U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required)
For the fiscal year ended May 31, 1997
---------------------
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from to
Commission file number 0-14401
SANDATA, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 11-2841799
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
26 Harbor Park Drive, Port Washington, NY 11050
(Address of Principal Executive Offices) (Zip Code)
516-484-9060
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained 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. [ ]
State issuer's revenues for its most recent fiscal year. $11,881,469
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of August 27, 1997 was $7,084,862.
<PAGE>
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of each of the issuer's classes of
common equity, as of July 24, 1997 was 1,163,955 shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
Business Development
General
Sandata, Inc. (the "Company"), through its wholly-owned subsidiaries, is
engaged in the business of providing computerized data processing services and
custom software and programming services, by utilizing Company-developed
software, and software acquired or licensed by the Company, principally to the
health care industry, but also to the general commercial market. In addition,
the Company provides hardware maintenance of personal computers ("PCs"),
printers and networks and training on PC software packages.
Applications of the Company's software include: a home health care system,
computerized preparation of management reports, payroll processing and
electronic time card with voice recognition systems. Principal products and
services provided by the Company include the Sandsport Home Attendant Reporting
Program, data entry services and specialized system development, among others.
In addition, the Company provides administration and processing services for an
affiliate engaged in the pharmacy prescription benefits management business.
Generally, in providing data processing services, the Company first
receives data from its customers, then processes it and generates reports based
on such data. Services are provided to customers by processing on the Company's
equipment at its premises. The Company also has available software which permits
information retrieval from customers' facilities which communicate with the
Company's computers at its data center. This allows the Company's customers to
have access to processing hardware and software without a substantial investment
on their part. The Company also offers its services on a turnkey basis. Turnkey
computer systems offer the customer total in-house capabilities through the
licensing of the Company's software for use on a customer's computer. The
Company's software is written in a variety of software languages including
COBOL, C and FoxPro.
The Company was incorporated in the State of New York in June, 1978 and
reincorporated in the State of Delaware in December 1986, at which time it also
assumed its present name.
Business of Issuer
Principal Products and Services
Sandsport Home Attendant Reporting Programs ("SHARP"). The Company, through
its wholly-owned subsidiary, Sandsport Data Services, Inc. ("Sandsport"),
provides computer services to vendor agencies which, pursuant to contracts with
the Human Resources Administration ("HRA") of the City of New York, provide home
attendant services to the elderly and infirm in New York City. The Federal
Government offers this program (the "Home Attendant Program") to participating
states and municipalities as an optional part of its Medicaid program. The
Federal Government funds a substantial portion of the program and in New York
City, the State Department of Social Services and New York City fund the balance
of the program. In New York City, the Home Attendant Program is administered by
HRA, which sub-contracts with proprietary and not-for-profit agencies ("Vendor
Agencies") to provide home attendant services to those in need. HRA refers
patients
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to Vendor Agencies which, in turn, send home attendants to patients' homes to
assist in homemaking chores. Vendor Agencies also provide periodic nurse's
visits to patients. Vendor Agencies enlist the Company's computer services to
provide weekly time sheets, billing, payroll processing and management reports.
For the fiscal years ended May 31, 1997 and 1996, approximately $4,516,000 or
40% and $4,531,000 or 51%, respectively, of the Company's total operating
revenues were derived from services rendered to Vendor Agencies.
Sandsport processes payroll, preparing paychecks indicating year-to-date
earnings and deductions, payroll journals and payroll earnings and deduction
summaries. Sandsport provides computerized information which permits Vendor
Agencies to prepare on a quarterly basis their Employers Quarterly Federal Tax
Return, New York State unemployment insurance returns, deposits for Federal
unemployment insurance and all required New York City tax returns and deposits.
Annually, Sandsport prepares for each Vendor Agency employee Transmittal of
Income and Tax Statements, reconciliation of state tax withheld and Federal
Unemployment Insurance Returns. Sandsport also furnishes to Vendor Agencies
employee earning ledgers which enable them to review a full year's earnings
history for each of their employees.
In conjunction with SHARP products, Sandsport has developed an electronic
time card which allows the use of voice recognition technology to assist in
capturing payroll information known as Sandata(R) SanTrax(TM)for its SHARP
clients. SanTrax is an automated timekeeping system designed to monitor home
attendants' arrival and departure times when servicing clients in their homes.
SanTrax works by incorporating telephone technologies into the attendance
reporting process. Caregivers call their agency's own toll-free number to record
their arrival and departure from the patient's side; the system automatically
and immediately confirms that the assigned caregiver is at the expected place at
the expected time for the approved and scheduled duration. This data is used to
produce weekly payroll and to automatically prepare reimbursement submissions to
first and third party payors. Presently, the system is being utilized by several
of the Company's home health care clients, with the Company receiving
approximately an aggregate of 400,000 calls per week. Although no assurances can
be given, it is anticipated that the SanTrax product can be utilized by other
industry applications. For the fiscal years ended May 31, 1997 and 1996,
approximately $3,766,000 or 33% and $1,891,000 or 21%, respectively, of the
Company's total operating revenues were derived from services rendered relating
to SanTrax.
Data Entry Services. The Company, through Sandsport, provides data entry,
editing and data conversion services to various social services, municipal
agencies, and the private sector.
Specialized System Development and Processing. Sandsport designs,
implements and supports specialized system applications based upon its analysis
of a client's particular need. Sandsport currently provides these services to an
affiliate, National Medical Health Card Systems, Inc. ("Health Card"), of which
Mr. Brodsky was formerly Chairman of the Board and is a principal shareholder.
(See Item 6 - "Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview" and Item 12 - "Certain Relationships and Related
Transactions")
Sandata Home Health*Pro(R). On June 15, 1995, the Company, through its
wholly-owned subsidiary, Sandata Home Health Systems, Inc. ("SHHS") granted an
exclusive license to an unaffiliated third party to market its Home
Health*Pro(R) system ("Health*Pro(R)"). The agreement calls for SHHS to receive
commissions on all sales made by the unrelated party. SHHS has the right to
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revoke this agreement if certain minimum sales targets are not met. In addition,
SHHS also granted to such licensee the right to maintain Health*Pro customers as
well as the right to develop additional Health*Pro(R) system modules. Under the
terms of such agreement, all additions and modifications to the Home
Health*Pro(R) software remain the property of SHHS. SHHS and the third party are
currently involved in a lawsuit in which the third party is seeking a
declaratory judgment that the agreement is terminated and SHHS has interposed
affirmative defenses and counterclaims for, among other things, breach of
agreement. The minimum sales targets under the agreement have not been met (See
Item 6 "Management's Discussion and Analysis or Plan of Operation - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Prospects for the Future, Trends and Other Events").
Sanitation Management System. Prior to April 1, 1996, the Company, through
its wholly-owned subsidiary, Sandata Spectrum, Inc., marketed Spectrum Solid
Waste Management Systems ("Sanitation") pursuant to an exclusive license
agreement with P.W. Medical Management, Inc., an affiliate of the Company's
Chairman. (See Item 12 - "Certain Relationships and Related Transactions")
Sanitation is an integrated software package designed to provide management with
information needed for planning and making daily decisions in the waste
industry, including management solutions for solid waste, liquid waste,
hazardous waste, transfer stations, recycling and landfill operations. The
Company sold the right to service its Sanitation customers to a third party
buyer as of April 1, 1996 for $18,640, which is payable pursuant to a monthly
installment promissory note without interest. Currently $2,329 remains payable
under such note. As a condition of the sale, the buyer assumed the Company's
obligations under the existing Sanitation software support and maintenance
agreements (See Item 6 - "Management's Discussion and Analysis or Plan of
Operation - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Prospects for the Future, Trends and Other Events").
Seasonality
The Company's revenues are not subject to seasonal fluctuations.
Marketing and Distribution
The Company provides its computerized information processing services to a
variety of users, although principally to the health care industry. Many of the
Company's software programs are, upon development, adaptable to customers in
related fields of enterprise. Thus, the components of the Home Attendant Program
- - Medicaid reimbursable billing, management reports, payroll processing, tax
reports - may be utilized in other settings.
With respect to SanTrax, once a customer has contracted to utilize the
service, it is assigned a toll-free number by the Company; calls made to this
number are processed directly through the Company's software where reports are
then generated to the customer based upon its specific requirements.
The Company markets its products and services throughout the country by
sales representatives directly employed by the Company in addition to
independent sales agents.
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Competition
The computer services industry is characterized by competition in the areas
of service, quality, price, technical expertise, software and marketing. The
Company competes with service bureaus and time-sharing services as well as with
companies which offer stand-alone systems.
The Company competes for customers on the basis of the range and quality of
its software and on its ability to develop programs tailored to its customers'
requirements. Many of the Company's competitors have substantially greater
financial resources and substantially larger marketing, technical and field
organizations.
With respect to the Company's SHARP business, there has been an increase in
competitive pressure and uncertainty in recent years, partly as a result of the
City of New York requiring all contracts with City agencies to undergo
competitive bidding. Although the Company has been awarded contracts based on
its bids, there can be no assurance that its bids will be accepted in the
future.
Customers
The Company's customer base is primarily drawn from the health care
industry. During the fiscal years 1997 and 1996, the Company derived revenues
from a group of customers who are all funded by one governmental agency
amounting to approximately $7,905,000 or 70% and $6,218,000 or 69% of total
operating revenues, respectively. The Company also derived approximately
$2,171,000 or 19% and $2,014,000 or 22%, respectively, of revenue from Health
Card, a related party, for data processing and computer software design services
and from the rental of office space. Although the loss of any one of these
customers would have a material adverse effect on the Company, the Company
believes that its relationships with these customers are good (See Item 6 -
"Management's Discussion and Analysis or Plan of Operation - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Overview").
Proprietary Rights
The Company filed a new United States Trademark application which, when
approved, will rename its voice recognition timekeeping system to SanTrax (See
Item 3 - Legal Proceedings).
The Company has not applied for Federal copyright registration for its
computer software systems now in existence or being developed. However, the
Company believes that its systems are trade secrets and that they, together with
the documentation, manuals, training aids, instructions and other materials
supplied to users, are subject to the proprietary rights of the Company and
protected by applicable trade secret laws. The Company generally seeks to obtain
trade secret protection pursuant to non-disclosure and confidentiality
agreements with its employees. Although the Company's customers are advised that
the Company retains title to all of its products, and they agree to safeguard
against unauthorized use of such systems, there can be no assurance that the
Company will be able to protect against misappropriation of its proprietary
rights and trade secrets.
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Research and Development
The Company incurred approximately $276,000 and $201,000 during the fiscal
years 1997 and 1996, respectively, on research and development. The Company
incorporates its research and development into its on-going business activities.
The Company's employees may develop new software programs and expand or modify
existing ones. After determining that a program has reached technological
feasibility, the subsequent development costs are capitalized. All other costs
are expensed.
Employees
The Company and its subsidiaries employ 118 employees, including 107 full-
time and 11 part-time employees. The Company believes that its success will
depend in part on its ability in a highly competitive environment to attract and
retain highly skilled technical, marketing and management personnel.
The Company considers its employee relations to be satisfactory. The
Company is not a party to any collective bargaining agreement.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company and its subsidiaries currently occupy approximately 28,000
square feet of office space located at 26 Harbor Park Drive, Port Washington,
New York 11050 (the "Facility"). The Company subleases the Facility from BFS
Realty, LLC, an affiliate of the Company's Directors ("BFS"). BFS leases the
Facility from the Nassau County Industrial Development Agency (the "NCIDA"),
pursuant to a lease (the "Lease"), which was assigned by the Company to BFS in
November, 1996, and which expires in December 2005. BFS has the right to become
the owner of the Facility upon expiration of the Lease. During the period July
1, 1995 through October 31, 1996, the Company paid rent for the Facility to the
NCIDA in the amount of approximately $48,600 per month. The Company pays BFS
$48,600 rent per month. BFS also receives rent from other companies, which
includes companies affiliated with the Company's Chairman, which occupy space in
the Facility. The Company's facilities are adequate for current purposes (See
Item 6 - "Management Discussion and Analysis or Plan of Operation - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
IDA/SBA Financing" and Item 12 - "Certain Relationships and Related Transactions
- - IDA/SBA Financing" for a discussion of the NCIDA and U.S. Small Business
Administration financing transactions).
ITEM 3 - LEGAL PROCEEDINGS
Time Data Systems, Inc. vs. Time Trax Systems, Inc. was commenced in May
1996 in United States District Court Eastern District of Michigan. The complaint
contained, among other things, causes of action for infringement of a federally
registered trademark, and sought injunctive relief restraining the defendant
from using the name "TimeTrax". In August 1996, the parties agreed to enter a
Final Judgment on Consent whereby, among other things, the Defendant is
restrained from using the name "TimeTrax". No monetary damages were awarded and
the Plaintiff agreed to dismiss the litigation.
MCI Telecommunications Corporation v. Sandata, Inc. On April 10, 1997, the
Company received notice that MCI had commenced an action against it in the
United States District
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Court for the Eastern District of New York alleging that the Company's SanTrax
time and attendance system infringes on certain patent rights allegedly owned by
plaintiff. The complaint seeks compensatory and treble damages with interest and
injunctive relief. The Company intends to vigorously defend this action. On May
13, 1997, the Company filed its Answer. Among other things, pursuant to the
Answer, the Company denies that its product infringes MCI's patent rights and
asserts certain affirmative defenses. In addition, the Answer contains a
counterclaim challenging the validity of MCI's alleged patent rights.
Notwithstanding the foregoing, because of the uncertainties of litigation,
no assurances can be given as to the outcome of the MCI litigation. In the event
that the Company were not to prevail in this litigation the Company could be
required to pay significant damages to MCI and could be enjoined from further
use of the SanTrax system as it presently exists. Although a negative outcome in
the MCI litigation would have a material adverse affect on the Company,
including, but not limited to, its operations and financial condition, the
Company believes that, if it is held that the Company's system infringes MCI's
patent rights, the Company would attempt to design a system to replace SanTrax
or would attempt to negotiate with MCI to utilize its system, although no
assurances can be given that the Company would be successful in these attempts.
At the present time, the Company cannot assess the possible cost of implementing
a new system or obtaining rights from MCI.
Since late 1993, the Company has been engaged from time to time in
negotiations relating to the use of MCI's telephone services in connection with
the SanTrax system. In late 1996, MCI and the Company discussed, among other
things, that the Company could pay a lesser per call charge for such services if
the Company and MCI agreed that the Company's technology did not violate U.S.
Patent 5,255,183 (the "Katz Patent"), which is the subject of the MCI
litigation. No such agreement was ever reached.
For the fiscal year ended May 31, 1997, approximately 33% of the Company's
revenues, respectively, were derived from fees associated with the SanTrax
product.
MCI has advised that it owns two pending patent applications that are
related to the Katz Patent. Since those patent applications have not issued to
patent and are confidential at the U.S. Patent Office, the Company is unable to
determine the scope of any patent applications. In addition, one or both of such
applications could be amended by MCI. There can be no assurances that these
patent applications, either as originally filed or as amended, will not issue as
patents with claims that cover the SanTrax system.
Other than as described above, the Company is not involved in any material
legal proceeding, other than that which is nonmaterial and routine litigation
incidental to its business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock is traded in over-the-counter market under the
symbol "SAND" on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"). The table below sets forth high and low bid prices
of the Common Stock, as furnished by NASDAQ. The quotations set forth below
reflect interdealer prices without retail markup, markdown or commission and may
not necessarily represent actual transactions.
Bid Prices
High Low
Fiscal Year Ended
May 31, 1997
First Quarter $6-1/4 $2-1/4
Second Quarter 8-3/4 4
Third Quarter 11 7-3/4
Fourth Quarter 10-7/8 8-3/4
Fiscal Year Ended
May 31, 1996
First Quarter $1-3/4 $1-3/4
Second Quarter 7-1/2 1-3/4
Third Quarter 3-1/4 2-1/4
Fourth Quarter 3-3/4 1-3/4
Holders
Management has been advised by its transfer agent (North American Transfer
Co.) that the approximate number of holders of record of the Company's Common
Stock, as of August 27, 1997 was 1,111.
Dividends
No cash dividends have been paid by the Company on its Common Stock and no
such payment is anticipated in the foreseeable future.
Dividends are restricted pursuant to the terms of a revolving credit and
term loan agreement between the Company and a bank.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
As of November 1, 1996, the Company entered into an Assignment and
Assumption of and Second Amendment to Lease Agreement among BFS, the Bank and
the Company (the "Second Amendment"). In connection with the Second Amendment,
(i) BFS assumed all of the Company's obligations under the Lease with the NCIDA
and entered into a sublease (the "Second Sublease") with the Company, as
sublessee, for the Facility; and (ii) the Company conveyed to BFS the right to
become the owner of the Facility upon expiration of the Lease. In addition,
pursuant to the Second Sublease, the Company has assumed certain obligations
owed by BFS to the NCIDA under the Lease (See "IDA/SBA Financing" and "Liquidity
and Capital Resources" below).
In February, 1997, the Company successfully consummated a "best efforts -
all or none" private offering of an aggregate of 300,000 shares of Common Stock
and warrants to purchase 150,000 shares of Common Stock at $7.00 per share,
raising net proceeds of $1,256,415 after payment of offering expenses. In
connection with the private offering, certain assignees of the placement agent
acquired 100,000 shares of Common Stock, which realized an additional $260,076
of net proceeds for the Company. In June 1997, the Company registered for
resale, among other shares, the 300,000 shares of Common Stock issued in the
private offering. (See "Liquidity and Capital Resources" below).
On April 18, 1997, the Company's wholly owned subsidiary, Sandsport,
entered into a Revolving Credit Agreement (the "Credit Agreement") with the Bank
which allows Sandsport to borrow and re-borrow amounts up to $3,000,000.
Interest accrues on amounts outstanding under the Credit Agreement at a rate
equal to the London Interbank Offered Rate plus 2% and will be paid quarterly in
arrears or, at Sandsport's option, interest may accrue at the Bank's prime rate
(See "Liquidity and Capital Resources" below).
On June 19, 1997 the Company announced that it has commenced negotiations
for a business combination with Health Card. Health Card advised the Company
that (i) it has over 42,000 pharmacies throughout the United States
participating in its network; (ii) during its fiscal year ended June 30, 1996,
it has added 120,000 covered lives; (iii) since 1995, it has expanded its client
base by eighteen (18%) percent; and (iv) during its fiscal year ended June 30,
1996, its pre-tax earnings were $1,039,000 on $57,000,000 in revenues, which
included $41,000 in revenues in connection with pharmacy prescription
reimbursement services rendered to the Company. For the fiscal years ended 1997
and 1996, the Company derived approximately $2,171,000 or 19% and $2,014,000 or
22% of revenues, respectively, from data processing and computer software design
services provided to Health Card and from the rental of office space to Health
Card. The Company cannot assure that an agreement for a business combination
will be reached, or that if such an agreement is reached that it will be
consummated.
Analysis of Operations
Fiscal Years ended May 31, 1997 compared with May 31, 1996
Service fee revenues for fiscal 1997 were $11,312,809, as compared to
$8,964,335 for the previous fiscal year, an increase of $2,348,474 or 26%. The
increase is largely attributable to revenues derived from SanTrax.
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Real estate rental income was $134,700 for fiscal 1997 as compared to
$285,048 for the previous fiscal year.
The decrease in rental income relating to the operation of the Facility for
the year ended May 31, 1997 resulted from the Company's becoming the beneficial
owner and lessee of the Facility as of July 31, 1995 in addition to the effect
of the subsequent Second Amendment transaction as of November 1, 1996 (as
described below), whereby the Company became the sublessee of the Facility.
Other income for the year ended May 31, 1997 was $407,137 as compared to
$277,982 for the year ended May 31, 1996. This increase is from the receipt of a
one time license fee and the gains realized upon the sale of assets in
connection with the following sale/leaseback transactions.
In June 1996, the Company consummated a sale/leaseback of certain fixed
assets (principally furniture, fixtures, computer hardware and equipment) (the
"1996 Sale/Leaseback Transaction"). The fixed assets, which had a net book value
of approximately $657,000, were sold for $925,000 and concurrently leased back
to the Company. The resulting gain of approximately $268,000 was recorded as
deferred income and is being recognized over the life of the lease, which is
forty-eight (48) months. Approximately $67,000 of deferred gain was recognized
for the year ended May 31, 1997.
In March 1997, the Company entered into a sale/leaseback transaction of
certain fixed assets (principally computer hardware and software) (the "1997
Sale/Leaseback Transaction"). The fixed assets, which had a net book value of
approximately $874,000 were sold for $981,000 and concurrently leased back to
the Company. The resulting gain of approximately $107,000 was recorded as
deferred income and is being recognized over the life of the lease, which is
thirty-eight (38) months. Approximately $6,000 of deferred gain was recognized
for fiscal 1997. At the time the 1997 Sale/Leaseback Transaction was entered
into, the Company assigned the purchase option thereunder to P.W. Capital Corp.
("PWCC"), an affiliate of the Company's Chairman. Subsequent to March 1997, PWCC
assigned such purchase option to a third party which is not affiliated with the
Company (See Item 12 - "Certain Relationships and Related Transactions").
