Common Stock on conversion of shares of
Series E Stock. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock
in a name other than that in which the shares of Series E Stock
so converted were registered, and no such issuance or delivery
shall be made unless and until the person requesting such
issuance has paid to the Corporation the amount of any such tax
or has established to the satisfaction of the Corporation that
such tax has been paid.
Part 3. Dividends.
If the Corporation pays a dividend or makes a distribution
to the holders of its Common Stock of any securities (other than
capital stock for which an adjustment in the Conversion Rate is
made pursuant to Part 2C of this Section V) or property
(including cash or securities of other companies) of the
Corporation, or any rights, options or warrants to subscribe for
or purchase securities or property (including securities of other
companies) of the Corporation, then, simultaneously with the
payment of such dividend or the making of such distribution the
Corporation will pay or distribute to the holders of record of
the Series E Stock an amount of property (including, without
limitation, cash) and/or securities (including, without
limitation, securities of other companies) of the Corporation as
would have been received by such holders had they exercised their
conversion rights and converted such shares of Series E Stock
into Common Stock immediately prior to the record date used for
determining stockholders of the Corporation entitled to receive
such dividend or distribution. The dividend payable on each
share of Series E Stock outstanding on the record date for
determining those persons entitled to receive a dividend on
Common Stock (or on the date the dividend is paid if no record
date is set), shall be equal to the product of the dividend per
share of Common Stock multiplied by the Conversion Rate in effect
on such record date (or on the date the dividend is paid if no
record date is set) after giving taking into account all
adjustments to such Conversion Rates required to be made under
Part 2 of this Section V, above, as of such record date (or on
the date the dividend is paid if no record date is set). No
dividends shall be paid on the Series E Stock unless all
dividends on the Senior Securities have been paid or reserved in
accordance with the terms thereof.
Part 4. Voting Rights.
Each share of Series E Stock shall have no voting rights
with respect to any matter submitted to the stockholders of the
Corporation, except to the extent required by the Delaware
Revised Statutes and except the right to approve by majority vote
of the holders of the Series E Stock, (i) any amendment,
modification or repeal of the articles of incorporation of the
Corporation if the powers, preferences or special rights of the
Series E Stock would be adversely affected, and (ii) the
imposition of any restriction on the Series E Stock, other than
restrictions arising under the articles of incorporation as in
effect at June 1, 1996; provided, that no voting right
attributable to the Series E Stock shall impose, or be construed
to impose, any limitation on the power of the Corporation to
create, authorize or issue, without the vote or approval of the
Series E Stock, shares of any class or series of Preferred Stock
with rights, powers, privileges and preferences superior or equal
to the Series E Stock.
Part 5. Definitions Applicable to Section V.
"Business Day" shall mean a day other than a Saturday,
Sunday or other day on which commercial banks in New York, New
York, are authorized by law to close.
"Common Stock" means the Common Stock, $0.0001 par value per
share, of the Corporation and any capital stock of any class of
the Corporation hereafter authorized which is not limited to a
fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in
the distribution or assets upon any liquidation, dissolution, or
winding up of the Corporation.
"Junior Securities" means any of the Corporation's equity
securities other than Senior Securities and the Series E Stock.
"Liquidation Value" of any Series E Stock as of any
particular date will be equal to $0.02 per share.
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture,
an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Senior Securities" means the Corporation's Series A
Convertible Preferred Stock, Series B Convertible Preferred
Stock, Series C 8% Convertible Preferred Stock, Series D 8%
Convertible Preferred Stock, and any other class or series of
Preferred Stock hereafter created, authorized, and issued with
rights, powers, privileges and preferences superior or equal to
the Series E Stock.
* * *
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be executed by Barry S. Roseman, its President,
and attested to by Philicia Levinson, its Secretary, this 18th
day of October, 1996.
HEADWAY CORPORATE SERVICES, INC.
By Barry S. Roseman, President
(Signature)
ATTEST
By Philicia Levinson, Secretary
(Signature)
Exhibit No. 13
Headway Corporate Resources, Inc.