Expenses Related to Services
Operating expenses were $6,884,989 for the year ended May 31, 1997, as
compared to $5,038,472 for the year ended May 31, 1996, an increase of
$1,846,517 or 37%. Costs associated with the development of SanTrax and its
operations including telephone and payroll, in addition to increases in
equipment rental payments, were the primary factors for the increase in
operating expenses.
Selling, general and administrative expenses for fiscal 1997 were
$2,348,031 compared to $1,988,115 in fiscal 1996, an increase of approximately
$359,916 or 18%. The increase is partially due to an increase in payroll and
advertising costs primarily related to SanTrax and an increase in legal fees and
administrative costs related to Santrax and existing product lines.
Depreciation and amortization was $1,358,600 for the year ended May 31,
1997, as compared to $1,093,264 for the year ended May 31, 1996, an increase of
$265,336 or 24%. The increase was primarily attributable to fixed asset
additions, including software capitalization costs.
Interest expense for fiscal 1997 was $221,042 compared to $216,862 for
fiscal 1996, an increase of $4,180 or 2%. The increase is attributable to
borrowings against the Company's revolving credit agreement.
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Expenses Related to Real Estate Operations
Operating expenses were $246,894 for the year ended May 31, 1997, as
compared to $472,310 for the year ended May 31, 1996, a decrease of $225,416.
Interest expense was $133,918 for the year ended May 31, 1997 as compared
to $289,629 for the year ended May 31, 1996.
The decreases in expenses relating to the operation of the Facility for the
year ended May 31, 1997 resulted from the Company's becoming the beneficial
owner and lessee of the Facility as of July 31, 1995 in addition to the effect
of the subsequent Second Amendment transaction as of November 1, 1996 (as
described below), whereby the Company became the sublessee of the Facility.
The Company has reported real estate operating expenses only through the
period ended November 1, 1996. The Company does not expect to incur any costs in
the future.
Income Tax Expenses
Income tax expense for fiscal 1997 was $307,000. Income tax benefit for
fiscal 1996 was $8,000. The increase in income tax expense is primarily due to
an increase in the utilization of net operating loss carryforward in addition to
the increase in the deferred tax expense arising from the increase in the book
basis over tax basis of fixed assets. The effective tax rates for fiscal 1997
and 1996 were 53.7% and (3.2)%, respectively.
IDA/SBA Financing
On June 1, 1994, BFS Sibling Realty, Inc. ("BSRI") formerly known as
Brodsky Sibling Realty, Inc., a company affiliated with the Company's Directors,
borrowed $3,350,000 in the form of Industrial Development Revenue Bonds
("Bonds") to finance costs incurred in connection with the acquisition of the
Company's Facility from the NCIDA, and for renovating and equipping the
Facility. These Bonds were subsequently purchased by a bank (the "Bank"). The
aggregate cost incurred by BSRI in conjunction with such acquisition, renovation
and equipping was approximately $4,377,000. In addition, the Company incurred
approximately $500,000 of indebtedness to affiliates of Mr. Brodsky in
connection with additional capital improvements. The Bonds bore interest at
prime plus 3/4 of 1% until August 11, 1995, at which time the interest rate
became fixed at 9% for a five-year term through September 1, 2000. At that time,
the interest rate will be adjusted to a rate of either prime plus 3/4 of 1%, or
the applicable fixed rate if offered by the Bank. As a condition to the issuance
of the Bonds, the NCIDA obtained title to the Facility which it then leased to
BSRI.
On June 21, 1994 (as of June 1, 1994), the Company and its Chairman
guaranteed the full and prompt payment of principal and interest of the Bonds
and the Company granted the Bank a security interest and lien on all the assets
of the Company. In connection with the issuance and sale of the Bonds, the
Company, as sublessee, entered into a sublease agreement (the "First Sublease")
with BSRI, whereby the Company leased the Facility for the conduct of its
business and, in consideration therefor, was obligated to make lease payments in
at least equal amounts due to satisfy the underlying Bond obligations.
On July 31, 1995, by an Assignment and Assumption and First Amendment to
Lease between the Company and BSRI, the Company assumed the obligations of BSRI
under the lease and became the direct tenant and the beneficial owner of the
Facility (collectively the "First Amendment").
<PAGE>
In connection with the First Amendment, the First Sublease was terminated.
During the period commencing July 1, 1995 and ending October 31, 1996 the
Company paid rent for the Facility to the NCIDA in the amount of $48,600 per
month, subject to adjustment based upon the then effective interest rate of the
Bonds, among other things. In connection with the First Amendment, the Company
obtained the right to acquire the Facility upon expiration of the Lease with the
NCIDA and became directly liable to the NCIDA for amounts due thereunder.
Furthermore, in connection with the First Amendment, the Company assumed certain
indebtedness owed to affiliates of the Company's Chairman as follows: (i) the
$364,570 remaining balance of a 48-month term loan bearing interest at 8.7% per
annum, and (ii) the $428,570 remaining balance of a 42-month term loan bearing
interest at 8.91%. Each of the foregoing loans were incurred in connection with
the construction of improvements to the Facility, are collateralized by the
assets of the primary obligor and are guaranteed by the Company's Chairman.
On August 11, 1995, the Company entered into a $750,000 loan agreement with
the Long Island Development Corporation ("LIDC"), under a guarantee by the U.S.
Small Business Administration ("SBA") (the "SBA Loan"). The entire $750,000
proceeds were used to repay a portion of the Bonds. The Company entered into the
First Amendment primarily to satisfy certain requirements of the SBA. The SBA
Loan is payable in 240 monthly installments of $6,255, which includes principal
and interest at a rate of 7.015%.
As of November 1, 1996, the Company entered into the Second Amendment with
BFS (which succeeded to the interest of BSRI with respect to the Second
Amendment), the NCIDA and the Bank. In connection with the Second Amendment, (i)
BFS assumed all of the Company's obligations under the Lease with the NCIDA and
entered into the Second Sublease with the Company, as sublessee, for the
Facility; and (ii) the Company conveyed to BFS the right to become the owner of
the Facility upon expiration of the Lease. In addition, pursuant to the Second
Sublease, the Company has assumed certain obligations owed by BFS to the NCIDA
under the Lease. BFS has indemnified the Company with respect to certain
obligations relative to the Lease and the Second Amendment.
Liquidity and Capital Resources
The Company's working capital increased as of May 31, 1997 to $1,548,644,
as compared with a deficiency at May 31, 1996 of $852,929.
The Company has spent approximately $1,941,000 in fixed asset additions,
including software capitalization costs in connection with revenue growth and
new product development. The Company does not expect the previous levels of
capital expenditures to continue.
In October, 1996, the Company commenced a private offering, on a "best
efforts -all or none" basis, to raise $1,500,000 by issuing an aggregate of
300,000 shares of Common Stock and five year warrants for the purchase of
150,000 shares of Common Stock, at an exercise price of $7.00 per share. In
February 1997, the Company completed such private offering. The net proceeds
received in connection with the sale of 300,000 shares of its common stock were
$1,256,415 after payment of expenses related to the offering. Contemporaneously
with the execution and delivery by the Company of the letter of intent with
regard to such private offering, certain assignees of the placement agent
acquired 100,000 shares of the Company's Common Stock at a purchase price of
$3.00 per share; the net proceeds from the sale of such 100,000 shares were
$260,076.
In connection with the closing of such private offering, an affiliate of
the placement agent entered into a financial consulting agreement with the
Company, pursuant to which, among other
<PAGE>
things, such affiliate will receive aggregate annual payments of $36,000 and
certain assignees of such affiliate received warrants to purchase an aggregate
of 200,000 shares of Common Stock exercisable as follows: 100,000 shares at
$5.00 per share and 100,000 shares at $7.00 per share, such warrants to be
exercisable for one year (with respect to the warrants exercisable at $5.00 per
share) and two years (with respect to the warrants exercisable at $7.00 per
share). The warrants issued in such private offering, including those issued to
investors as well as the assignees of the placement agent's affiliate, are
redeemable by the Company under certain circumstances.
The proceeds from the 1996 Sale/Leaseback Transaction were used to
partially repay outstanding advances against the Company's previous $2,000,000
revolving credit agreement (the "Previous Revolving Credit Agreement"), which
was replaced by the Credit Agreement (See "Analysis of Operations" above).
As discussed in "Overview" and "IDA/SBA Financing" above, in November 1996,
in connection with the Second Amendment of the Lease for the Company's Facility,
the Company assumed certain obligations of BFS and BFS has indemnified the
Company with respect to such assumed obligations.
The proceeds from the 1997 Sale/Leaseback Transaction were used to repay
outstanding advances against the Company's Previous Revolving Credit Agreement
and repay notes payable to affiliates (See "Analysis of Operations" above).
During the fiscal quarter ended February 28, 1997, $118,781 owed to the
Company pursuant to a promissory note from Compuflight, Inc. ("Compuflight"), a
former affiliate (the Company's Chairman was a principal stockholder and
Chairman of Compuflight through December 1, 1993), which promissory note
evidences the Company's accounts receivable from Compuflight, was deemed by the
Company as uncollectible and was charged against an allowance account. In
connection with such promissory note, the Company received a security interest
in substantially all the then existing assets of Compuflight, which has been
assigned to the Bank as collateral for the Company's Previous Revolving Credit
Agreement with the Bank and which is currently being released. As of May 31,
1997, Compuflight is indebted to the Company in the amount of $12,074,
representing accounts receivable.
On April 18, 1997, the Company's wholly owned subsidiary, Sandsport,
entered into the Credit Agreement with the Bank which allows Sandsport to borrow
and re-borrow amounts up to $3,000,000. Interest accrues on amounts outstanding
under the Credit Agreement at a rate equal to the London Interbank Offered Rate
plus 2% and will be paid quarterly in arrears or, at Sandsport's option,
interest may accrue at the Bank's prime rate. The Credit Agreement required
Sandsport to pay a commitment fee in the amount of $30,000 and a fee equal to
1/4% per annum payable on the unused average daily balance of amounts under the
Credit Agreement. In addition, there are other fees and charges imposed based
upon Sandsport's failure to maintain certain minimum balances. The Credit
Agreement will expire on March 1, 2000. The indebtedness under the Credit
Agreement is guaranteed by the Company and Sandsport's sister subsidiaries (the
"Group"). The collateral for the facility is a first lien on all equipment owned
by members of the Group, as well as a collateral assignment of $2,000,000 of
life insurance payable on the life of Mr. Brodsky. All of the Group assets are
pledged to the Bank as collateral for the amounts due under the Credit
Agreement. The Group's guaranty to the Bank was modified to conform covenants to
comply with those in the Credit Agreement.
In addition, pursuant to the Credit Agreement, the Group is required to
maintain certain levels of net worth and meet certain financial ratios in
addition to various other affirmative and negative covenants. The Group has, in
the past, under prior agreements with the Bank, failed to meet these net
<PAGE>
worth and financial ratios, and the Bank has granted the Group waivers. No
assurance can be given that the Group will be able to meet these net worth and
financial requirements in the future, and/or that the Bank will continue to
grant to the Group waivers. Although in the past the Bank has renewed its loans
to the Company when they matured, there can be no assurance that it will
continue to do so or that the Company, if the Bank does not renew the loan, will
be able to arrange alternative financing on terms satisfactory to it.
As of May 31, 1997, the outstanding balance on the Credit Agreement with
the Bank was $1,000,000.
The Company believes the results of its continued operations, together with
the available Credit Line and proceeds from the recent private offering should
be adequate to fund presently foreseeable working capital requirements.
Prospects for the Future, Trends and Other Events
The Company is not currently focussing its marketing activities on its
Health*Pro(R) and Sanitation products. The Company believes that this will not
have any significant adverse impact on the Company's financial condition or
results of operations. At any time in the future the Company may decide to
re-focus marketing activities on these products (See Item 1 - "Description of
Business Business Development - Business of Issuer - Sandata Home Health*Pro(R)"
and - "Sanitation Management System").
There has been an increase in competitive pressure and uncertainty in the
Company's SHARP business in recent years, partly as the result of the City of
New York requiring all contracts with City agencies to undergo competitive
bidding. Furthermore, the Company notes that, to a major extent, the success of
its SHARP business rests with a key officer of the Company, who has established
various relationships with the Company's SHARP customers over the years.
Except as discussed above, the Company has no knowledge of any specific
prospects, industry, or other trends, events or uncertainties that might have a
material impact on the Company's net sales or income from continuing operations,
or that would increase the value of the shares in the long-term or the
short-term.
The Company believes that inflation and changing prices have not had a
material impact on the Company's operations.
ITEM 7 - FINANCIAL STATEMENTS
(BEGINS ON PAGE F-1 BELOW)
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following persons are the Directors and executive officers of the
Company.
===============================================================================
Positions and Offices
Presently Held with
Name Age the Company
- -------------------------------------------------------------------------------
Bert E. Brodsky 54 Chairman of the Board, President
and Treasurer
- -------------------------------------------------------------------------------
Hugh Freund 59 Executive Vice President,
Secretary and Director
- -------------------------------------------------------------------------------
Gary Stoller 44 Executive Vice President and
Director
===============================================================================
Bert E. Brodsky has been Chairman of the Board and Treasurer of the
Company since June 1, 1983 and President since December, 1989. From August,
1983, through November, 1984 and from December, 1988 through January, 1991,
Mr. Brodsky served as Chairman of the Board of Health Card. From October
1983 through December 1993, Mr. Brodsky served as Chairman of the Board of
Compuflight, a provider of computerized flight planning services. Since
August 1980, Mr. Brodsky has served as Chairman of the Board of PW, which
provides financial and consulting services to physicians. Since 1979, Mr.
Brodsky has also served as President of Bert Brodsky Associates, Inc.,
which provides consulting services.
Hugh Freund, a founder of the Company, was the Company's President
from 1978 to November, 1986, and a Director of the Company since its
formation in 1978. Since November 1986, Mr. Freund has served as an
Executive Vice President of the Company and Secretary since 1995. Mr.
Freund is also President of Sandsport, the Company's wholly-owned health
care data processing subsidiary. In addition to managing the Company's
operations, Mr. Freund has been responsible for the marketing efforts of
the Company.
Gary Stoller joined the Company at the time of its formation in 1978
as its Senior Programmer and Analyst and has been an Executive Vice
President and a Director of the Company since January, 1983. Mr. Stoller
has been responsible for computer design, programming and operations of the
Company as its Chief Information Officer and is the architect of the SHARP
and SanTrax systems.
Each Director will hold office until the next Annual Meeting of
Stockholders or until his successor is elected and qualified. Each executive
officer will hold office until the next regular meeting of the Board of
Directors following the next Annual Meeting of Stockholders or until his or her
successor is elected or appointed and qualified.
<PAGE>
To the Company's knowledge, based solely upon a review of copies of Forms
3, 4 and 5 furnished to the Company and written representations that no other
reports were required during the fiscal year ended May 31, 1997, all Section
16(a) filing requirements applicable to the Company's officers, Directors and
10% shareholders were complied with, except with respect to three Directors,
each of whom filed (i) one late report on Form 5, each reporting one
transaction, and (ii) three late reports on Form 4, reporting one and two
transactions, respectively.
ITEM 10 - EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the
compensation of Bert E. Brodsky, the Chairman and Chief Executive Officer of the
Company, for the fiscal years ended May 31, 1997, 1996 and 1995, respectively,
as well as named executive officers of the Company for the fiscal years ended
May 31, 1997, 1996 and 1995. No other person had a total salary and bonus in
excess of $100,000 for the fiscal years ended May 31, 1997, 1996 and 1995:
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Annual Compensation Long-Term Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
Other Annual Restricted Securities All Other
Compensa- Stock Underlying LTIP Com-
Salary Bonus tion Awards Options/ Payouts pensation
Name and Principal Position Year ($) ($) ($) ($) SARs (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bert E. Brodsky, Chairman of 1997 200,000 -0- 13,374 (1) -0- 110,000 -0- 20,670 (2)
the Board
- ------------------------------------------------------------------------------------------------------------------------------------
Bert E. Brodsky, Chairman of 1996 200,000 -0- 12,259 (1) -0- 44,000 -0- 20,310
the Board (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Bert E. Brodsky, Chairman of 1995 191,654 (3) -0- 11,872 (1) -0- 416,667 -0- 7,448
the Board (4) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Hugh Freund 1997 165,000 -0- -0- -0- 90,000 -0- 5,605 (2)
Executive Vice President,
Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Hugh Freund 1996 69,808 -0- 15,585 (1) -0- 36,000 -0- 5,605 (2)
Executive Vice President,
Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Hugh Freund 1995 -0- -0- 7,497 (1) -0- 36,000 -0- 5,605 (2)
Executive Vice President,
Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Stoller 1997 108,302 -0- 22,391 (1) -0- 50,000 -0- -0-
Executive Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Stoller 1996 95,650 -0- 21,756 (1) -0- 20,000 -0- 1,751 (2)
Executive Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Stoller 1995 95,650 -0- 14,777 (1) -0- 40,000 -0- 1,542 (2)
Executive Vice President
====================================================================================================================================
</TABLE>
(1) Includes personal benefits relating to the use of Company-leased
automobiles provided for business purposes.
(2) Represents insurance premiums paid by the Company on behalf of Mr. Brodsky,
Mr. Freund and Mr. Stoller for life insurance policies on their lives,
respectively, the benefits of which are payable to their spouses,
respectively.
(3) Includes $163,800 paid to Mr. Brodsky as a consulting fee.
(4) Represents cancellation of 416,667 options and warrants and the issuance of
a like number at a lower exercise price.
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning individual
grants of stock options to executive officers of the Company, during the fiscal
year ended May 31, 1997:
<PAGE>
<TABLE>
=============================================================================================
<CAPTION>
Individual Grants
- ---------------------------------------------------------------------------------------------
Number of Percent of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Expiration
Name Granted Fiscal Year Base Price Date
(#) (%) ($/Sh)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bert E. Brodsky 110,000 44 2.61 6/19/01
=============================================================================================
Hugh Freund 90,000 36 2.61 6/19/01
=============================================================================================
Gary Stoller 50,000 20 2.61 6/19/01
=============================================================================================
</TABLE>
Aggregated Option/SAR Exercise in Last Fiscal Year and
Fiscal Year-End Option Value Table
The following table sets forth certain information concerning the value of
unexercised options and warrants held by executive officers of the Company, for
the fiscal year ended May 31, 1997:
<TABLE>
==================================================================================================================
<CAPTION>
Shares Value Realized Number of Securities Underlying Value of Unexercised in-the-
Acquired on ($) Unexercised Options and Money Options and Warrants at
Name Exercise(#) Warrants at May 31, 1997(#) May 31, 1997($)
Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bert E. -0- -0- 732,667/0 5,552,490/0
Brodsky
- ------------------------------------------------------------------------------------------------------------------
Hugh Freund -0- -0- 205,000/0 1,448,120/0
- ------------------------------------------------------------------------------------------------------------------
Gary Stoller -0- -0- 156,667/0 1,130,536/0
==================================================================================================================
</TABLE>
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements
In May 1992, Mr. Brodsky and the Company entered into a deferred
compensation agreement pursuant to which the Company will pay (i) to Mr. Brodsky
a lump sum ranging from $75,000 to $255,000 if he voluntarily terminates his
employment with the Company after attaining 55 years of age or (ii) to Mr.
Brodsky's beneficiary a lump sum ranging from $200,000 to $450,000 in the event
of Mr. Brodsky's death during the term of his employment with the Company. The
amount of the payment is dependent upon the age of Mr. Brodsky at the time of
termination of employment or death. The Company has obtained insurance on Mr.
Brodsky's life to fund its obligations under the above agreement.
Effective February 1, 1997, the Company and Mr. Brodsky entered into the
Brodsky Employment Agreement providing for, among other things, compensation at
the annual rate of $500,000 plus such bonuses or additional compensation that
the Board of Directors of the Company may, on the basis of improvements in the
Company's performance or other reasonable criteria, deem appropriate. During the
5 year term of the Brodsky Employment Agreement, the employee shall also be
provided with a full-time use of a Company automobile, six (6) weeks paid
vacation annually and group medical insurance and other benefits or programs
which the Company establishes or is made available to its employees.
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial share ownership of (i) each
person who is known by the Company to be the beneficial owner of more than five
(5%) percent of the Company's Common Stock; (ii) each of the Company's
directors; and (iii) all of the Company's executive officers and directors as a
group. The ownership percentages indicated are calculated, on a fully-diluted
basis, in accordance with Rule 13d-3 promulgated pursuant to the Securities
Exchange Act of 1934, as amended, which attributes beneficial ownership of
securities to a person or entity who holds options or warrants to purchase such
securities.
<TABLE>
====================================================================================================================================
<CAPTION>
Name of Director and Name
and Address of Beneficial Approximate Percentage
Owner Number of Shares of Outstanding Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bert E. Brodsky
26 Harbor Park Drive
Port Washington, NY 955,809 (1) 50.4% (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Hugh Freund
26 Harbor Park Drive
Port Washington, NY 323,493 (2) 23.6% (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Stoller
26 Harbor Park Drive
Port Washington, NY 257,786 (3) 19.5% (3)
- ------------------------------------------------------------------------------------------------------------------------------------
Steven N. Bronson 136,950 (4) 10.5%
201 South Biscayne Blvd.
Suite 2950
Miami, FL 33131
- -----------------------------------------------------------------------------------------------------------------------------------
James S. Cassel 79,100 (5) 6.4%
201 South Biscayne Blvd.
Suite 2950
Miami, FL 33131
- -----------------------------------------------------------------------------------------------------------------------------------
Private Opportunity 71,593 (6) 5.7%
Partners II, Ltd. Fl
Limited Partnership
201 South Biscayne Blvd.
Suite 2950
Miami, FL 33131
All executive officers and
Directors as a group (3 persons)
1,537,088 (1)(2)(3) 68.1% (1)(2)(3)
====================================================================================================================================
</TABLE>
(1) Includes 50,000 shares of Common Stock owned by Mr. Brodsky's wife.
Includes presently exercisable options to purchase 74,000 shares of Common
Stock at $1.79 per share under the Incentive Plan; includes presently
exercisable options to purchase 44,000 shares of Common Stock at $1.51 per
share under the 1995 Plan; includes presently exercisable options to
purchase 44,000 shares of Common Stock at $2.34 per share under the 1995
Plan; includes presently exercisable options to purchase 60,667 shares of
Common Stock at $1.38 per share under the Non-Qualified Plan; includes
presently exercisable options to purchase 110,000 shares of Common Stock at
$2.61 per share under the 1995 Plan; includes presently exercisable
warrants to purchase 400,000 shares of Common Stock at $1.38 per share
under a Warrant Agreement which expires in August, 2001; includes 68,352
shares of the Company's Common Stock owned by the trusts established for
the benefit of Mr. Brodsky's four children, of which Mr. Brodsky is a
trustee.
(2) Excludes 8,000 shares of Common Stock owned by Mr. Freund's adult children.
Excludes 4,000 shares of Common Stock and presently exercisable options to
purchase (i) 43,000 shares of Common Stock at $1.79 per share under the
Incentive Plan, (ii) 18,000 shares of Common Stock at $1.38 per share under
the 1995 Plan and (iii) 18,000 shares of Common Stock at $1.38
<PAGE>
per share under the Non-Qualified Plan owned by Mr. Freund's wife. As set
forth in Mr. Freund's Schedule 13G, filed with the SEC on February 9, 1997,
Mr. Freund disclaims any beneficial interest in, or voting or dispositive
control over, such shares. Includes presently exercisable options to
purchase 43,000 shares of Common Stock at $1.79 per share under the
Incentive Plan; includes presently exercisable options to purchase 18,000
shares of Common Stock at $1.51 per share under the 1995 Plan; includes
presently exercisable options to purchase 36,000 shares of Common Stock at
$2.34 per share under the 1995 Plan; includes presently exercisable options
to purchase 18,000 shares of Common Stock at $1.38 per share under the
Non-Qualified Plan; includes presently exercisable options to purchase
90,000 shares of Common Stock at $2.61 per share under the 1995 Plan.
(3) Includes presently exercisable options to purchase 46,667 shares of Common
Stock at $1.79 per share under the Incentive Plan; includes presently
exercisable options to purchase 20,000 shares of Common Stock at $1.51 per
share under the 1995 Plan; includes presently exercisable options to
purchase 20,000 shares of Common Stock at $2.34 per share under the 1995
Plan; includes presently exercisable options to purchase 20,000 shares of
Common Stock at $1.38 per share under the Non-Qualified Plan; includes
presently exercisable options to purchase 50,000 shares of Common Stock at
$2.61 per share under the 1995 Plan. Includes 13,000 shares of Common Stock
owned by trusts established for the benefit of Mr. Stoller's children of
which Mr. Stoller is the trustee.
(4) Includes 50,600 shares issuable upon the exercise of currently exercisable
warrants, which expire on December 22, 1997, at $5.00 per share and 34,600
shares issuable upon the exercise of currently exercisable warrants, which
expire on December 22, 1998, at $7.00 per share. Excludes 71,593 shares
beneficially owned by Private Opportunity Partners II, L.P., a Florida
limited partnership ("POP"). Mr. Bronson is the President of the corporate
general partner of POP. Mr. Bronson has advised the Company that he
disclaims beneficial ownership of the shares beneficially owned by POP.
(5) Includes 30,800 shares issuable upon the exercise of currently exercisable
warrants, which expire on December 22, 1997, at $5.00 per share and 20,800
shares issuable upon the exercise of currently exercisable warrants, which
expire on December 22, 1998, at $5.00 per share. Excludes 4,000 shares
beneficially owned by Mr. Cassel's children. Mr. Cassel has advised the
Company that he disclaims beneficial ownership of the shares beneficially
owned by his children.
(6) Includes 23,750 shares issuable upon the exercise of currently exercisable
options, which expire on December 22, 2001, and 343 shares owned by the
corporate general partner of POP.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
IDA/SBA Financing
Reference is hereby made to Item 6 - "Management's Discussion and Analysis
or Plan of Operation - Management's Discussion and Analysis of Financial
Condition and Results of Operations - IDA/SBA Financing" for a discussion of an
industrial development revenue bond and SBA financing transactions among the
Company, BSRI, BFS (as successor to BSRI's interest in such transactions), the
NCIDA, the SBA and the Bank.
Advances and Loans to Affiliates
In January 1997 the Company advanced certain fees on behalf of Bert
Brodsky, Hugh Freund, Gary Stoller, Leland H. Freund and Emily B. Freund
(collectively, the "Proponents") arising from a 1994 proposal by the Proponents
to take the Company "private" for purposes of the Federal Securities Laws which
they subsequently withdrew. These fees were repaid by the Proponents in August
1997.
On May 1, 1995, the due date of a promissory note in the principal amount
of $490,000 payable to Mr. Brodsky to the Company, together with interest at the
prime rate of interest plus 1-1/4%, was extended to October 31, 1995. (Such
promissory note represented the then principal amount remaining on a $1,000,000
loan by the Company to Mr. Brodsky in July 1992.) On July 31, 1995, Mr. Brodsky,
as a result of the assignment of the Lease with the NCIDA from BFS to the
Company in connection with the First Amendment, repaid $129,000. The remaining
balance of the note receivable was repaid by Mr. Brodsky during the quarter
ended February 29, 1996.
Compuflight Promissory Note
<PAGE>
During the fiscal quarter ended February 28, 1997, $118,781 owed to the
Company pursuant to a promissory note from Compuflight, a former affiliate (the
Company's Chairman was a principal stockholder and Chairman of Compuflight
through December 1, 1993), which promissory note evidences the Company's
accounts receivable from Compuflight, was deemed by the Company as uncollectible
and was charged against an allowance account. In connection with such promissory
note, the Company received a security interest in substantially all the then
existing assets of Compuflight, which has been assigned to the Bank as
collateral for the Company's Previously Revolving Credit Agreement with the Bank
and which is currently being released. As of May 31, 1997, Compuflight is
indebted to the Company in the amount of $12,074, representing accounts
receivable.
Sale/Leaseback Transaction
In March 1997, Sandsport assigned its $200,000 option to purchase the
assets leased pursuant to the 1997 Sale/Leaseback Transaction to PWCC, an
affiliate of the Company's Chairman. PWCC acquired the purchase option in
consideration for posting a letter of credit to secure the purchase option
obligation. Subsequent to March 1997, PWCC assigned the purchase option to a
third party which is not affiliated with the Company (See Item 6 - "Management's
Discussion and Analysis or Plan of Operation - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Analysis of
Operations").
Revolving Credit Agreement
On April 18, 1997, the Company's wholly owned subsidiary, Sandsport entered
into the Credit Agreement with the Bank which allows Sandsport to borrow and
re-borrow amounts up to $3,000,000. Interest accrues on amounts outstanding
under the Credit Agreement at a rate equal to the London Interbank Offered Rate
plus 2% and will be paid quarterly in arrears or, at Sandsport's option,
interest may accrue at the Bank's prime rate. The Credit Agreement required
Sandsport to pay a commitment fee in the amount of $30,000 and a fee equal to
1/4% per annum payable on the unused average daily balance of amounts under the
Credit Agreement. In addition, there are other fees and charges imposed based
upon Sandsport's failure to maintain certain minimum balances. The Credit
Agreement will expire on March 1, 2000. The indebtedness under the Credit
Agreement is guaranteed by the Group. The collateral for the facility is a first
lien on all equipment owned by members of the Group, as well as a collateral
assignment of $2,000,000 of life insurance payable on the life of Mr. Brodsky.
All of the Group assets are pledged to the Bank as collateral for the amounts
due under the Credit Agreement. The Group's guaranty to the Bank was modified to
conform covenants to comply with those in the Credit Agreement.
In addition, pursuant to the Credit Agreement, the Group is required to
maintain certain levels of net worth and meet certain financial ratios in
addition to various other affirmative and negative covenants. The Group has, in
the past, under prior agreements with the Bank, failed to meet these net worth
and financial ratios, and the Bank has granted the Group waivers. No assurance
can be given that the Group will be able to meet these net worth and financial
requirements in the future, and/or that the Bank will continue to grant to the
Group waivers. Although in the past the Bank has renewed its loans to the
Company when they matured, there can be no assurance that it will continue to do
so or that the Company, if the Bank does not renew the loan, will be able to
arrange alternative financing on terms satisfactory to it.
Registration Statement
<PAGE>
On June 3, 1997 the Securities and Exchange Commission declared effective
the Company's registration statement on Form S-3 (the "Registration Statement")
which covered, among other things, the reoffer of 820,213 shares of common stock
beneficially owned by Bert Brodsky, 255,696 shares of common stock beneficially
owned by Hugh Freund and 162,231 shares of common stock beneficially owned by
Gary Stoller (See Item 11 - Security Ownership of Certain Beneficial Owners and
Management).
Health Card
The Company derives revenue from Health Card, a company affiliated with the
Company's Chairman of the Board, principally for computer software design
services. The revenues generated from Health Card amounted to approximately
$2,171,000 and $2,014,000 for the years ended May 31, 1997 and 1996,
respectively. Included in the current year revenues are billings of
approximately $1,781,000 for computer software design services. Subsequent to
May 31, 1997, the Company received $708,000 from Health Card in full payment of
amounts due, which totalled $708,000 at May 31, 1997.
Reference is hereby made to Item 6 - "Management's Discussion and Analysis
or Plan of Operation - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Overview" for a discussion of the
commencement of negotiations for a business combination between Health Card and
the Company.
Equipment Leases
The Company leases various equipment from a company affiliated with the
Company's Chairman. The equipment is leased on a monthly basis at a rate of
approximately $24,000 per month.
ITEM 13 - EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
3(A)(i) Certificate of Incorporation and Amendments thereto including
Certificate of Ownership and Merger (DE) and Agreement and Plan
of Merger (1)
3(A)(ii) Certificate of Amendment to Certificate of Incorporation filed
July 27, 1993 (1)
3(A)(iii) Certificate of Amendment to Certificate of Incorporation filed
May 26, 1995 (1)
3(B) By-Laws (1)
4(A) Nassau County Industrial Development Agency Industrial
Development Revenue Bonds (1994 Brodsky Sibling Realty Inc.
Project) dated June 1, 1994 (1)
<PAGE>
4(B) Revolving Credit Agreement dated as of April 20, 1995 by and
among Sandsport Data Services, Inc. and Marine Midland Bank (1)
4(C) Nassau County Industrial Development Agency Industrial
Development Revenue Bonds (1994 Brodsky Silbing Realty Inc.
Project) Assumption and Amendment of Certain Agreements dated
July 1, 1995 (1)
4(D) Loan Agreement dated August 11, 1995 between Sandata, Inc. and
Long Island Development Corporation (1)
4(E) "504" Note dated August 11, 1995 from the Long Island Development
Corporation to Sandata, Inc. (1)
4(F) Nassau County Industrial Development Agency Industrial
Development Revenue Bonds (1994 Brodsky Silbing Realty Inc.
Project) Assumption and Amendment of Certain Agreements dated
November 1, 1996
4(G) Revolving Credit Agreement dated as of April 18, 1997 by and
among Sandsport Data Services, Inc. and Marine Midland Bank
10(A) License Agreement dated as of September 1, 1988 by and among
Sandata, Inc., Sandata Images, Inc., Sandata Spectrum, Inc., P.W.
Medical Management, Inc., P.W. Spectrum, Inc. and P.W. Subsidiary
I, Inc., d/b/a Images (1)
10(B) Amendment to License Agreement by and among Sandata, Inc.,
Sandata Images, Inc., Sandata Spectrum, Inc., P.W. Medical
Management, Inc., P.W. Spectrum, Inc. and P.W. Subsidiary I,
Inc., d/b/a Images dated August 31, 1989 (1)
10(C) Amendment to License Agreement by and among Sandata, Inc.,
Sandata Images, Inc., Sandata Spectrum, Inc., P.W. Medical
Management, Inc., P.W. Spectrum, Inc. and P.W. Subsidiary I,
Inc., d/b/a Images dated December 1, 1990 (1)
10(D) Software License Agreement and Distribution Agreement between
Sandata Home Health Systems, Inc. and Fastrack Healthcare
Systems, Inc. dated as of June 15, 1995 (1)
10(E) Employees' Incentive Stock Option Plan (1)
<PAGE>
10(F) First Amendment to Incentive Stock Option Plan dated April 4,
1989 (1)
10(G) Second Amendment to Incentive Stock Option Plan dated December
18, 1990 (1)
10(H) 1986 Non-Qualified Stock Option Plan (1)
10(I) Amendment to 1986 Non- Qualified Stock Option Plan dated April 4,
1989 (1)
10(J) 1995 Stock Option Plan (1)
10(K) Common Stock Purchase Warrants as issued to Bert E. Brodsky (1)
10(L) Deferred Compensation Plan dated May 1, 1992 between the
Registrant and Bert E. Brodsky (1)
10(M) Form of agreement between Sandsport Data Services, Inc. and
vendor agency (2)
10(N) Form of agreement between Sandsport Data Services, Inc. and
vendor agency (2)
10(O) Form of Subscription Agreement dated December 23, 1996 (2)
10(P) Form of Subscript on Agreement dated September 12, 1996 (2)
10(Q) Form of Common Stock Purchase Warrant ($5.00 Exercise Price) (2)
10(R) Form of Common Stock Purchase Warrant ($7.00 Exercise Price) (2)
10(S) Form of Redeemable Common Stock Purchase Warrant (2)
10(T) Employment Agreement dated February 1, 1997 between the
Registrant and Bert E. Brodsky
16 Letter re Change in Certifying Accountant (1)
21 Subsidiaries of Registrant (2)
<PAGE>
23 Consent of Accountants
27 Financial Data Schedule (for electronic filing)
- ---------------------------
(1) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an
Exhibit to the Company's Report on Form 10- KSB for the fiscal year ended
May 31, 1995.
(2) The Company hereby incorporates the footnoted Exhibit by reference in
accordance with Rule 12b-32, as such Exhibit was originally filed as an
Exhibit to Amendment No. 1 to Form S-3 Registration Statement as filed with
the Securities and Exchange Commission on May 27, 1997.
(b) Reports on Form 8-K
The Company filed one Current Report on Form 8-K as follows:
Date of Event: June 19, 1997
Items Reported: Item 5 and Item 7
Financial Statements: Not Applicable
<PAGE>
SANDATA, INC.
FINANCIAL STATEMENTS COMPRISING ITEM 7
OF REPORT ON FORM 10-KSB
TO SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED MAY 31, 1997
<PAGE>
<TABLE>
<CAPTION>
Sandata, Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
<S> <C>
Reports of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets as of May 31, 1997 and 1996 F-3 - F-4
Consolidated Statements of Income for the years ended
May 31, 1997 and 1996 F-5
Consolidated Statements of Shareholders' Equity for the years
ended May 31, 1997 and 1996 F-6
Consolidated Statements of Cash Flows for the years ended
May 31, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-8 - F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
of Sandata, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Sandata, Inc.
and Subsidiaries as of May 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
As more fully described in the Notes to the consolidated financial statements,
the Company had certain transactions with companies affiliated with the
Company's Officers and Chairman of the Board.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sandata, Inc. and Subsidiaries as of May 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Marcum & Kleigman LLP
Woodbury, New York
August 13, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
Sandata, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
May 31,
ASSETS 1997 1996
---- ----
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $1,200,014 $ 368,400
Accounts receivable, net of allowance for doubtful accounts
of $331,000 and $350,000 at 1997 and 1996, respectively 1,254,589 1,180,905
Receivables from affiliates 949,906 190,635
Receivable from former affiliate 12,074 26,258
Note receivable from former affiliate, net of allowance for
doubtful accounts of $119,000 in 1996 --- 77,100
Notes receivable - officers 102,867 102,867
Inventories 16,335 27,972
Prepaid expenses and other current assets 212,114 172,897
------- -------
Total Current Assets 3,747,899 2,147,034
FIXED ASSETS, NET 5,279,512 9,399,625
OTHER ASSETS
Note receivable 100,000 --
Cash surrender value of officer's life insurance, security
deposits and other 411,137 410,683
------------ --------------
Total Assets $9,538,548 $11,957,342
========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
Sandata, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Continued)
May 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
---- ----
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $1,691,456 $1,022,058
Current portion of long-term debt 267,864 768,354
Note payable - affiliate -0- 1,000,000
Deferred/unearned revenue 2,733 4,299
Deferred income 237,202 205,252
------- ------------
Total Current Liabilities 2,199,255 2,999,963
LONG-TERM DEBT 1,034,201 4,322,234
NOTES PAYABLE - AFFILIATES -0- 462,000
DEFERRED INCOME 243,305 177,530
DEFERRED INCOME TAXES 370,000 83,000
------- ------------
Total Liabilities 3,846,761 8,044,727
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock; par value $.001; authorized 3,000,000 shares in 1997 and
1996, 1,216,727 and 816,727 issued in 1997 and 1996, respectively;
1,163,955 and 763,955 shares outstanding in 1997
and 1996, respectively 1,216 816
Additional paid in capital 2,795,801 1,279,710
Retained earnings 3,031,656 2,768,975
--------- ---------
5,828,673 4,049,501
Less Treasury stock - at cost (52,772 shares in 1997 and 1996) (136,886) (136,886)
---------------- ---------
Total Shareholders' Equity 5,691,787 3,912,615
--------- ---------
Total Liabilities and Shareholders' Equity $9,538,548 $11,957,342
========== ===========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
Sandata, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended May 31,
1997 1996
---- ----
REVENUES:
<S> <C> <C>
Service fees $11,312,809 $8,964,335
Real estate rental income 134,700 285,048
Other income 407,137 277,982
Interest income 26,823 34,858
------------- --------------
11,881,469 9,562,223
---------- ---------
COSTS AND EXPENSES:
Service Fees:
Operating 6,884,989 5,038,472
Selling, general and administrative 2,348,031 1,988,115
Depreciation and amortization 1,358,600 1,093,264
Interest expense 221,042 216,862
------------- --------------
10,812,662 8,336,713
---------- ---------
Real Estate:
Operating 246,894 472,310
Depreciation and amortization 47,302 88,779
Interest expense 133,918 289,629
Real estate taxes 71,012 123,299
------------ -------
499,126 974,017
---------- ---------
TOTAL COSTS AND EXPENSES 11,311,788 9,310,730
---------- ---------
Earnings from operations before income taxes 569,681 251,493
Income tax expense (benefit) 307,000 (8,000)
------------- --------------
NET EARNINGS $ 262,681 $ 259,493
============ ============
EARNINGS PER COMMON SHARE $ 0.16 $ 0.16
Weighted average common shares outstanding 2,263,589 1,586,423
========= ==============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
Sandata, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended May 31, 1997 and 1996
Additional
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1996 816,727 $816 $1,279,710 $2,509,482 $(136,886) $3,653,122
Net earnings --- --- --- 259,493 --- 259,493
-----------
Balance at May 31, 1996 816,727 816 1,279,710 2,768,975 (136,886) 3,912,615
Sale of common stock in
connection with private
offering 400,000 400 1,516,091 --- --- 1,516,491
Net earnings --- --- --- 262,681 --- 262,681
-----------
Balance at May 31, 1997 1,216,727 $1,216 $2,795,801 $3,031,656 $(136,886) $5,691,787
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
<TABLE>
<CAPTION>
Sandata, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended May 31,
1997 1996
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 262,681 $ 259,493
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,405,902 1,182,043
(Gain) on disposal of fixed assets (375,714) (242,552)
(Gain) on Transfer of Facility (15,586) --
Provision for losses on accounts receivable (19,481) 45,516
(Decrease) increase in deferred income (277,989) (209,233)
Recognition of deferred revenue (19,300) (91,886)
Deferred tax provision (benefit) 287,000 (57,444)
(Increase) decrease in operating assets
Accounts receivable (54,203) (441,613)
Receivables from affiliates (759,271) 868,122
Receivable from former affiliate 14,184 51,201
Inventories 11,637 (1,750)
Prepaid expenses and other current assets (39,217) (84,744)
Income taxes receivable -- 66,000
Other assets (454) (82,917)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 669,396 420,952
Deferred revenue 17,734 61,434
Deferred income 375,714 242,552
------- ------------
Net cash provided by operating activities 1,483,033 1,985,174
--------- ------------
Cash flows from investing activities:
Purchases of fixed assets (1,941,372) (3,457,703)
Proceeds from sale/leaseback transactions 1,906,000 825,935
Issuance of notes receivable (100,000) --
Collection of note receivable - officer -- 150,000
Collection of note receivable - former affiliate 77,100 221,099
Advances to affiliates -- 61,000
------------ ------------
Net cash used in investing activities (58,272) (2,199,669)
------------ -------------
Cash flows from financing activities:
Proceeds from private placement offering 1,516,491 --
Proceeds from term loans -- 979,166
Principal payments on term loans (609,638) (1,319,718)
Proceeds from line of credit 3,750,000 1,500,000
Principal payments on line of credit (3,788,000) (2,141,166)
Proceeds from notes payable - affiliates 3,010,000 1,462,000
Principl payments on notes payable - affiliates (4,472,000) --
------------- -----------
Net cash (used in) provided by financing activities (593,147) 480,282
------------ -------------
INCREASE IN CASH AND CASH EQUIVALENTS 831,614 265,787
Cash and cash equivalents at beginning of year 368,400 102,613
------------ ------------
Cash and cash equivalents at end of year $1,200,014 $368,400
========== ============
</TABLE>
Supplemental Disclosure of Noncash Investing and Financing Activities:
As of July 31, 1995 the Company assumed lease obligations totalling $4,143,140
as disclosed in the Notes to the Consolidated Financial Statements in
conjunction with the acquisition of a facility.As of November 1, 1996 a company
affiliated with the Directors of the Company assumed certain lease obligations
relative to the transfer of a facility in the amount of $3,140,884 as disclosed
in the Notes to the Consolidated Financial Statements.