Form 10-KSB
File No. 0-23170
COMPUTATION OF NET INCOME PER COMMON SHARE
DECEMBER 31, 1996
Primary
Net Income $ 1,182,000
Deemed Dividend on Preferred Stock
(1,147,000)
Preferred Stock Dividend (
276,000)
Net (Loss) Used for Primary Per Share Amounts (
564,000)
Average Shares Outstanding 5,231,814
Add:
Common Equivalent Shares, Determined Using the
"Treasury Stock Method" Issuable Upon Exercise 654,340
Common Shares Issuable Related to Convertible
Securities (Series B Preferred Stock)
which are Common Stock Equivalents 642,886
Contingently Issuable Shares Based on the
Attainment of Certain Revenue Criteria
in Connection with Furash Acquisition 114,288
Weighted Average Number of Shares Used in
Calculation of Primary Income Per Share 6,643,328
Primary Net (Loss) Per Common Share $
(.08)
Exhibit No. 14
Headway Corporate Resources, Inc.
Form 10-KSB
File No. 0-23170
SUBSIDIARIES OF THE COMPANY
Name State or
Jurisdictio
n
Headway Corporate Staffing Services, Inc. ("HCSS") Delaware
Irene Cohen Temps, Inc. (a subsidiary of HCSS) New York
Corporate Staffing Alternatives, Inc. (a subsidiary New York
of HCSS)
Certified Technical Staffing, Inc. (a subsidiary of New York
HCSS)
Headway Personnel, Inc. (a subsidiary of HCSS) Delaware
Whitney Partners, Inc. (dba The Whitney Group) Delaware
The Whitney Group (Asia) Limited Hong Kong
Whitney Asia PTE Ltd. Singapore
Furash & Company, Inc. Maryland
Exhibit No. 15
Headway Corporate Resources, Inc.
Form 10-KSB
File No. 0-23170
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 333-08615) and related Prospectus of
HEADWAY CORPORATE RESOURCES, INC., of our report dated March 14,
1997, with respect to the 1996 consolidated financial statements
of Headway Corporate Resources, Inc., included in this Annual
Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
New York, New York
March 26, 1997
Exhibit No. 16
Headway Corporate Resources, Inc.
Form 10-KSB
File No. 0-23170
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the
Registration Statement of Headway Corporate Resources, Inc., and
subsidiaries [formerly AFGL International, Inc. and subsidiaries]
of our report dated March 27, 1996, on our audits of the
consolidated statements of operations, stockholders' equity and
cash flows of Headway Corporate Resources, Inc., and subsidiaries
[formerly AFGL International, Inc. and subsidiaries] for the year
ended December 31, 1995, which report is included in this Annual
Report on Form 10-KSB. Effective July 1, 1996, Mortenson and
Associates, P.C. changed its name to Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
March 25, 1997
Exhibit No. 17
Headway Corporate Resources, Inc.
Form 10-KSB
File No. 0-23170
KINGSTON
SMITH
Chartered Accountants
Incorporating Letchfords
27 March, 1997
Mr. Barry Roseman
Headway Corporate Resources, Inc.
850 Third Avenue
NEW YORK
NY 10022
USA
Dear Sir:
HEADWAY CORPORATE RESOURCES, INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement of our
report dated 26th March 1997, relating to the financial
statements (not presented separately in the Registration
Statement) of Whitney Group (Europe) Limited for the year ended
31 December 1995.
Yours faithfully
KINGSTON SMITH
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,008,000
<SECURITIES> 0
<RECEIVABLES> 12,403,000
<ALLOWANCES> 122,000
<INVENTORY> 0
<CURRENT-ASSETS> 14,364,000
<PP&E> 1,589,000
<DEPRECIATION> 1,128,000
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<BONDS> 7,360,000
4,593,000
0
<COMMON> 1,000
<OTHER-SE> 8,830,000
<TOTAL-LIABILITY-AND-EQUITY> 34,669,000
<SALES> 0
<TOTAL-REVENUES> 57,197,000
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