See notes to consolidated financial statements
F-7
<PAGE>
Sandata, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated financial statements include the accounts of Sandata, Inc.
and its wholly owned subsidiaries: Sandsport Data Services, Inc., Sandata
Home Health Systems, Inc., Sandata Spectrum, Inc., SanTrax Systems, Inc.,
SanTrax Productivity, Inc. and Sandata Inteck, Inc. SanTrax Productivity,
Inc. and Sandata Inteck, Inc. are inactive subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
b. Nature of Business and Economic Dependency
Sandata, Inc. and Subsidiaries (the "Company") are primarily engaged in the
business of providing computerized data processing services and custom
software and programming services using Company-developed and licensed
software principally to the healthcare industry. The Company primarily
operates in the New York metropolitan area. During fiscal years 1997 and
1996, the Company received revenues from a group of customers who are all
funded by one governmental agency, amounting to approximately $7,905,000
and $6,218,000, respectively.
c. Fixed Assets
Fixed assets are recorded at cost. Depreciation and amortization are
computed principally by the straight-line method over the lesser of the
estimated useful lives or lease terms of the related assets.
d. Income Taxes
The primary objectives of accounting for income taxes are to (a) recognize
the amount of tax payable for the current year and (b) recognize the amount
of deferred tax liability or asset based on management's assessment of the
tax consequences of events that have been reflected in the Company's
financial statements or tax returns.
e. Software Costs
The company capitalizes software development costs from the point in time
where technological feasibility has been established until the computer
software product is available to be sold. The Company's amortization is
computed on a straight line basis over a five year period, which represents
the estimated use for life of the software. The Company matches its
software amortization against its respective product revenue, which is
reported on a product by product basis.
F-8
<PAGE>
NOTE 1 - (Continued)
f. Inventories
Inventories, consisting of computer hardware and peripherals held for
resale, are stated at the lower of cost or market; cost is determined using the
specific identification method.
g. Net Earnings Per Common Share
Net earnings per common share is computed by dividing net earnings by the
weighted average number of common shares outstanding. Earnings per common share
for the fiscal years 1997 and 1996 includes the dilutive effect of outstanding
stock options and warrants. The number of common stock equivalents determined by
applying the modified treasury stock method included in the calculation of
earnings per common share for the years ended May 31, 1997 and 1996 was
1,341,301 and 822,468, respectively.
h. Revenue Recognition
The Company recognizes revenues and direct costs as the contractual service
is rendered and the expense associated with such service is incurred. Revenues
from hardware and software maintenance contracts are deferred and recognized
over the life of the contracts.
i. Statement of Cash Flows
The Company paid income taxes of approximately $7,000 and $4,000 and
interest of approximately $355,000 and $506,000 for the years ended May 31, 1997
and 1996, respectively.
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to be
cash equivalents.
j. Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
k. Cash
The Company has cash balances in banks in excess of the maximum amount
insured by the FDIC as of May 31, 1997.
NOTE 1 - (Continued)
l. Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable and
accounts payable. Due to the short-term nature of these instruments, the fair
value of these instruments approximate their recorded value. The Company has
long-term debt which it believes is stated at estimated fair market value.
NOTE 2 - FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Useful May 31,
Life 1997 1996
------ ---- ----
<S> <C> <C> <C>
Computer equipment and software costs 5 years $7,484,857 $7,622,391
Furniture, fixtures and automobiles 4-7 years 299,138 289,218
Leasehold improvements 10 years 2,421,036 726,737
Building and improvements 39 years -- 4,085,620
Land -- 791,280
------------ -----------
$10,205,031 $13,515,246
Less accumulated depreciation and amortization 4,925,519 4,115,621
--------- ---------
$5,279,512 $9,399,625
========== ==========
</TABLE>
Depreciation and amortization expense relating to fixed assets (other than
software costs) amounted to approximately $642,000 and $673,000 in 1997 and
1996, respectively.
The cost of assets under capital leases and accumulated amortization on
these assets amounted to $4,876,900 and $88,779, respectively, at May 31,
1996.
Unamortized software costs amounted to approximately $2,252,000 and
$1,890,000 at May 31, 1997 and 1996, respectively. Amortization expense for
these costs totaled approximately $764,000 and $509,000 in 1997 and 1996,
respectively.
Research and development expenses amounted to approximately $276,000 and
$201,000 in 1997 and 1996, respectively.
NOTE 3 - DEBT
Credit Agreement
On April 20, 1995, the Company entered into a $2,000,000 secured revolving
credit agreement (the "Previous Revolving Credit Agreement") and a two-year
term loan (the "Term Loan") in the amount of $500,000 with a bank (the
"Bank"), which expired in April 1997. The Previous Revolving Credit
Agreement provided for the payment of the outstanding balance in sixty (60)
equal monthly principal installments plus interest at 3/4%
NOTE 3 - (Continued)
above the Bank's prime rate. The term loan was payable in twenty-four (24)
monthly installments of $20,834 plus interest at3/4% above the Bank's prime
rate, through April 1, 1997.
On April 18, 1997, the Company entered into a new revolving credit
agreement (the "Credit Agreement") with the Bank and the credit limit was
increased to $3,000,000. The unpaid balance bears interest at either the
Bank's prime rate or the adjusted LIBOR rate, as defined in the Credit
Agreement, and will be paid quarterly. The Company is required to pay a
commitment fee in the amount of $30,000 and a fee equal to 1/4% per annum
payable on the unused average daily balance of amounts under the Credit
Agreement. The indebtedness under the Credit Agreement is guaranteed by the
Company and secured by all the assets of the Company. The collateral for
the facility is a first lien on all equipment owned by the Company as well
as a collateral assignment of $2,000,000 of life insurance payable on the
life of a key officer of the Company. In addition, the Company is required
to maintain certain financial and restrictive covenants. The Credit
Agreement will mature on March 1, 2000, at which time the outstanding
principal balance will be due and payable. As of May 31, 1997, the
outstanding balance of the Credit Agreement with the Bank was $1,000,000.
NCIDA Borrowing and SBA Loan
On June 1, 1994, BFS Sibling Realty Inc., formerly known as Brodsky Sibling
Realty, Inc., an affiliate of the Company's Directors ("BSRI") borrowed
$3,350,000 in the form of Industrial Development Revenue Bonds ("Bonds") to
finance costs incurred in connection with the acquisition, renovation and
equipping of the Company's office space located at 26 Harbor Park Drive,
Port Washington, New York (the "Facility") from the Nassau County
Industrial Development Agency (the "NCIDA"). These Bonds were subsequently
purchased by the Bank. The aggregate cost incurred by BSRI in conjunction
with such acquisition, renovation and equipping was approximately
$4,377,000. In addition, the Company incurred approximately $500,000 of
indebtedness to affiliates of Mr. Brodsky in connection with additional
capital improvements. The Bonds bore interest at prime plus 3/4 of 1% until
August 11, 1995, at which time the interest rate became fixed at 9% for a
five-year term through September 1, 2000. At that time, the interest rate
will be adjusted to a rate of either prime plus 3/4 of 1%, or the
applicable fixed rate if offered by the Bank. As a condition to the
issuance of the Bonds, the NCIDA obtained title to the Facility which it
then leased to BSRI.
On June 21, 1994 (as of June 1, 1994), the Company and its Chairman
guaranteed the full and prompt payment of principal and interest of the
Bonds and the Company granted the Bank a security interest and lien on all
the assets of the Company. In connection with the issuance and sale of the
Bonds, the Company entered into a lease agreement (the "First Sublease")
with BSRI, whereby the Company, as sublessee, leased the Facility for the
NOTE 3 - (Continued)
conduct of its business and, in consideration therefor, was obligated to
make lease payments that at least equal amounts due to satisfy the
underlying Bond obligations.
On July 31, 1995, by an Assignment and Assumption and First Amendment to
Lease between the Company and BSRI, the Company assumed the obligations of
BSRI under the lease and became the direct tenant and the beneficial owner
of the Facility (collectively the "First Amendment"). In connection with
the First Amendment, the First Sublease was terminated. During the period
commencing July 1, 1995 and ending October 31, 1996 the Company paid rent
for the Facility to the NCIDA in the amount of $48,600 per month, subject
to adjustment based upon the then effective interest rate of the Bonds,
among other things. In connection with the First Amendment, the Company
obtained the right to acquire the Facility upon expiration of the lease
with the NCIDA (the "Lease") and became directly liable to the NCIDA for
amounts due thereunder. In connection with the First Amendment , the
Company assumed certain indebtedness owed to affiliates of the Company's
Chairman as follows: (i) the $364,570 remaining balance of a 48-month term
loan bearing interest at 8.7% per annum, and (ii) the $428,570 remaining
balance of a 42-month term loan bearing interest at 8.91%. Each of the
foregoing loans were incurred in connection with the construction of
improvements to the Facility, are collateralized by the assets of the
primary obligor and are guaranteed by the Company's Chairman. At May 31,
1997, $302,065 was owed to affiliates of the Company's Chairman.
On August 11, 1995, the Company entered into a $750,000 loan agreement with
the Long Island Development Corporation ("LIDC"), under a guarantee by the
U.S. Small Business Administration ("SBA") (the "SBA Loan"). The entire
$750,000 proceeds were used to repay a portion of the Bonds. The Company
entered into the First Amendment primarily to satisfy certain requirements
of the SBA. The SBA Loan is payable in 240 monthly installments of $6,255,
which includes principal and interest at a rate of 7.015%.
As of November 1, 1996, the Company entered into the Second Amendment to
Lease Agreement among BFS Realty, LLC, an affiliate of the Company's
Directors ("BFS") (as successor to BSRI's interest in the transaction) with
the Bank and the Company (the "Second Amendment"). In connection with the
Second Amendment, (i) BFS assumed all of the Company's obligations under
the Lease with the NCIDA and entered into a sublease (the "Second
Sublease") with the Company, as sublessee, for the Facility; and (ii) the
Company conveyed to BFS the right to become the owner of the Facility upon
expiration of the Lease. In addition, pursuant to the Second Sublease, the
Company has assumed certain obligations owed by BFS to the NCIDA under the
Lease. BFS has indemnified the Company with respect to certain obligations
relative to the Lease and the Second Amendment.
As a result of the Second Amendment and related transactions discussed
above, the Company reduced its fixed assets, consisting of land, building
and improvement costs, by the amount of the cost thereof, net of
accumulated depreciation, in the amount of $3,125,298 and reduced
NOTE 3 - (Continued)
its long term debt by $3,140,884, which was assumed by BFS; the net
difference was recorded as other income in the financial statements.
Amounts owed to affiliates of the Company's Chairman in connection with the
construction and improvements were not assumed by the BFS. The Company and
its Chairman have guaranteed the above obligation to the SBA and NCIDA in
connection with the foregoing.
Maturities of long term debt at May 31, 1997 are as follows:
Principal
Year ending May 31, Repayments
1998 $ 267,864
1999 34,201
2000 1,000,000
$1,302,065
----------
NOTE 4 - NOTES PAYABLE - AFFILIATES
The note payable - affiliate which is evidenced by a note represents
amounts borrowed from a company affiliated with the Company's Chairman. The
demand note, which is non-interest bearing, was repaid by the Company
during the fiscal year ended May 31, 1997.
The notes payable - affiliates represents amounts borrowed from two
companies affiliated with the Company's Chairman. The notes bear interest
at prime plus 3/4% and are due December 2000 and May 2001, respectively.
The notes were repaid by the Company during the fiscal year ended May
31, 1997.
NOTE 5 - INCOME TAXES
The income tax expense (benefit) is comprised of the following:
Year ended May 31,
1997 1996
Current
Federal $3,000 $(98,000)
State 17,000 8,000
Deferred - Federal and state 287,000 82,000
--------- ------
$ 307,000 $(8,000)
========== ========
NOTE 5 - (Continued)
The Company's effective income tax rate differs from the statutory U.S.
Federal income tax rate as a result of the following:
Year ended May 31,
1997 1996
Statutory U.S. Federal tax rate 34.0% 34.0%
Alternative minimum tax .5
State taxes 3.0 3.2
Nondeductible items 62.4 37.4
Current benefit - tax expense in excess of book (96.4) (110.3)
Net change in items giving rise to deferred
taxes 50.2 32.5
----- ---------
53.7% (3.2)%
- --------- ====== ======
As of May 31, 1997 and 1996 depreciation gave rise to deferred tax
liabilities of approximately $860,000 and $696,000, respectively. Allowance
for doubtful accounts, vacation accruals, deferred gains, net operating
loss carryforwards and contribution carryovers gave rise to deferred tax
assets of approximately, $490,000 and $613,000, respectively, net of a
valuation allowance of $0 and $86,000, respectively. These amounts are
presented net in the consolidated balance sheet as of May 31, 1997 and
1996, as a noncurrent deferred tax liability.
NOTE 6- COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Company leases office space at the Facility and equipment. Until July
31, 1995, the Facility was sublet from BSRI, an affiliate of the Company's
Directors pursuant to the First Sublease which was to expire on September
1, 2005. The First Sublease provided for rental payments to be made to BSRI
in an amount equal to the principal and interest requirement on the bonds.
Such amount was $97,200 for the year ended May 31, 1996, and included all
real estate taxes and operating costs.
As of July 31, 1995, pursuant to the First Amendment, the Company became
the beneficial owner of and leased the Facility from the NCIDA. During the
period commencing July 1, 1995 and ending October 31, 1996 the Company paid
rent for the Facility to NCIDA in the amount of $48,600 per month. Such
amount was $243,000 and $486,000 for the years ended May 31, 1997 and 1996,
respectively. As of November 1, 1996, the Company entered into the Second
Amendment pursuant to which the Company assigned its rights under the Lease
to BFS (as successor to the interest of BSRI). The Company, as sublessee,
entered into the Second Sublease with BFS for the Facility. During the
period November 1, 1996 and ending May 31, 1997 the Company paid rent in
the amount of $340,200 to BFS.
NOTE 6 - (Continued)
The Company has obligations to pay rental expense in connection with seven
sale/leaseback transactions. The rental expenses amounted to approximately
$773,600 and $602,700 for the years ended May 31, 1997 and 1996
respectively. (See Note 10).
In connection with the February 1995 sale/leaseback, the Company has issued
irrevocable letters of credit in the amount of $375,000 for the benefit of
the lessor. One letter of credit in the amount of $225,000 is cancellable
if the Company meets certain financial covenants. The other letter of
credit in the amount of $150,000 expires upon the termination of the lease.
Total office space and equipment rental expense amounted to approximately
$1,728,000 and $1,163,000 in fiscal 1997 and 1996, respectively.
Future minimum lease payments for all noncancellable operating leases at
May 31, 1997 are as follows:
Amount
Year ending May 31,
1998 $1,769,518
1999 1,468,867
2000 1,364,883
2001 674,818
2002 599,052
Thereafter 1,944,000
$7,821,138
Sandata, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Litigation
On April 10, 1997, the Company received notice that MCI had commenced
action against it in the United States District Court for the Eastern
District of New York alleging that the Company's SanTrax time and
attendance system infringes on certain patent rights allegedly owned by
plaintiff. The complaint seeks compensatory and treble damages with
interest and injunctive relief. The Company intends to vigorously defend
this action. On May 13, 1997, the Company filed its Answer. Among other
things, pursuant to the Answer, the Company denies that its product
infringes MCI's patent rights and asserts certain affirmative defenses. In
addition, the Answer contains a counterclaim challenging the validity of
MCI's alleged patent rights.
In the event that the Company were not to prevail in this litigation, the
Company could be required to pay significant damages to MCI and could be
enjoined from further use of the SanTrax system as it presently exists. The
ultimate outcome of these matters cannot presently be determined.
Accordingly, no provision for any liability that may result therefrom has
been made in the accompanying consolidated financial statements.
NOTE 6 - (Continued)
The Company is involved in other litigation through the normal course of
business. The Company believes that the resolution of these matters will
not have a material adverse effect on the financial position of the
Company.
Employment Agreement
On February 1, 1997 the Company and Mr. Brodsky entered into an employment
agreement for a five year term (the "Brodsky Employment Agreement"). Among
other things, the Brodsky Employment Agreement provides compensation at the
annual rate of $500,000. The Brodsky Employment Agreement also provides for
payment of an annual bonus at the sole discretion of the Board of
Directors.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company derives revenue from a company affiliated with the Company's
Chairman of the Board for data processing services and computer software
design. The revenues generated from this company, amounted to $2,171,000
and $2,014,000 for the years ended May 31, 1997 and 1996, respectively. At
May 31, 1997, the Company was owed approximately $708,000 by such
affiliate, which was received in full subsequent to May 31, 1997.
b. On June 1, 1994, BSRI borrowed $3,350,000 in the form of the Bonds to
finance costs incurred in connection with the acquisition, renovation and
equipping of the Company's Facility from the NCIDA. These Bonds were
subsequently purchased by the Bank. The aggregate cost incurred by BSRI in
conjunction with such acquisition, renovation and equipping was
approximately $4,377,000. In addition, the Company incurred approximately
$500,000 of indebtedness to affiliates of Mr. Brodsky in connection with
additional capital improvements. The Bonds bore interest at prime plus 3/4
of 1% until August 11, 1995, at which time the interest rate became fixed
at 9% for a five-year term through September 1, 2000. At that time, the
interest rate will be adjusted to a rate of either prime plus 3/4 of 1%, or
the applicable fixed rate if offered by the Bank. As a condition to the
issuance of the Bonds, the NCIDA obtained title to the Facility which it
then leased to BSRI.
On June 21, 1994 (as of June 1, 1994), the Company and its Chairman
guaranteed the full and prompt payment of principal and interest of the
Bonds and the Company granted the Bank a security interest and lien on all
the assets of the Company. In connection with the issuance and sale of the
Bonds, the Company entered into a First Sublease with BSRI, whereby the
Company leased the Facility for the conduct of its business and, in
consideration therefor, was obligated to make lease payments that at least
equal amounts due to satisfy the underlying Bond obligations.
On July 31, 1995, by the First Amendment between the Company and BSRI, the
Company assumed the obligations of BSRI under the lease and became the
direct tenant and the
NOTE 7 - (Continued)
beneficial owner of the Facility. In connection with the First Amendment,
the First Sublease was terminated. During the period commencing July 1,
1995 and ending October 31, 1996 the Company paid rent for the Facility to
the NCIDA in the amount of $48,600 per month, subject to adjustment based
upon the then effective interest rate of the Bonds, among other things. In
connection with the First Amendment, the Company obtained the right to
acquire the Facility upon expiration of the Lease with the NCIDA and became
directly liable to the NCIDA for amounts due thereunder. In connection with
the First Amendment, the Company assumed certain indebtedness owed to
affiliates of the Company's Chairman as follows: (i) the $364,570 remaining
balance of a 48-month term loan bearing interest at 8.7% per annum, and
(ii) the $428,570 remaining balance of a 42-month term loan bearing
interest at 8.91%. Each of the foregoing loans were incurred in connection
with the construction of improvements to the Facility, are collateralized
by the assets of the primary obligor and are guaranteed by the Company's
Chairman.
On August 11, 1995, the Company entered into the $750,000 SBA Loan with the
LIDC, under a guarantee by the SBA. The entire $750,000 proceeds have been
used to repay a portion of the Bonds. The Company entered into the First
Amendment primarily to satisfy certain requirements of the SBA. The SBA
Loan is payable in 240 monthly installments of $6,255, which includes
principal and interest at a rate of 7.015%.
As of November 1, 1996, the Company entered into the Second Amendment among
BFS (as successor to the interest of BSRI under the Second Amendment) and
the Bank. In connection with the Second Amendment, (i) BFS assumed all of
the Company's obligations under the Lease with the NCIDA and entered into
the Second Sublease with the Company, as sublessee, for the Facility; and
(ii) the Company conveyed to BFS the right to become the owner of the
Facility upon expiration of the Lease. In addition, pursuant to the
sublease, the Company has assumed certain obligations owed by BFS to the
NCIDA under the Lease. BFS has indemnified the Company with respect to
certain obligations relative to the Lease and the Second Amendment.
c. Due from Officers in the amount of $102,867, which is evidenced by
notes, represents the amount advanced by the Company to pay certain fees
arising from the proposed privatization, which was withdrawn in December
1994. These notes were repaid by the Officers in August 1997.
d. The Company makes various lease payments to certain affiliated
companies. The payments are for: equipment rental, which was $367,228 and
$381,113 in fiscal 1997 and 1996, respectively, and rent for the Facility
which was $340,200 and $97,200 in fiscal 1997 and 1996, respectively.
NOTE 7 - (Continued)
e. At May 31, 1997, the Company was owed approximately $138,000 from a
company affiliated with the officers of the Company. Subsequent to May 31,
1997, the Company received approximately $18,000 and a note receivable for
the balance due. The note is payable in 24 monthly payments with interest
at 8%.
f On June 3, 1997 the Securities Exchange Commission declared effective the
Company's registration statement on Form S-3 (the "Registration Statement")
which covered, among other things, the reoffer of 820,213 shares of common
stock beneficially owned by Mr. Brodsky and 417,927 shares beneficially
owned by two Directors and Executive Officers of the Company.
g. In May 1992, Mr. Brodsky and the Company entered into a deferred
compensation agreement pursuant to which the Company will pay (i) to Mr.
Brodsky a lump sum ranging from $75,000 to $255,000 if he voluntarily
terminates his employment with the Company after attaining 55 years of age
(ii) to Mr. Brodsky's beneficiary a lump sum ranging from $200,000 to
$450,000 in the event of Mr. Brodsky's death during the term of his
employment with the Company. The amount of the payment is dependent upon
the age of Mr. Brodsky at the time of termination or death., The Company
has obtained insurance on Mr. Brodsky's life to fund its obligations under
the above agreement.
NOTE 8 - NOTE RECEIVABLE FROM FORMER AFFILIATE
On July 31, 1993, the Company received a promissory note from Compuflight,
Inc. ("Compuflight"), a former affiliate (the Company's Chairman was a
principal stockholder and Chairman of Compuflight through December 1, 1993)
to evidence the Company's accounts receivable from Compuflight. The note
was payable in increments of $20,000 per month including interest at the
rate of one percent above prime on the unpaid balance and was due April 1,
1994. On November 1, 1993, the note was amended. The amended note is
payable in minimum increments of $20,000 per month with interest at ten
percent (10%) per annum and contains provisions for accelerated payments
based upon Compuflight achieving certain results. Payments commenced on
February 28, 1994 and are to continue until such time as the indebtedness
and any accrued interest are paid in full. The remaining balance of
$118,781 owed on the note, which was deemed by the Company as
uncollectible, was charged against an allowance account during the quarter
ended February 28, 1997. In connection with the promissory note, the
Company received a security interest in substantially all the then existing
assets of Compuflight, which has been assigned to the Bank as collateral
for the Company's Credit Agreement with the Bank and which is currently
being released. As of May 31, 1997, Compuflight is indebted to the Company
in the amount of $12,074, representing accounts receivable.
F-9
<PAGE>
Sandata, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 - SHAREHOLDERS' EQUITY
a. Common Stock Purchase Warrants
In February 1991, the Company issued 400,000 common stock purchase warrants
to the Company's Chairman. The warrants were exercisable in equal annual
amounts over a ten-year vesting period. For each warrant, the Chairman may
purchase one share of common stock of the Company at an exercise price of
$2.64 per share (warrants were subsequently exchanged on August 10, 1992
and January 25, 1995 at exchange prices of $1.79 and $1.38, respectively;
all such exercise prices representing the fair market value of the
Company's common stock on the respective dates of exchange). On April 3,
1997 the Board of Directors approved the acceleration of the vesting of the
warrants, wherein all such warrants became immediately exercisable.
b. Stock Options
In October 1984, the Company adopted an incentive stock option plan which
reserved 161,444 shares of common stock. The plan requires that all options
be granted at exercise prices not less than the fair market value at the
date of grant. In April 1989 subsequent to a proposal ratified by
stockholder vote, the Company amended its incentive stock option plan to
reflect revisions necessitated by the Tax Reform Act of 1986 and to
increase the number of shares subject to the plan from 161,444 to 278,110.
In December 1990, the Company's incentive plan was amended pursuant to
stockholder vote by increasing the number of shares available for options
to 416,667.
In November 1986, the Company adopted a nonqualified stock option plan
which reserved 111,111 shares of common stock that may be granted to
employees, officers and directors. In April 1989, the Company's
nonqualified stock option plan was amended pursuant to stockholder vote by
increasing the number of shares from 111,111 shares to 227,778 shares.
In January 1995, the Company adopted a stock option plan providing for both
incentive and nonqualified stock options, which reserves 1,000,000 shares
of common stock for grant under the plan. The plan requires that all
options be granted at exercise prices not less than the fair market value
at the date of grant, over a ten-year period. In addition, the Company
granted officers of the Company incentive options to purchase 82,000 shares
of the Company's common stock at an exercise price of $1.51 per share.
These options are exercisable over a five-year period. In March 1996, the
Company granted officers of the Company incentive options to purchase
100,000 shares of the Company's common stock at an exercise price of $2.34.
These options are exercisable over a five-year period. In June 1996, the
Company granted officers of the Company incentive options to purchase
250,000 shares of the Company's common stock at an exercise price of $2.61.
These options vested over three years and are exercisable over a five-year
period. On April 3, 1997 the Board of Directors approved the acceleration
of the vesting of the options, wherein all such options became immediately
exercisable.
NOTE 9 - (Continued)
<TABLE>
<CAPTION>
Summary information with respect to the stock option plans follows:
Range of Outstanding Outstanding
exercise options options
prices granted exercisable
<S> <C> <C> <C> <C>
Balance, June 1, 1996 1.38 - 1.875 601,037 476,037
Granted 2.34 100,000 100,000
Canceled 1.75 - 1.875 (125,778) (778)
--------- -----------
Balance, May 31, 1996 1.38 - 2.34 575,259 575,259
Granted 2.61 250,000 250,000
Canceled 1.875 (1,167) (1,167)
----------- -------
Balance, May 31, 1997 1.38 - 2.61 824,092 824,092
======= =======
</TABLE>
c. In October, 1996, the Company commenced a private offering, on a "best
efforts - - all or none" basis, to raise $1,500,000 by issuing an aggregate
of 300,000 shares of Common Stock and five year warrants for the purchase
of 150,000 shares of Common Stock, at an exercise price of $7.00 per share.
Neither the shares of Common Stock, the warrants, nor the shares of Common
Stock underlying the warrants were registered under the Securities Act of
1933, as amended. In February 1997, the Company completed such private
offering. The net proceeds received in connection with the sale of 300,000
shares of its common stock were $1,256,415 after payment of expenses
related to the offering. Contemporaneously with the execution and delivery
by the Company of the letter of intent with regard to such private
offering, certain assignees of the placement agent acquired 100,000 shares
of the Company's Common Stock at a purchase price of $3.00 per share; the
net proceeds from the sale of such 100,000 shares were $260,076.
In connection with the closing of such private offering, an affiliate of
the placement agent entered into a financial consulting agreement with the
Company, pursuant to which, among other things, such affiliate will receive
aggregate annual payment of $36,000 and certain assignees of such affiliate
received warrants to purchase an aggregate of 200,000 shares of Common
Stock exercisable as follows: 100,000 shares at $5.00 per share and 100,000
shares at $7.00 per share, such warrants to be exercisable for one year
(with respect to the warrants exercisable at $5.00 per share) and two years
(with respect to the warrants exercisable at $7.00 per share). The warrants
issued in such private offering, including those issued to investors as
well as the assignees of the placement agent's affiliate, are redeemable by
the Company under certain circumstances.
NOTE 10 - SALE/LEASEBACK TRANSACTIONS
In February 1993, the Company entered into two separate sale/leaseback
transactions of certain fixed assets (principally computer hardware and
software). The fixed assets, which had a net book value of approximately
$389,000, were sold for $492,000. The resulting gain
NOTE 10 - (Continued)
on the sale of $103,000 was recorded as deferred income and is being
recognized over the lives of the leases. Approximately $19,000 and $26,000
of the deferred gain was recognized for fiscal 1997 and 1996, respectively.
In December 1994, the Company entered into a sale/leaseback of certain
fixed assets (principally computer hardware and software). The fixed
assets, which had a net book value of approximately $115,000 were sold for
$300,000. The resulting gain of approximately $185,000 was recorded as
deferred income and is being recognized over the life of the lease.
Approximately $62,000 of the deferred gain was recognized for fiscal 1997
and 1996.
In February 1995, the Company entered into two separate sale/leaseback
transactions of certain fixed assets (principally leasehold improvements
and equipment). The fixed assets, which had a net book value of
approximately $391,000, were sold for approximately $559,000. The resulting
gain on the sale of approximately $168,000 was recorded as deferred income
and is being recognized over the lives of the leases. Approximately $56,000
of the deferred gain was recognized for fiscal 1997 and 1996.
In June 1995, the Company entered into a sale/leaseback transaction of
certain fixed assets (principally furniture, fixtures, computer hardware
and software and equipment). The fixed assets, which had a net book value
of approximately $332,000 were sold for $500,000. The resulting gain of
$168,000 was recorded as deferred income and is being recognized over the
life of the lease, which is thirty-eight (38) months. Approximately $53,000
of the deferred gain was recognized for fiscal 1997 and 1996.
In September 1995, the Company entered into a sale/leaseback transaction of
certain fixed assets (principally computer hardware). The fixed assets,
which had a net book value of approximately $251,000, were sold for
approximately $326,000. The resulting gain of approximately $75,000 was
recorded as deferred income and is being recognized over the life of the
lease, which is sixty (60) months. Approximately $15,000 and $12,500 of the
deferred gain was recognized for fiscal 1997 and 1996, respectively.
In June 1996, the Company entered into a sale/leaseback transaction of
certain fixed assets (principally furniture, fixtures, computer hardware
and equipment). The fixed assets, which had a net book value of
approximately $657,000, were sold for $925,000. The resulting gain of
approximately $268,000 was recorded as deferred income and is being
recognized over the life of the lease, which is forty-eight (48) months.
Approximately $67,000 of deferred gain was recognized for fiscal 1997.
In March 1997, the Company entered into a sale/leaseback transaction of
certain fixed assets (principally computer hardware and software). The
fixed assets, which had a net book value of approximately $874,000, were
sold for $981,000. The resulting gain of approximately $107,000 was
recorded as deferred income and is being recognized over the life of the
lease,
NOTE 10 - (Continued)
which is thirty-eight (38) months. Approximately $6,000 of deferred gain
was recognized for fiscal 1997. The Company assigned the option to purchase
such assets to an entity affiliated with the Company's Chairman. The
affiliate acquired the purchase option in consideration for posting a
letter of credit to secure the purchase option obligation. Subsequent to
March 1997 the affiliate assigned the purchase option to an unaffiliated
third party.
NOTE 11 - RETIREMENT PLAN
The Company has a 401(k) savings plan covering all eligible employees in
which the Company matches a portion of the employees' contribution. The
amount of this match was $18,385 and $14,409 in fiscal years 1997 and 1996,
respectively.
NOTE 12 - NOTE RECEIVABLE
On January 1, 1997, the Company received a promissory note from On Time
Data, LLC ("Licensee") to evidence the Company granting a three-year
license to promote, market, sell and provide customer service to users of
the Company's SanTrax product in California. The note, together with
accrued interest at 9.25%, is due and payable in eighteen (18) monthly
installments beginning July 1, 1998. Payments on the note shall be deferred
if certain conditions are met by the Licensee.
NOTE 13 - SUBSEQUENT EVENT
On June 19, 1997, the Company announced that it has commenced negotiations
for a potential business combination with National Medical Health Card
Systems, Inc., a company affiliated with the Company's Chairman of the
Board. The Company cannot assure that an agreement for a business
combination will be reached, or that if such an agreement is reached it
will be consummated.
F-10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SANDATA, INC.
- -------------------------------------------------------------------------------
(Registrant)
/s/ Bert E. Brodsky
Bert E. Brodsky, Chairman of the Board
(Principal Executive Officer and
Principal Financial and Accounting Officer)
Date August 29, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By /s/ Bert E. Brodsky
Bert E. Brodsky, Chairman, President, Treasurer, Director
Date August 29, 1997
By /s/ Hugh Freund
Hugh Freund, Executive Vice President, Director
Date August 29, 1997
By /s/ Gary Stoller
Gary Stoller, Executive Vice President, Director
Date August 29, 1997
<PAGE>
REVOLVING CREDIT AGREEMENT
BY AND AMONG
SANDSPORT DATA SERVICES, INC.,
SANDATA, INC.,
SANDATA HOME HEALTH SYSTEMS, INC.,
SANTRAX PRODUCTIVITY, INC.,
SANDATA SPECTRUM, INC.,
SANDATA INTECK, INC.,
SANTRAX SYSTEMS, INC.
AND
MARINE MIDLAND BANK
DATED AS OF APRIL 18, 1997
G:\DATA\LEGAL\MMBAGR.DOC
<PAGE>
TABLE OF CONTENTS
SECTION 1: DEFINITIONS.....................................................(v)
1.1 Defined Terms......................................................(v)
-------------
1.2 Accounting Terms....................................................4
----------------
SECTION 2: AMOUNT AND TERMS OF ADVANCES.....................................4
2.1 Commitment..........................................................4
----------
2.2 Revolving Credit Note...............................................5
---------------------
2.3 Notice of Advances..................................................5
------------------
2.4 Cancellation and Reduction of Commitment............................5
----------------------------------------
2.5 Commitment Fee......................................................5
--------------
2.6 Increase in Costs or Reduced Return Resulting from Capital
Adequacy Requirements...............................................6
2.7 Interest on the Revolving Credit Note...............................6
-------------------------------------
2.8 Optional Prepayments................................................7
--------------------
2.9 Alternate Rate of Interest..........................................8
--------------------------
2.10 Increased Costs.....................................................8
---------------
2.11 Indemnity...........................................................9
---------
2.12 Continuation and Conversion of Advances............................10
---------------------------------------
2.13 Balance Shortfall Fee..............................................10
---------------------
2.14 Payments...........................................................10
--------
2.16 Computations.......................................................11
------------
SECTION 3: REPRESENTATIONS ...............................................11
3.1 Subsidiaries; Existence............................................11
-----------------------
3.2 Company and Guarantors; Existence..................................11
---------------------------------
3.3 Corporate Authority................................................12
-------------------
3.4 Binding Agreements.................................................12
------------------
3.5 Litigation.........................................................12
----------
3.6 No Conflicting Law or Agreements...................................12
--------------------------------
3.7 Contingent Liabilities.............................................13
----------------------
3.8 Financial Condition................................................13
-------------------
3.9 Title to Properties................................................13
-------------------
3.10 Taxes..............................................................13
-----
3.11 Default............................................................14
-------
3.12 No Burdensome Agreements...........................................14
------------------------
3.13 ERISA..............................................................14
-----
3.14 Operation of Business..............................................14
---------------------
SECTION 4: CONDITIONS TO ADVANCES..........................................15
4.1 Conditions to the Initial Advance..................................15
---------------------------------
4.2 Conditions to each Advance.........................................17
--------------------------
4.3 Approval of Bank's Counsel.........................................17
--------------------------
SECTION 5: AFFIRMATIVE COVENANTS...........................................17
5.1 Information........................................................17
-----------
5.2 Existence..........................................................20
---------
5.3 Payment of Obligations.............................................20
----------------------
5.4 Insurance..........................................................20
---------
5.5 Payment of Indebtedness and Performance of Obligations.............20
------------------------------------------------------
5.6 Condition of Property..............................................20
---------------------
5.7 Observance of Legal Requirements...................................20
--------------------------------
5.8 Books and Records..................................................21
-----------------
5.9 Inspection.........................................................21
----------
5.10 Financial Requirements............................................21
----------------------
5.11 New Subsidiaries..................................................22
----------------
SECTION 6: NEGATIVE COVENANTS.............................................22
6.1 Indebtedness for Borrowed Money...................................22
-------------------------------
6.2 Limitation on Liens...............................................23
-------------------
6.3 Merger, Consolidation and Acquisition.............................23
-------------------------------------
6.4 Sale of Assets....................................................23
--------------
6.5 Contingent Liabilities............................................24
----------------------
6.6 Investments; Loans................................................24
------------------
6.7 Capital Expenditures..............................................24
--------------------
6.8 Nature of Business................................................25
------------------
6.9 Transactions with Affiliates......................................25
----------------------------
6.10 No Lien Senior to or Equal to Loan Documents......................25
--------------------------------------------
6.11 Change of Management..............................................25
--------------------
6.12 Dividends and Purchase of Stock...................................25
-------------------------------
SECTION 7: EVENTS OF DEFAULT..............................................26
<PAGE>
SECTION 8: MISCELLANEOUS...................................................28
8.1 Consents to Amendments.............................................28
----------------------
8.2 Survival of Representations........................................28
---------------------------
8.3 Successors and Assigns.............................................28
----------------------
8.4 Liability in Acting................................................28
-------------------
8.5 The Bank's Rights Not Waived; Cumulative Rights....................29
-----------------------------------------------
8.6 Expenses...........................................................29
--------
8.7 Other Agreements...................................................29
----------------
8.8 Repayment..........................................................30
---------
8.9 Applicable Law and Jurisdiction....................................30
-------------------------------
8.10 Counterclaim; Trial by Jury........................................30
---------------------------
8.11 Entire Agreement...................................................30
----------------
8.12 Headings...........................................................31
--------
8.13 Notices............................................................31
-------
8.14 Indemnification....................................................31
---------------
8.15 Authority to Disclose..............................................32
---------------------
8.16 Severability.......................................................32
------------
8.17 Counterparts.......................................................33
------------
Exhibit A - Revolving Credit Note
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS AGREEMENT made as of the 18th day of April, 1997 by and among
SANDSPORT DATA SERVICES, INC., a New York corporation having its principal place
of business at 26 Harbor Park Drive, Port Washington, New York 11050 (the
"Company"), SANDATA, INC., SANDATA HOME HEALTH SYSTEMS, INC., SANDATA
PRODUCTIVITY, INC., SANDATA SPECTRUM, INC. and SANDATA INTECK, INC., each a
Delaware corporation having its principal place of business at 26 Harbor Park
Drive, Port Washington, New York 11050 and SANTRAX SYSTEMS, INC., a New York
corporation having its principal place of business at 26 Harbor Park Drive, Port
Washington, New York 11050 (individually, a "Guarantor" and, collectively, the
"Guarantors") and MARINE MIDLAND BANK, a New York State bank with an office at
534 Broad Hollow Road, Melville, New York 11747 (the "Bank").
W I T N E S S E T H :
SECTION 1: DEFINITIONS
1.1 Defined Terms: As used in this Agreement the following terms have the
following meanings, unless the context otherwise requires:
Adjusted LIBOR Rate: shall mean the LIBOR Rate plus two (2%) percent.
Advance or Advances: shall mean, collectively, all advances made pursuant
to Section 2.2 hereof whether Prime Rate Advances or LIBOR Rate Advances.
Assignment of Life Insurance: shall have the meaning assigned in Section
4.1(i) hereof.
Business Day: shall mean any day other than a Saturday, Sunday or other day
on which commercial banks in London and/or New York, New York are authorized or
required by law to close.
Commitment: shall have the meaning assigned in Section 2.1 hereof.
Commitment Period: shall mean the period from and including the date hereof
to, but not including, the Termination Date or such earlier date as the
Commitment shall terminate as provided herein.
Consolidated Group: shall mean the Company, the Guarantors and their
respective Subsidiaries.
Default: shall mean any of the events specified in Section 7 hereof,
whether or not any requirement for notice or lapse of time or any other
condition has been satisfied.
Default Rate: shall mean a rate per annum equal to the Prime Rate from time
to time in effect plus three (3%) percent.
ERISA: shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
ERISA Affiliate: shall mean any trade or business (whether or not
incorporated) which together with the Company, a Guarantor or a Subsidiary would
be treated as a single employer under Section 4001 of ERISA.
Event of Default: shall mean any of the events specified in Section 7
hereof, provided that any requirement for notice or lapse of time or any other
condition has been satisfied.
Guarantor or Guarantors: shall mean Sandata, Inc., Sandata Home Health
Systems, Inc., Sandata Productivity, Inc., Sandata Spectrum, Inc., Sandata
Inteck, Inc., Santrax Systems, Inc. and each Person required to guaranty
pursuant to Section 5.11 hereof.
Guaranty or Guaranties: shall have the meaning assigned in Section 4.1(b)
hereof and include the guaranties of each Person required to guaranty pursuant
to Section 5.11 hereof.
Lien: shall mean any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing), any conditional sale or other title retention or trust
agreement, any lease in the nature thereof, and the filing or recording of or
agreement to give any financing statement or other document to be filed or
recorded under the Uniform Commercial Code of any jurisdiction.
LIBOR Borrowing Request: shall mean the written request by the Company to
the Bank for a LIBOR Rate Advance including the date of the LIBOR Rate Advance
and the amount.
LIBOR Period: shall mean a period, if available to the Bank, of ninety
(90)days.
LIBOR Rate: shall mean the per annum interest rate equal to the London
Interbank Offered Rate as shown on the Dow Jones & Company's Telerate Screen, at
approximately 11:00 a.m. (London time) two Business Days prior to the proposed
borrowing date for deposits of United States dollars in an amount comparable to
the principal amount of the proposed LIBOR Rate Advance for the LIBOR Period.
LIBOR Rate Advance: shall mean any Advance bearing interest at the Adjusted
LIBOR Rate.
Loan Documents: shall mean this Agreement, the Note, the Security
Agreements, the Guaranties, the Assignment of Life Insurance and any other
documents executed by the Company or a Guarantor in connection herewith.
Multiemployer Plan: shall mean a Plan described in Section 4001(a)(3) of
ERISA which covers employees of the Company, a Subsidiary or any ERISA
Affiliate.
Officers' Certificate: shall mean a certificate signed in the name of the
Company or a Guarantor, by its President, or one of its Vice Presidents, and by
its Treasurer or Secretary.
PBGC: shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
Person: shall mean and include an individual, a partnership, a firm, a
corporation, a trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof.
Plan: shall mean any plan referred to in Section 4021(a) of ERISA in
respect of which the Company, a Subsidiary or an ERISA Affiliate is an
"employer" or a "substantial employer" as said terms are defined in Sections
3(5) and 4001(a)(2) of ERISA, respectively.
Prime Borrowing Request: shall mean the written request by the Company for
a Prime Rate Advance including the date of the Prime Rate Advance and amount.
Prime Rate: shall mean the rate of interest publicly announced by the Bank
from time to time as its prime rate and is a base rate for calculating interest
on certain loans.
Prime Rate Advance: shall mean any Advance bearing interest at the Prime
Rate.
Prohibited Transaction: means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time
to time.
Regulatory Changes: shall mean, after the date hereof, the introduction of
any new, or any change in existing, applicable laws, rules or regulations or in
the interpretation or administration thereof by any court or governmental
authority charged with the interpretation or administration thereof, or
compliance by the Bank with any new request or directive by any such court or
authority (whether or not having the force of law).
Reportable Event: shall mean any of the events set forth in Section 4043(b)
of ERISA.
Revolving Credit Note: shall have the meaning assigned in Section 2.2
hereof.
Security Agreements: shall have the meaning assigned in Section 4.1(c)
hereof including any reaffirmations thereof.
Subsidiary: shall mean any corporation of which more than fifty percent
(50%) of the outstanding shares of stock of each class having ordinary voting
power (other than stock having such power only by reason of the happening of a
contingency) is at the time owned or controlled, directly or indirectly, by the
Company or a Guarantor or by one or more Subsidiaries or by the Company or a
Guarantor and one or more Subsidiaries.
Termination Date: shall mean April 18, 2000.
1.2 Accounting Terms: Each accounting term not defined in this Agreement,
and each accounting term partly defined in this Agreement, to the extent not
defined, shall have the meaning given to it under generally accepted accounting
principles consistent with those utilized in preparing the financial statements
referred to in Section 3.8 hereof.
SECTION 2: AMOUNT AND TERMS OF ADVANCES
2.1 Commitment: Subject to the terms and conditions hereof, the Bank agrees
to extend credit to the Company by making loans (each such loan being
hereinafter called an "Advance" and, collectively, "Advances") to the Company
from time to time during the Commitment Period up to an aggregate principal
amount outstanding at any one time of Three Million and 00/100 ($3,000,000.00)
Dollars (the "Commitment"). During the Commitment Period, the Company may use
the Commitment by borrowing, paying and prepaying in whole or in part and
reborrowing, all in accordance with the terms and conditions hereof. Each
Advance shall be in the principal amount of One Hundred Thousand and 00/100
($100,000.00) Dollars or an integral multiple thereof.
2.2 Revolving Credit Note: The Advances made by the Bank pursuant to
Section 2.1 hereof shall be evidenced by a promissory note of the Company,
payable to the order of the Bank, substantially in the form of Exhibit A hereto
(the "Revolving Credit Note"), representing the obligation of the Company to pay
the amount of the Commitment or, if less, the aggregate unpaid amount of all
Advances plus interest thereon as provided in Section 2.7 hereof. The Revolving
Credit Note shall be dated the date hereof and shall be payable to the order of
the Bank on the Termination Date. The date and amount of each Advance, and the
date and amount of each payment of principal on account thereof, shall be
recorded by the Bank at the time of such Advance or payment on the schedule
annexed to and constituting a part of the Note. The aggregate unpaid amount of
Advances set forth in such schedule shall be presumed to be the principal amount
owing and unpaid thereon; provided, however, that the failure of the Bank to
record such information on such schedule shall not in any way affect the
obligation of the Company to pay any amount due under the Revolving Credit Note.
2.3 Notice of Advances: Each request for an Advance whether a LIBOR
Borrowing Request or a Prime Borrowing Request shall be made on a Business Day
no later than 1:00 p.m. (New York time) in writing (including by facsimile
transmission) or orally by telephone directed to the office of the Bank located
at 534 Broad Hollow Road, Melville, New York 11747. Each such oral request shall
be confirmed not later than one (1) Business Day thereafter in writing
(including by facsimile transmission). The Company may not make a LIBOR
Borrowing Request if the requested LIBOR Rate Advance would have an expiration
date later than the Termination Date. The Bank shall make the funds for each
Advance so requested available at such office in immediately available funds by
the close of business on the Business Day of such request.
2.4 Cancellation and Reduction of Commitment: The Commitment may be
canceled or reduced by the Company at any time and from time to time prior to
the Termination Date in whole or in part, in amounts of One Hundred Thousand and
00/100 ($100,000.00) Dollars or multiples thereof on one (1) Business Day prior
written notice thereof to the Bank; provided, however, that no such cancellation
or reduction shall be effective to the extent that it would reduce the
Commitment to an amount less than the aggregate unpaid amount of the Advances as
of the date of reduction unless such excess unpaid amount is simultaneously
prepaid. The Commitment, or part thereof, so reduced or canceled shall not be
reinstated.
2.5 Commitment Fee: The Company agrees to pay to the Bank a commitment fee
on the average daily unused portion of the Commitment from the date hereof until
the Termination Date, as such Commitment may have been reduced pursuant to
Section 2.4 hereof, at the rate of one quarter of one (1/4%) percent per annum,
payable quarterly in arrears on the first day of each March, June, September and
December commencing June 1, 1997 to and including the Termination Date.
2.6 Increase in Costs or Reduced Return Resulting from Capital Adequacy
Requirements: If any law, regulation or guideline or any change therein or
interpretation or application thereof by any regulatory body, court,
administrative or governmental authority charged with the interpretation or
administration thereof, or compliance with any request, directive, ruling,
decree, judgment or recommendation of any regulatory body, court, administrative
or governmental authority now existing or hereafter adopted (whether or not
having the force of law) imposes, modifies or deems applicable any capital
adequacy, increased capital adequacy or similar requirement and the result is to
increase the cost of, or reduce the rate of return on, the Bank's (or the Bank
affiliate's or participant's) capital as a consequence of its obligations
hereunder, the Bank shall notify the Company of such fact. The Company and the
Bank shall thereafter in good faith negotiate an adjustment to the fees payable
hereunder which, in the reasonable judgment of the Company and the Bank, will
adequately compensate the Bank (or the Bank affiliate or participant) in light
of these circumstances. In the event that the Company and the Bank are unable to
agree on such adjustment within thirty (30) days after the date on which the
Bank sends such notice to the Company, the Company shall on the later of such
30th day after notice or the date such increased cost or reduced return takes
effect, unless otherwise agreed to by the Bank (or the Bank affiliate or
participant), prepay all Advances and terminate the Commitment on the 30th day.
2.7 Interest on the Revolving Credit Note: a) The Revolving Credit Note
shall bear interest on the unpaid principal balance thereof at a rate per annum
equal to (i) with respect to Prime Rate Advances, the Prime Rate and (ii) with
respect to LIBOR Rate Advances, the Adjusted LIBOR Rate. For Prime Rate Advances
the interest rate shall change when and as the Prime Rate is changed, and any
such change in such Prime Rate shall become effective on the day on which such
change is adopted.
b) Interest accrued on each Advance shall be payable, without duplication,
on:
(i) with respect to any portion of any Advance repaid or prepaid
pursuant to this Agreement, the date of such repayment or prepayment, as
the case may be;
(ii) with respect to that portion of the outstanding principal amount
of all Advances maintained as Prime Rate Advances, the first day of each
month, commencing with the first such date following the date of the making
of such Advances;
(iii) with respect to that portion of the outstanding principal amount
of all Advances maintained as LIBOR Rate Advances, the last day of each
applicable LIBOR Period;
(iv) with respect to that portion of the outstanding principal amount
of all Advances converted into Prime Rate Advances on a day when interest
would not otherwise have been payable pursuant to Sections 2.7(b)(ii) or
(iii), the date of such conversion; and
(v) on the Termination Date.
c) If all or a portion of the principal or interest of any Advance shall
not be paid when due (whether at the stated or any accelerated maturity of such
Advance) or if any fee or other amount due hereunder shall not be paid when due,
all Advances, and such interest, fee or amount due hereunder, to the extent
permitted by applicable law, shall bear interest (payable on demand, and in any
event on the last day of each month, and computed daily on the basis of a
360-day year for actual days elapsed) (i) with respect to Prime Rate Advances,
at the Default Rate until paid and (ii) in the case of LIBOR Rate Advances at a
rate which shall be the greater of the Default Rate or two percent (2%) per
annum in excess of the rate applicable to such LIBOR Rate Advance until the
expiration of the LIBOR Period applicable to such LIBOR Rate Advance, at which
time the LIBOR Rate Advance will automatically be converted into a Prime Rate
Advance and until paid shall bear interest at the Default Rate.
d) Ntwithstanding anything to the contrary contained in this Agreement, the
rate of interest payable on the Revolving Credit Note shall never exceed the
maximum rate of interest permitted under applicable law. If at any time the rate
of interest otherwise prescribed herein shall exceed such maximum rate, then,
ipso facto, the obligation of the Company to pay interest or perform such act or
requirement shall be reduced to the limit authorized under such law, so that in
no event shall the Company be obligated to pay any interest, perform any act or
be bound by any requirement which would result in payment of interest in excess
of an amount which is lawfully collectible. All sums in excess of those lawfully
collectible as interest shall, without further agreement or notice between or by
any party hereto, be deemed applied to principal immediately upon receipt of
such monies by the Bank, with the same force and effect as though the Bank had
specifically designated such amount to be so applied to principal.
2.8 Optional Prepayments: The Company may at its option at any time or from
time to time prepay an Advance in whole or in part, without premium or penalty
but subject to the indemnity provisions of Section 2.11 hereof with respect to
LIBOR Rate Advances, upon at least three (3) Business Days prior written notice
to the Bank specifying the date and the amount of prepayment. Notwithstanding
the foregoing, the Company may not prepay a LIBOR Rate Advance prior to the last
day of the LIBOR Period. Partial prepayments shall be in the amount of One
Hundred Thousand and 00/100 ($100,000.00) Dollars or an integral multiple
thereof and each prepayment shall be made together with interest accrued thereon
to and including the date of prepayment.
2.9 Alternate Rate of Interest: If (i) by reason of any Regulatory Change,
the Bank determines that, by reason of circumstances affecting the London
interbank market generally, adequate and fair means do not or will not exist for
determining the LIBOR Rate, (ii) by reason of any Regulatory Change, the Bank
becomes restricted in the amount which it may hold of a category of liabilities
which includes deposits by reference to the LIBOR Rate or a category of assets
which includes loans which bear interest at a rate determined in part by
reference to the LIBOR Rate, (iii) by reason of any Regulatory Change, it shall
be unlawful for the Bank to maintain a LIBOR Rate Advance, or any portion
thereof, bearing interest at the Adjusted LIBOR Rate, (iv) in the exclusive
judgment of the Bank, deposits are not available to the Bank in the
international interbank market in the requisite amounts and for the requisite
durations, (v) in the exclusive judgment of the Bank, the Adjusted LIBOR Rate
does not adequately reflect the cost to the Bank of making or maintaining a
LIBOR Rate Advance then, in any such case, any LIBOR Rate Advance shall bear
interest at the Prime Rate. If the Bank determines that because of a change in
circumstances the Adjusted LIBOR Rate is again available to the Company
hereunder, the Bank will also advise the Company, and the Company may convert
the rate of interest payable hereunder to the Adjusted LIBOR Rate at any time
(provided the Adjusted LIBOR Rate is otherwise available hereunder) by making
such election in accordance with, and subject to the conditions of, this
Agreement.
2.10 Increased Costs: If, at any time, any Regulatory Change: (i) shall
subject the Bank to any tax, duty or other charge with respect to this
Agreement, except an income tax, based upon the charging and collecting of
interest hereunder at the Adjusted LIBOR Rate or shall change the basis of
taxation or payments to the Bank of the principal of or interest on the LIBOR
Rate Advances, (ii) shall result in the imposition, modification or deemed
applicability of any reserve, special deposit or similar requirements against
assets of, deposits with or for the account of, or credit extended by, the Bank;
(iii) shall, because of the existence of this Agreement, affect the amount of
capital required or expected to be maintained by the Bank, or any corporation
controlling the Bank; or (iv) shall impose on the Bank or the London interbank
market any other condition affecting this Agreement or the charging and
collecting of interest hereunder at the Adjusted LIBOR Rate and the result of
any of the foregoing is, in the Bank's reasonable judgment, (a) to increase the
cost to the Bank of charging and collecting interest hereunder at the Adjusted
LIBOR Rate, or (b) to reduce the return on the Bank's capital or the amount of
any sum received or receivable by the Bank under this Agreement by an amount
deemed by the Bank to be material, upon demand then, by the Bank, the Company
agrees to pay to the Bank such additional amount or amounts as will compensate
the Bank for such increased cost or reduction or, upon receipt of such demand,
request in writing that such Advance be converted to a Prime Rate Advance. Such
payments shall be made on the first date for payment of interest hereunder
following the date of the demand by the Bank and on each such payment date
thereafter or shall be paid promptly on demand if the Borrower is not advised of
the amount of such payment prior to any such payment date. Determinations by the
Bank for purposes of this paragraph of the effect of any Regulatory Change on
its costs of making or maintaining LIBOR Rate Advances and of the additional
amounts required to compensate the Bank in respect thereof, shall be conclusive
absent manifest error in calculation, provided that such determinations are made
in good faith.
2.11 Indemnity: If there is a prepayment of any LIBOR Rate Advance on a
date other than the expiration of the LIBOR Period for any reason whatsoever
including, but not limited to:
a) the occurrence of any Event of Default under this Agreement;
b) the failure of the Borrower to borrow a LIBOR Rate Advance after
sending notice of the amount with respect to the making of any such
Advance;
c) the receipt or recovery by the Bank of all or any part of a LIBOR
Rate Advance prior to the maturity or the last day of the LIBOR Period
thereof (whether by prepayment, acceleration or otherwise) unless due
solely to the conversion of a LIBOR Rate Advance into a Prime Rate Advance
pursuant to Section 2.9 or 2.10 hereof; or
d) the conversion at the Company's request, prior to the last day of
an applicable LIBOR Period, of a LIBOR Rate Advance into a Prime Rate
Advance;
than the Company shall pay to the Bank, as liquidated damages and not as a
penalty, a fee (the "Liquidation Fee") equal to the losses (including but not
limited to, lost profits of the Bank), costs and expenses of the Bank in
connection with such prepayment as determined by the Bank, which payment shall
be made by the Company to the Bank on the date on which such prepayment is made.
The calculations made by the Bank to ascertain such Liquidation Fee shall be
conclusive absent manifest error in calculation by the Bank, provided that such
calculations are made in good faith. The Bank, upon the written request of the
Company, shall advise the Company in writing of the amount of the Liquidation
Fee applicable to any such prepayment including an explanation of how the
Liquidation Fee was calculated.
2.12 Continuation and Conversion of Advances. The Company shall have the
right at any time on prior irrevocable written notice to the Bank as specified
in Section 2.3 to continue any LIBOR Rate Advance into a subsequent LIBOR
Period, (ii) to convert any LIBOR Rate Advance into a Prime Rate Advance, and
(iii) to convert any Prime Rate Advance into a LIBOR Rate Advance, subject to
the following:
(a) in the case of a conversion of less than all of the outstanding
Advances, the aggregate principal amount of Advances converted shall not be
less than $100,000 and shall be an integral multiple thereof; and
(b) no LIBOR Rate Advance shall be converted at any time other than at
the end of a LIBOR Period applicable thereto.
The Company directs the Bank to continue a LIBOR Rate Advance into a subsequent
LIBOR Period, on the last day of the LIBOR Period thereof without any further
notice from the Company unless the Company specifies in writing in accordance
with Section 2.3 that such Advance shall be converted into a Prime Rate Advance.
Notwithstanding anything to the contrary contained above, if a Default or an
Event of Default shall have occurred and is continuing, no LIBOR Rate may be
continued into a subsequent LIBOR Period and no Prime Rate Advance may be
converted into a LIBOR Rate Advance.
2.13 Balance Shortfall Fee: The Company shall pay a balance shortfall fee
for the preceding calendar quarter commencing June 1, 1997 at a rate per annum
equal to the monthly average 91 day treasury bill rate in effect for the quarter
multiplied by the average daily difference between $50,000 and the amount of
aggregate free balances maintained by the Consolidated Group at the Bank for the
quarter. Free balances shall mean balances in non-interest bearing accounts
maintained by the Company or a Guarantor in excess of the amounts required to
compensate the Bank for services rendered, determined in accordance with the
Bank's standard system of analysis for similar accounts. Nothing contained
herein shall require the Consolidated Group to maintain balances.
2.14 Payments: The Company authorizes the Bank to charge its account
maintained at the Bank for each payment of principal or interest due under the
Revolving Credit Note or otherwise under this Agreement on the due date thereof.
If any payment of the Revolving Credit Note or otherwise under this Agreement
becomes due and payable on a Saturday, Sunday or legal holiday under the laws of
the State of New York, the maturity thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable during such
extension.
2.15 Use of Proceeds: The Company hereby covenants and agrees that the
proceeds of (y) the initial Advance will be used to repay indebtedness to the
Bank under the existing revolving credit facility with the Bank dated as of
April 20, 1995 and (z) subsequent Advances will be used to carry projected
increases in accounts receivable due to growth and to support computer hardware
purchases and software development costs. No part of the proceeds of the
Advances will be used directly or indirectly to finance the acquisition of new
companies, including without limitation, Permitted Acquisitions, as defined in
Section 6.2 hereof, or new products or for any purpose that directly or
indirectly violates, or is inconsistent with, the provisions of Regulation U or
X of the Board of Governors of the Federal Reserve System as now and from time
to time hereafter in effect.
2.16 Computations: Interest on the Advances and any other amounts payable
hereunder shall be computed on the basis of a year of three hundred sixty (360)
days for actual days elapsed (including the first day but excluding the last)
occurring in the period for which payable.
SECTION 3: REPRESENTATIONS
In order to induce the Bank to enter into this Agreement and to make the
Advances herein provided for the Company and the Guarantors, jointly and
severally, represent and warrant to the Bank that:
3.1 Subsidiaries; Existence: Set forth on Schedule I annexed hereto is a
list setting forth the name, state of incorporation and percentage ownership of
each Subsidiary on the date hereof. Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has the corporate power to own its assets and to transact
the business in which it is presently engaged and as proposed to be conducted
and is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the failure to so qualify would have a
material adverse effect on the business, financial condition or operations of
the Company or such Subsidiary.
3.2 Company and Guarantors; Existence: The Company and each of the
Guarantors is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, and has the corporate
power to own its assets and to transact the business in which it is presently
engaged and as proposed to be conducted and is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the failure to so qualify would have a material adverse effect on the business,
financial condition or operation of the Company or any Guarantor.
3.3 Corporate Authority: The execution, delivery and performance of this
Agreement, the borrowings hereunder and the execution and delivery of the
Revolving Credit Note and all other Loan Documents executed in connection with
this Agreement by the Company and the Guarantors have been duly authorized by
all requisite corporate action. No consent or approval of stockholders or
consent, approval, license or authorization of, or registration or declaration
with, any governmental or administrative authority, instrumentality, bureau or
agency is required as a condition to the execution, delivery, validity or
enforceability of this Agreement or the Loan Documents executed in connection
herewith except those that have been obtained and delivered to the Bank.
3.4 Binding Agreements: This Agreement and the other Loan Documents when
issued and delivered pursuant hereto for value received, will constitute valid
and legally binding obligations of the Company and the Guarantors enforceable in
accordance with their respective terms except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally.
3.5 Litigation: Except as set forth on Schedule I annexed hereto, there are
no actions, suits, proceedings or investigations pending or threatened, to the
knowledge of the Company, a Subsidiary or any Guarantor, by or against the
Company, a Subsidiary or any Guarantor at law or in equity (whether or not
purportedly on behalf of the Company, a Subsidiary or a Guarantor) before or by
any Federal or state court, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, which in any case or in
the aggregate, if adversely determined, could reasonably be expected to have any
material adverse change in the business, operations, properties or assets, or in
the condition, financial or otherwise, of the Company, any Guarantor or a
Subsidiary or the ability of the Company or any Guarantor to perform their
respective obligations under this Agreement or the other Loan Documents. Neither
the Company nor any Guarantor is in default with respect to any order, decree or
judgment of any court, arbitrator or governmental authority, bureau or agency.
3.6 No Conflicting Law or Agreements: There is no charter, by-law or
preference stock provision of the Company or any Guarantor, and no provision of
any existing mortgage, indenture, contract, shareholder agreement, credit
agreement or other agreement binding on the Company or any Guarantor or
affecting their respective properties, which would conflict with, result in a
breach of or constitute a default thereunder or in any way prevent the
execution, delivery, or carrying out of the terms of this Agreement or the other
Loan Documents. Neither the Company nor a Guarantor is a party to any contract
or agreement or subject to any charge or other corporate restriction which
materially adversely affects its business, property, assets or financial
condition.
3.7 Contingent Liabilities: Except as set forth in the financial statements
delivered to the Bank pursuant to Section 3.8 hereof, neither the Company nor a
Guarantor is liable, directly or indirectly, in connection with the obligations,
stock or dividends of any other Person, whether by guarantee, endorsement,
agreement to supply or advance funds, agreement to maintain working capital or
net worth, agreement to purchase or repurchase goods or services whether or not
such goods or services are actually acquired, any other so-called "take-or-pay"
contract, or otherwise.
3.8 Financial Condition: The consolidated balance sheet of the Consolidated
Group as of May 31, 1996 together with the related consolidated statements of
income, retained earnings and cash flows for the fiscal year then ended audited
by Marcum & Kleigman, CPAs and the interim consolidated balance sheet of the
Consolidated Group as of November 30, 1996 together with the related
consolidated statements of income, retained earnings and cash flows for the
fiscal quarter then ended prepared by management to the Company and certified by
the chief financial officer of the Company and delivered to the Bank, are
complete and correct and fairly present the financial condition of the
Consolidated Group, and the results of the Consolidated Group's operations as of
the dates and for the periods referred to and have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved (subject to year-end adjustments in the case of the interim
statements). There has been no material adverse change in the material business,
properties, condition (financial or otherwise) or operations of the Company or
any Guarantor since the date of said financial statements.
3.9 Title to Properties: The Company, each of the Guarantors and their
Subsidiaries have valid leases of or good and marketable title to their
respective properties and assets, including the properties and assets reflected
in the balance sheets described in Section 3.8. Such properties and assets are
not subject to any Lien, except as reflected in such balance sheets.
3.10 Taxes: The Company, each of the Guarantors and their Subsidiaries have
filed or have obtained extensions for the filing of, all Federal tax returns
which are required to be filed and all state and other tax returns which the
Company and the Guarantors believe in good faith are required to be filed and
have paid all taxes shown as due. All the tax liabilities of the Company, each
of the Guarantors and their Subsidiaries are adequately provided for as of the
date hereof.
3.11 Default: No Default or Event of Default has occurred and is
continuing, or will occur as the result of the consummation of the transactions
contemplated hereby and neither the Company, any Guarantor nor any Subsidiary is
in default in any material respect in the observance or performance of any of
the covenants, terms or conditions of any agreement or instrument to which it is
a party.
3.12 No Burdensome Agreements: Neither the Company, any Guarantor nor any
Subsidiary is (a) subject to any restriction under its certificate of
incorporation or by-laws which materially adversely affects the business,
properties, assets, operations or financial condition of the Company, any
Guarantor or any Subsidiary or (b) a party to any agreement or instrument which
materially adversely affects the business, properties, assets, operations or
financial condition of the Company, any Guarantor or any Subsidiary.
3.13 ERISA: The Company, each Guarantor, each Subsidiary and each ERISA
Affiliate are in compliance in all material respects with all applicable
provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has
occurred and is continuing with respect to any Plan; no notice of intent to
terminate a Plan has been filed nor has any Plan been terminated; no
circumstances exist which constitute grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administer a Plan, nor has the PBGC instituted such proceedings; neither the
Company, a Guarantor, a Subsidiary nor an ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4202 or ERISA from a Multiemployer
Plan; the Company, each Subsidiary, each Guarantor, and each ERISA Affiliate
have met their minimum funding requirements under ERISA with respect to all of
their Plans and the present fair market value of all Plan assets meets or
exceeds the present value of all vested benefits under each Plan, as determined
on the most recent valuation date of the Plan in accordance with the provisions
of ERISA and the regulations thereunder for calculating the potential liability
of the Company, each Subsidiary, each Guarantor or each ERISA Affiliate to the
PBGC or the Plan under Title IV of ERISA; and neither the Company, a Guarantor,
a Subsidiary nor an ERISA Affiliate has incurred any liability to the PBGC under
ERISA.
3.14 Operation of Business: The Company, the Guarantors and their
Subsidiaries possess all licenses, permits, franchises, patents, copyrights,
trademarks and trade names, or rights thereto, to conduct their respective
businesses substantially as now conducted and as presently proposed to be
conducted and the Company, the Guarantors and their Subsidiaries are not in
violation of any valid rights of others with respect to any of the foregoing.
<PAGE>
SECTION 4: CONDITIONS TO ADVANCES
4.1 Conditions to the Initial Advance: The obligation of the Bank to make
the initial Advance hereunder is subject to compliance with the following
conditions precedent to the satisfaction of the Bank:
(a) Revolving Credit Note: There shall have been delivered to the Bank
the Revolving Credit Note duly executed by the Company and payable to the
order of the Bank in the form of Exhibit A.
(b) Guaranties: There shall have been delivered to the Bank unlimited
continuing guaranties of the Guarantors on the Bank's standard form
including corporate resolutions and, except with respect to Sandata, Inc.,
shareholder consents (collectively, the "Guaranties").
(c) Security Agreements: There shall have been delivered to the Bank
equipment security agreements of the Company and the Guarantors on the
Bank's standard form (collectively, the "Security Agreements") granting the
Bank a first priority security interest in the Company's
and each Guarantor's equipment together with
(degree) security agreement questionnaires
(degree) UCC-11 searches
(degree) UCC-3 financing statement amendments and/or
UCC-1 financing statements, as appropriate
(d) Amendment to IRB Guaranty: There shall have been delivered to the
Bank an amendment to the guaranty executed in connection with the 1994
Nassau County Individual Development Revenue Bonds (Brodsky Sibling Realty,
Inc. Project).
(e) Insurance Certificate: There shall have been delivered to the Bank
an insurance certificates naming the Bank as loss payee with respect to the
Company's and each Guarantor's equipment.
(f) Landlord Waiver: There shall have been delivered to the Bank
landlord waivers from the landlords of each site at which any equipment of
the Company or the Guarantors is located.
(g) Certified Copies and Other Documents: There shall have been
delivered to the Bank such certificates and other documents relating to the
Company and the Guarantors with respect to the matters herein contemplated
as the Bank may reasonably request, including but not
limited to:
(i) With respect to the Company and each Guarantor, its
certificate of incorporation certified by the Secretary of State of
the Company's and each Guarantor's state of incorporation;
(ii) With respect to the Company and each Guarantor, certificates
of good standing from the Secretary of State of the Company's and each
Guarantor's state of incorporation and, if not incorporated under the
laws of the State of New York, a certificate of authority to do
business in New York from the New York Secretary of State;
(iii) An Officers' Certificate of the Company dated the date of
this Agreement certifying, (w) true and correct copies of the by-laws
and any amendments thereto of the Company as in effect on the date of
adoption of the resolutions referred to in (x) of this subsection
(iii), (x) true and correct copies of resolutions adopted by the board
of directors of the Company (1) authorizing the Advances from the Bank
hereunder and the execution, delivery and performance by the Company
of this Agreement and any other Loan Document executed in connection
herewith and the granting of the security interest as contemplated by
the Company's Security Agreement, (2) approving forms in substantially
execution form of this Agreement and the other Loan Documents, and (3)
authorizing officers of the Company to execute and deliver this
Agreement and the other Loan Documents and any related documents, (y)
the incumbency and specimen signatures of the officers of the Company
executing any documents delivered to the Bank by the Company in
connection with the Advances, and (z) the truth of the representations
and warranties contained in Section 3 hereof;
(iv) An Officers' Certificate of each Guarantor dated the date of
this Agreement certifying (x) true and correct copies of the by-laws
and any amendments thereto of such Guarantor as in effect on the date
of adoption of the resolutions referred to in the Guaranties, (y) the
incumbency and specimen signatures of the officers of the Guarantor
executing its Guaranty and (z) the truth of the representations and
warranties contained in Section 3 hereof.
(h) Opinion of Counsel: There shall have been delivered to the Bank an
opinion of Stuart Angowitz, Esq., counsel to the Company and the
Guarantors, dated the date of this Agreement in form and substance
satisfactory to the Bank and its counsel.
(i) Assignment of Life Insurance Policy: There shall have been
delivered to the Bank an Assignment of Life Insurance Policy as Collateral
("Assignment of Life Insurance") on the Bank's standard form on the life of
Bert E. Brodsky in the amount of $2,000,000.00 acknowledged by the home
office of the insurer together with a life insurance questionnaire on the
Bank's standard form and the original life insurance policy.
(j) Fees: There shall have been delivered to the Bank evidence of
payment of all fees associated with this Agreement including the Bank's
commitment fee and fees and disbursements of the Bank's counsel.
4.2 Conditions to each Advance: The obligation of the Bank to make each
Advance to be made by it hereunder shall also be subject to the following
conditions precedent: (i) the Company and the Guarantors shall have complied
with and shall be in compliance with all the terms, covenants and conditions of
this Agreement; (ii) there shall exist no Default or Event of Default; (iii) the
representations and warranties contained in Section 3 hereof shall be true and
correct; and (iv) there shall have been delivered to the Bank a certificate to
the foregoing effect executed by a duly authorized officer of the Company and
the Guarantors.
4.3 Approval of Bank's Counsel: All of the documentation specified in
Section 4.1 shall be in form and substance satisfactory to the Bank and its
counsel and all legal matters incident to the Advances hereunder shall be
satisfactory to counsel to the Bank.
SECTION 5: AFFIRMATIVE COVENANTS
The Company and the Guarantors, jointly and severally, covenant and agree
that, so long as the Commitment remains in effect or the Revolving Credit Note
remains outstanding and unpaid or any other amount is owing to the Bank
hereunder and until the fulfillment of all obligations hereunder to:
5.1 Information: Furnish to the Bank:
(1) As soon as possible, but not more than one hundred thirty (130)
days after the close of each fiscal year, the Consolidated Group's Form
10-K and the financial statements of the Consolidated Group including a
consolidated balance sheet with related consolidated statements of income,
retained earnings and cash flows for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year, all
prepared in accordance with generally accepted accounting principles
consistently applied and audited by Marcum & Kliegman, CPAs or another
accounting firm acceptable to the Bank. Such financial statements shall be
accompanied by a certificate of such accounting firm stating whether the
audit revealed any Default or Event of Default and, if so, stating the
facts with respect thereto and whether the same has been cured prior to the
date of such certificate, and, if not, what action is proposed to be taken
with respect thereto.
(2) As soon as possible, but not more than ninety (90) days after the
close of each of the first three fiscal quarters of each fiscal year, the
Consolidated Group's Form 10-Q and the financial statements of the
Consolidated Group including a consolidated balance sheet with related
consolidated statements of income, retained earnings and cash flows for the
immediately preceding fiscal quarter, setting forth in each case in
comparative form the figures for the comparable fiscal quarter of the
previous year, all prepared in accordance with generally accepted
accounting principles consistently applied (subject to year end
adjustments) prepared by management to the Company and certified by the
chief financial officer of the Company. Such financial statements shall be
accompanied by an Officers' Certificate stating whether a Default or Event
of Default has occurred and, if so, stating the facts with respect thereto
and whether the same has been cured prior to the date of such certificate,
and, if not, what action is proposed to be taken with respect thereto. Such
financial statements shall be accompanied by an Officers' Certificate
evidencing compliance with the financial covenants contained in Section
5.10 hereof, in form and detail acceptable to the Bank.
(3) Prompt written notice if: (i) any obligation (other than an
obligation under this Agreement) of the Company, a Guarantor or a
Subsidiary for borrowed money or for the deferred purchase price of any
property is declared or shall become due and payable prior to its stated
maturity, (ii) the holder of any note (other than the Revolving Credit
Note), or other evidence of indebtedness, certificate or security
evidencing any such obligation, has the right to declare such obligation
due and payable prior to its stated maturity, or (iii) to the knowledge of
any officer of the Company or any Guarantor there shall occur a Default or
an Event of Default hereunder.
(4) Prompt written notice of: (i) any citation, summons, subpoena,
order to show cause or other order naming the Company, a Guarantor or a
Subsidiary a party to any proceeding before any governmental body which if
adversely determined would have a material adverse effect on the business,
financial condition or operations of the Company, a Guarantor or a
Subsidiary, and include with such notice a copy of such citation, summons,
subpoena, order to show cause or other order, (ii) any lapse or other
termination of a license, permit or other authorization issued to the
Company, a Guarantor or a Subsidiary by any governmental body or Person,
which lapse or other termination would have a material adverse effect on
the property, business, profits or conditions (financial or otherwise) of
the Company, a Guarantor or a Subsidiary, (iii) any refusal by any
governmental body or Person to renew or extend such license, permit or
other authorization, and (iv) any suit between the Company, a Guarantor or
a Subsidiary and any governmental body or Person or formal demand made upon
the Company, a Guarantor or a Subsidiary by any governmental body or Person
which if adversely determined would have a material adverse effect on the
property, business, profits or conditions (financial or otherwise) of the
Company, a Guarantor or a Subsidiary.
(5) Prompt written notice in the event that: (i) the Company, a
Guarantor or a Subsidiary shall fail to make any payment when due and
payable under any Plan or (ii) the Company, a Guarantor or a Subsidiary
shall receive notice from the Internal Revenue Service or the Department of
Labor that it shall have failed to meet the minimum funding requirements of
any Plan, and include therewith a copy of such notice.
(6) Copies of any request for a waiver of the funding standards or any
extension of the amortization periods required by Sections 303 and 304 of
ERISA, or Section 402 of the Code, promptly after any such request is
submitted to the Department of Labor or the Internal Revenue Service, as
the case may be.
(7) Promptly after a Reportable Event occurs which may result in a
termination of a Plan, or the Company, a Guarantor or a Subsidiary receives
notice that the PBGC has instituted or intends to institute proceedings
under Section 4042 of ERISA to terminate a Plan, a copy of any notice of
such Reportable Event which is filed with the PBGC, or any notice delivered
by the PBGC evidencing its institution of such proceedings or its intent to
institute such proceedings, or any notice to the PBGC that a Plan is to be
terminated, as the case may be.
(8) Promptly upon becoming aware of the occurrence of any Prohibited
Transaction in connection with any Plan, a written notice specifying the
nature thereof, what action the Company, a Guarantor or a Subsidiary is
taking or proposes to take with respect thereto, and, when known, any
action taken by the Internal Revenue Service with respect thereto.
(9) Promptly after the filing thereof, copies of each annual report
required to be filed pursuant to Section 103 of ERISA and copies of any
other reports required to be filed with respect to any Plan.
(10) Promptly upon becoming available, copies of all regular, periodic
or special reports, schedules, and other material which the Company, a
Guarantor or a Subsidiary may now or hereafter be required to file with or
deliver to any securities exchange or to the Securities and Exchange
Commission, or any other governmental body succeeding to the functions
thereof.
(11) Prior to entering into a Permitted Acquisition, as defined in
Section 6.2 hereof, written notice to the Bank outlining the terms of such
acquisition in form and detail reasonably acceptable to the Bank.
(12) Promptly upon the occurrence of any change to Schedule I
delivered pursuant hereto, a revised Schedule I.
(13) Promptly upon request therefor, such other information and
reports relating to the financial condition and operations of the Company,
a Guarantor or a Subsidiary as the Bank at any time or from time to time
may reasonably request.
5.2 Existence: Preserve and maintain, and cause each Subsidiary to
preserve and maintain, its corporate existence and its rights, privileges
and franchises.
5.3 Payment of Obligations: Pay and discharge, and cause each
Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income and profits, or upon
any property belonging to it, prior to the date upon which penalties attach
thereto except where contested in good faith and by proper proceedings if
appropriate reserves are maintained with respect thereto.
5.4 Insurance: Maintain and cause each Subsidiary to maintain
insurance, at all times throughout the term of this Agreement, on its
property with responsible insurance carriers licensed to do business in the
State of New York, against such risks, loss, damage and liability
(including liability to third parties) and in such amounts as is
customarily maintained by similar businesses, including, without
limitation, public liability and workers' compensation insurance, and file
with the Bank within ten (10) days after request therefor a detailed list
of such insurance then in effect, stating the names of the carriers
thereof, the policy numbers, the insureds thereunder, the amounts of
insurance, dates of expiration thereof and the property and risks covered
thereby, together with a certificate of a duly authorized officer of the
Company or a Guarantor certifying that in the opinion of the management of
the Company or a Guarantor such insurance is adequate in nature and amount,
complies with the obligations of the Company or a Guarantor under this
paragraph, and is in full force and effect.
5.5 Payment of Indebtedness and Performance of Obligations: Pay and
discharge, and cause each Subsidiary to pay and discharge promptly all
lawful claims for labor, materials and supplies or otherwise which, if
unpaid, would have a material adverse effect on the property, business,
profits or conditions (financial or otherwise) of the Company, a Guarantor
or a Subsidiary.
5.6 Condition of Property: Maintain, protect and keep in good repair,
working order and condition, all property of the Company and the Guarantors
used or required in connection with the proper conduct of the Company's or
Guarantor's business, ordinary wear and tear excepted and
cause each Subsidiary to do the same.
5.7 Observance of Legal Requirements: Observe and comply and cause
each Subsidiary to observe and comply in all respects with all laws
(including but not limited to ERISA), ordinances, orders, judgments, rules,
regulations, certifications, franchises, permits, licenses, directions and
requirements of all governmental bodies which now or at any time thereafter
may be applicable to the Company, a Guarantor or a Subsidiary, a violation
of which would have a material adverse effect on the property, business,
profits or conditions (financial or otherwise) of the Company, a Guarantor
or a Subsidiary except where contested in good faith and by proper
proceedings if appropriate reserves, in the Bank's reasonable judgment, are
maintained with respect thereto.
5.8 Books and Records: Keep, and cause each Subsidiary to keep, proper
books of record and account.
5.9 Inspection: At any reasonable time and from time to time, upon
reasonable notice and during normal business hours, permit the Bank,
through officers or employees or authorized representatives to visit and
inspect any of the properties of the Company or a Guarantor and its
Subsidiaries and to examine the minute books, books of account, reports and
other records of the Company and its Subsidiaries and make copies thereof
or extracts therefrom, and to discuss the affairs, finances and accounts of
the Company and its Subsidiaries with their respective principal officers
or with the Company's or a Guarantor's independent accountants.
5.10 Financial Requirements: (a) Maintain on the date of this
Agreement and at all times thereafter, or for the periods indicated below,
the following financial requirements on a consolidated basis with respect
to the Consolidated Group:
(i) Working capital of at least $1,000,000.00. Solely for
purposes of calculating compliance with the covenant contained in this
Section 5.10(a)(i), the Advances and notes due Affiliates which are
evidenced by long term promissory notes shall not be considered
Current Liabilities. Current Liabilities shall mean all indebtedness
for borrowed money payable within one year.
(ii) Net Worth of at least:
$4,200,000 from the date hereof to and including May 30, 1997;
$5,500,000 from May 31, 1997 to and including May 30, 1998, to be
increased by $250,000 in each fiscal year thereafter.
(iii) A total liabilities to Net Worth ratio of not more than 1.0
to 1.0.
(iv) A Debt Service Coverage Ratio of at least 1.2 to 1.0 at each
fiscal year end.
(v) An Interest Coverage Ratio of at least 4.0 to 1.0 at each
fiscal year end.
As used in this Section:
Net Worth shall mean the sum of retained earnings, additional paid in
capital plus common stock less net intangible assets and loans and advances to
officers and Affiliates of Sandata, Inc. and its Subsidiaries all as determined
in accordance with generally accepted accounting principles consistently
applied. Solely for purposes of calculating compliance with the covenants
contained in Section 5.10(a)(ii) and (iii), leasehold improvements and
unamortized software costs shall not be considered intangible assets.
Debt Service Coverage Ratio shall mean a ratio of earnings before interest,
taxes, depreciation and amortization to total debt service.
Interest Coverage Ratio shall mean a ratio of earnings before interest,
taxes, depreciation and amortization to total interest expense.
(b) Realize on a consolidated basis with respect to the Consolidated Group
for each fiscal year, a net profit after taxes determined in accordance with
generally accepted accounting principles consistently applied of at least $1.00.
5.11 New Subsidiaries: Cause any wholly owned Subsidiary formed after the
date of this Agreement to execute and deliver to the Bank an unlimited
continuing Guaranty on the Bank's standard form and obtain or cause to be
obtained resolutions authorizing same and shareholder consents thereto.
SECTION 6: NEGATIVE COVENANTS
The Company and the Guarantors, jointly and severally, agree that, so long
as the Commitment remains in effect or the Revolving Credit Note remains
outstanding and unpaid or any other amount is owing to the Bank hereunder,
neither the Company nor any Guarantor shall directly or indirectly, without the
written consent or waiver of the Bank:
6.1 Indebtedness for Borrowed Money. Create, incur, assume or suffer to
exist any indebtedness for borrowed money except for (i) indebtedness for
borrowed money to the Bank, (ii) indebtedness for borrowed money reflected in
the financial statements referred to in Section 3.8 hereof including any
extensions, renewals or replacements of any such indebtedness, (iii)
indebtedness for borrowed money subordinated on terms reasonably satisfactory to
the Bank to the Company's or Guarantor's, as the case may be, obligations to the
Bank under this Agreement, the Revolving Credit Note or otherwise, and (iv)
indebtedness for borrowed money not exceeding $500,000 in the aggregate.
6.2 Limitation on Liens: Create, incur, assume or suffer to exist any Lien
upon, or any security interest in, any of its property or assets, whether now
owned or hereafter acquired, or permit any Subsidiary to do so except for (i)
Liens granted to the Bank, (ii) Liens on accounts receivable securing
indebtedness permitted by Section 6.1 (iii) hereof and (iii) except purchase -
money liens or security interests on any property hereafter acquired or the
assumption of any lien or security interest on property existing at the time of
such acquisition or a lien or security interest incurred in connection with any
conditional sale or other title retention agreement or a finance lease provided
that any property subject to any of the foregoing is acquired by the Company or
any Guarantor in the ordinary course of their respective businesses and the lien
or security interest on any such property is created contemporaneously with such
acquisition and each such lien or security interest shall attach only to the
property so acquired and the obligation secured by such lien is permitted under
Section 6.1 hereof and the related expenditure is permitted under Section 6.7
hereof.
6.3 Merger, Consolidation and Acquisition: Merge into or consolidate with
any other Person or permit any other Person to merge into it or acquire all or
substantially all the properties or assets or stock of any other Person or
become a partner of or venturer with any other Person or permit any Subsidiary
to do so except that (a) any Subsidiary may merge into or transfer assets to the
Company, (b) any Subsidiary may merge into or consolidate with or transfer
assets to another Subsidiary, (c) provided the Bank has been given notice
pursuant to Section 5.1(11), the Company may merge into any other Person
provided the Company is the surviving corporation or acquire all or
substantially all of the properties or assets of any other Person in any
transaction which, after giving effect to such merger or acquisition, would not
otherwise violate any of the provisions of this Agreement including but not
limited to Sections 5.10, 6.7 and 6.9 (such merger or acquisition hereinafter a
"Permitted Acquisition"); provided, however, if the Person to be acquired
conducts business outside of the Company's Line of Business, such acquisition
shall not be considered a Permitted Acquisition and will not be permitted
without the Bank's prior written consent which consent will not be unreasonably
withheld or delayed. The Company's Line of Business shall mean the business of
providing computerized data processing services to the health care industry and
the general commercial market.
6.4 Sale of Assets: Sell, assign, transfer, lease or otherwise dispose of
all or any part of its assets or property or permit any Subsidiary to do so
(which consent will not be unreasonably withheld or delayed) except (a) for the
sale or other disposition of assets no longer used or useful in the conduct of
its business, (b) for the sale of inventory disposed of in the ordinary course
of business, (c) subject to the proviso below, any Subsidiary may sell, assign,
lease or otherwise transfer its assets to the Company and (d) subject to the
proviso below, any Subsidiary may sell, assign, lease or otherwise transfer its
assets, provided in each instance referred to in (c) or (d) hereof, the proceeds
of the sale are used to repay Advances.
6.5 Contingent Liabilities: Assume, guarantee, endorse, sell with recourse,
contingently agree to purchase, discount, or otherwise become or remain liable
with respect to any indebtedness, obligation or other liability of any Person,
or enter into any agreement for the purchase or other acquisition of any
products, materials or supplies, or for transportation or for the payment for
services, if in any such case payment therefor is to be made regardless of the
non-delivery of the products, materials or supplies or the non-furnishing of the
transportation or service except for (a) the endorsement of negotiable
instruments in the ordinary course of business, (b) guaranties in favor of the
Bank, (c) provided no Default or Event of Default has occurred or would occur as
a result of entering into or performing the following guaranties, guaranties of
auto leases which leases do not in the aggregate require the Company and the
Guarantors to make payments (including taxes, insurance and similar expenses
which the Company or any Guarantor is required to pay under the terms of any
lease) during any calendar year in excess of $100,000.00 and (d) a guaranty by
the Company and the Guarantors of the obligations of BFS Realty LLC to the U.S.
Small Business Administration in a principal amount not exceeding $750,000.00.
6.6 Investments; Loans: Purchase, acquire, exercise an option to purchase
or acquire, or own the assets, obligations, stock or any other interest of or
in, or make loans or advances to, or investments in, any Person, whatsoever
except for (i) investments in certificates of deposit issued by or time deposits
with banks with capital in excess of One Hundred Million and 00/100
($100,000,000.00) Dollars; (ii) direct obligations of the United States
Government; (iii) loans reflected in the financial statements referred to in
Section 3.8 hereof, but not any extensions, renewals or replacements of any such
loans; (iv) acquisitions permitted by Section 6.3 hereof and (v) commercial
paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation
or "P-1" by Moody's Investors Service, Inc.
6.7 Capital Expenditures: Make any net expenditures, or permit any
Subsidiary to do so, on a consolidated basis for fixed or capital assets
including software development costs exceeding, on a cumulative basis in the
aggregate, $2,500,000.00 for any fiscal year net of sale/leaseback
proceeds.
6.8 Nature of Business: Change the general nature of its business or the
general manner of conducting its business or permit any Subsidiary to do so.
6.9 Transactions with Affiliates: Except in the ordinary course of and
pursuant to the reasonable requirements of the Company's or a Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than would obtain in a comparable arms' length transaction with
a Person not an Affiliate, enter into any transaction, including, without
limitation, the purchase, sale, or exchange of property or the rendering of any
service, with any Affiliate, or permit any Subsidiary to enter into any
transaction, including, without limitation, the purchase, sale, or exchange of
property or the rendering of any service, with any Affiliate. "Affiliate" shall
mean a person (1) which directly or indirectly controls, or is controlled by, or
is under common control with the Company or a Subsidiary, (2) which directly or
indirectly beneficially owns or holds five (5%) percent or more of any class of
voting stock of the Company or any Subsidiary, or (3) five (5%) percent or more
of the voting stock of which is directly or indirectly beneficially owned or
held by the Company or a Subsidiary. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
6.10 No Lien Senior to or Equal to Loan Documents: Create or cause to be
created any lien or charge on any property subject to the security interests of
the Loan Documents which is superior or equal to the liens or security interests
of the Loan Documents.
6.11 Change of Management: Permit Bert E. Brodsky at any time to not be
active on a substantially full time basis in the affairs of the Company by
maintaining the position of President or its equivalent.
6.12 Dividends and Purchase of Stock: Declare any dividends or make any
distributions either in cash or property on any shares of any class of its
capital stock or apply any of its property or assets to the purchase, redemption
or other retirement of, or set apart any sum for the payment of any dividends
on, or the purchase, redemption or other retirement of, or make any other
distribution by reduction of capital or otherwise in respect of, any shares of
any class of capital stock of the Company or any Guarantor; provided, however,
Sandata, Inc. may redeem stock in an aggregate amount not to exceed
$3,000,000.00 provided that Sandata, Inc. simultaneously raises capital in the
amount of the redeemed stock and provided further that no Default or Event of
Default has occurred or will occur as a result of such redemption.
SECTION 7: EVENTS OF DEFAULT
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
agreement, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) Default in the payment of the principal of or interest on the
Revolving Credit Note or any amount payable pursuant to Section 2.5 or 2.6;
or
(b) Any representation or warranty made by the Company or a Guarantor
herein or any statement or representation made in any certificate, report
or opinion delivered pursuant hereto shall prove to have been incorrect in
any material respect when made; or
(c) Default in the due observance or performance of any covenant,
condition or agreement on the part of the Company, a Guarantor or a
Subsidiary to be observed or performed pursuant to Section 5.10 or 5.11 or
Section 6 hereof; or
(d) Default in the due observance or performance of any other
covenant, condition or agreement on the part of the Company, a Guarantor or
a Subsidiary to be observed or performed pursuant hereto (other than a
covenant, condition or agreement a default in the performance of which or a
breach of which is elsewhere in this Section specifically dealt with) and
such default shall remain unremedied for thirty (30) consecutive calendar
days after written notice shall have been given by the Bank; or
(e) Entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company, a Subsidiary or a Guarantor a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company, a Subsidiary or a Guarantor under the Federal Bankruptcy Code
or any other applicable Federal or state law, or appointing a receiver,
liquidator, assignee, trustee, (or other similar official) of the Company,
a Subsidiary or a Guarantor or of any substantial part of their respective
properties, or ordering the winding up or liquidation of their respective
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of sixty (60) consecutive days; or
(f) The Company, a Subsidiary or a Guarantor shall: (i) apply for or
consent to the appointment of a receiver, trustee or liquidator of the
Company, such Subsidiary or such Guarantor or any of their respective
properties or assets; (ii) admit in writing its inability to pay its debts
as they mature; (iii) make a general assignment for the benefit of
creditors; (iv) be adjudicated a bankrupt or insolvent; or (v) file a
voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such
law or if corporate action shall be taken by the Company, any such
Subsidiary or any such Guarantor, for the purpose of effecting any of the
foregoing; or
(g) Rendering against the Company, a Subsidiary or a Guarantor of one
or more judgments, decrees or orders for the payment of money in excess of
Two Hundred Fifty Thousand and 00/100 ($250,000.00) Dollars in the
aggregate other than a judgment for which the Company, Subsidiary or
Guarantor is fully insured and the continuance of such judgments, decrees
or orders unsatisfied and in effect for a period of thirty (30) consecutive
days without a stay of execution; or
(h) The Company, a Subsidiary or a Guarantor defaults in any payment
of principal of or interest on any indebtedness or obligation for borrowed
money (other than the Revolving Credit Note) or for the deferred purchase
price of property (which indebtedness, obligation, or deferred purchase
price exceeds One Hundred Thousand and 00/100 ($100,000.00) Dollars in the
aggregate) or defaults in the performance of any other agreement, term or
condition contained in any such obligation or in any agreement relating
thereto, if the effect of such default is to cause, or to permit the holder
or holders of such obligation (or a trustee on behalf of such holder or
holders) to cause, such obligation to become due prior to its stated
maturity; or
(i) Any of the following events occur or exist with respect to the
Company, a Guarantor, a Subsidiary or an ERISA Affiliate: (1) any
Prohibited Transaction involving any Plan, (2) any Reportable Event shall
occur with respect to any Plan, (3) the filing under Section 4041 of ERISA
of a notice of intent to terminate any Plan or the termination of any Plan,
(4) any event or circumstance exists which might constitute grounds
entitling the PBGC to institute proceedings under Section 4042 of ERISA for
the termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings, or (5)
complete or partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization, insolvency or termination of any
Multiemployer Plan, and in each case above, such event or condition,
together with all other events or conditions, if any, could in the opinion
of the Bank subject the Company to any tax, penalty, or other liability to
a Plan, a Multiemployer Plan, the PBGC or otherwise (or a combination
thereof) which in the aggregate exceed or may exceed Two Hundred Fifty
Thousand and 00/100 ($250,000.00) Dollars; or
(j) Any Loan Document shall cease to be in full force and effect or
the party obligated thereunder shall assert that it has no further
obligation to the Bank thereunder.
Then, upon the happening of any of the foregoing Events of Default, the
Commitment of the Bank to make any further Advance shall terminate, the
principal of and accrued interest on the Revolving Credit Note shall become and
be immediately due and payable upon declaration to that effect delivered by the
Bank to the Company; provided, that, upon the happening of any event specified
in subsections (e) or (f) of this Section 7, the obligation of the Bank to make
the Commitment of the Bank to any further Advances shall terminate and the
Revolving Credit Note shall be immediately due and payable without declaration
or other notice to the Company and the Company expressly waives any presentment,
demand, protest or other notice of any kind.
If one or more Events of Default shall occur, the Bank shall have the
right, in addition to all other rights and remedies available to it, to set off
against the unpaid balance of the Revolving Credit Note any debt owing to the
Company by the Bank, including without limitation, any funds in any deposit
account maintained by the Company with the Bank, and nothing in this Agreement
shall be deemed any waiver or prohibition of the Bank's right of banker's lien
or set-off.
SECTION 8: MISCELLANEOUS
8.1 Consents to Amendments: This Agreement may be amended and the Company
may take any action prohibited, or omit to perform any act required to be
performed by it, if the Company shall first obtain the Bank's written consent to
such amendment, action or omission to act.
8.2 Survival of Representations: All representations, warranties, covenants
and agreements made by the Company and the Guarantors in connection herewith
shall survive the execution and delivery of this Agreement and the Revolving
Credit Note.
8.3 Successors and Assigns: All covenants and agreements herein shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto, provided the Company may not transfer or assign any of its rights or
interests hereunder without the specific written consent of the Bank.
8.4 Liability in Acting: In connection with this Agreement and the
Commitment, each party hereto will be protected in acting upon any notice,
request, consent, certificate, agreement, writing, signature, resolution,
application or other paper or document believed by it to be genuine and to have
been signed, executed, passed, presented or delivered by the proper party or
parties.
8.5 The Bank's Rights Not Waived; Cumulative Rights: Wherever in this
Agreement or in any other manner an option, power or right is granted the Bank,
it may be exercised without notice to the Company, except as in this Agreement
specifically provided. Each and every right granted to the Bank hereunder or
under any other document delivered hereunder or in connection herewith, or
allowed it by law or equity, shall be cumulative and may be exercised from time
to time. No delay, omission or failure to act on the part of the Bank in
exercising any option, power or right, shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude the other, later or
further exercise thereof or the exercise of any other power or right.
8.6 Expenses: The Company agrees (a) to pay or reimburse the Bank for its
origination fee and the fees and disbursements of counsel to the Bank in
connection with the development, preparation and execution of this Agreement and
any other Loan Document prepared in connection herewith, and the consummation of
the transactions contemplated hereby and thereby and all of its out-of-pocket
costs and expenses incurred in connection with the development, preparation and
execution of any amendment, supplement or modification to this Agreement and any
other Loan Document prepared in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
fees and disbursements of counsel to the Bank; and (b) to pay or reimburse the
Bank for all its costs and expenses incurred in connection with the enforcement
or preservation of any rights under this Agreement and any such other Loan
Document, including, without limitation, fees and disbursements of counsel to
the Bank. The agreements in this subsection shall survive repayment of the Notes
and all other amounts payable hereunder.
8.7 Other Agreements: The rights granted to the Bank by the Company
hereunder are cumulative and in addition to the rights granted by every other
agreement which the Company at any time executes and delivers to the Bank, and
no such agreement shall be read or construed to limit, restrict or otherwise
modify in any way the rights given hereby, except as the intent to limit is
expressly set forth in such agreement and likewise no provision of this
Agreement shall be deemed to limit, restrict or otherwise modify in any way any
rights granted to the Bank by other agreements by the Company. All agreements
herein contained and contained in any such other written agreement, whether
typed or otherwise, shall be fully effective and fully enforceable in favor of
the Bank and against the Company, except that if there by a conflict in the
provisions of such agreements with this Agreement, the provisions of this
Agreement shall prevail, and if there are similar but not identical provisions,
the provisions of this Agreement shall prevail.
8.8 Repayment: Subject to the terms and conditions of this Agreement, the
Company hereby covenants and agrees to repay to the Bank its obligations
hereunder, both principal and interest, as and when the same shall become due
and payable, and faithfully to perform every term, condition and covenant of
this Agreement and of any instrument evidencing such obligation, and every other
agreement securing or relating to the same.
8.9 Applicable Law and Jurisdiction: This Agreement and the rights and
obligations of the parties hereunder shall be construed and interpreted in
accordance with the law of the State of New York. The Company hereby submits to
the jurisdiction of the Supreme Court of the State of New York and agrees with
the Bank that personal jurisdiction over the Company shall rest with said Court
for purposes of any action on or related to this Agreement or the Note
contemplated hereby.
8.10 Counterclaim; Trial by Jury: The Company and the Guarantors hereby
expressly waive any and every right to interpose a counterclaim (except
mandatory counterclaims) and to a trial by jury in any action on or related to
this Agreement or any Loan Document or the enforcement of
either or all of the same.
8.11 Entire Agreement: The Company, the Guarantors and the Bank agree that
this Agreement and the other Loan Documents executed and delivered in connection
herewith including the Notes represent the entire understanding of the parties.
No modification, amendment or waiver of any provision of this Agreement or the
other Loan Documents, nor consent to any departure by the Company, a Guarantor
or a Subsidiary shall in any event be effective unless the same shall be in
writing and signed by the Bank and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
statements, agreements or representations, oral or written, which may have been
made either by the Bank or by any employee, agent or broker with respect to this
Agreement or the Advances shall be of any force or effect, except to the extent
stated in this Agreement, and all prior agreements and representations in
respect of this Agreement and the Advances are merged herein so that this
Agreement shall contain the entire agreement with respect to the provisions of
the Advances referred to herein. The Company and the Guarantors hereby expressly
acknowledge and agree that (i) no oral commitments have been made by the Bank to
extend or continue any credit to the Company or any other party, (ii) the Bank
has made no representation or agreement that it will forebear or refrain in any
way from exercising any right or remedy in its favor hereunder or otherwise
against the Company, and (iii) they will not rely on any commitment (regardless
of when made) to extend or continue any credit, or on any such agreement
(regardless of when made) to forebear or refrain from exercising rights or
remedies unless such commitment or agreement shall be in writing and not signed
by an officer of the Bank.
8.12 Headings: The headings herein are for convenience only and shall not
limit or affect the meaning or construction of the provisions herein.
8.13 Notices: Notices and consents provided herein shall be in writing and
shall be given to the other party by personal delivery or certified mail, return
receipt requested, in a pre-paid wrapper directed to the other party at its
address stated below or such other address as from time to time designated in
writing by one party to the other:
(a) if to the Company or a Guarantor:
26 Harbor Park Drive
Port Washington, New York 11050
Attn: Mr. Bert E. Brodsky
Chairman
with a copy to:
Stuart Angowitz, Esq.
430 Park Avenue - 11th Floor
New York, New York 10022
(b) if to the Bank:
Marine Midland Bank
534 Broad Hollow Road
Melville, New York 11747
Attn: Mr. Gary Sarro
Vice President
Notice by mail shall be effective when received but if not sooner received shall
be deemed effective at 2:45 p.m. on the second Business Day after mailing. This
provision shall not prevent any party from using hand delivery or delivery by
facsimile as a method of giving notice which, if hand delivered, shall be
effective on the day on which delivered to such party at its address specified
above and, if sent by facsimile, shall be effective when sent to a facsimile
number provided by a party hereto.
8.14 Indemnification: (a) The Company and each of the Guarantors shall
indemnify, pay and hold the Bank and any holder of the Revolving Credit Note
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgment, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Bank or any holder of the Revolving Credit Note in any way relating
to or arising out of the Company's, any Guarantor's or any Subsidiary's act or
omission to act in violation of this Agreement.
(b) In the event that any claim or demand for which the Company and/or
each Guarantor would be liable to the Bank pursuant to Section 8.14(a)
above is asserted against or sought to be collected from the Bank by a
third party, the Bank shall notify the Company and the appropriate
Guarantor of such claim or demand, specifying the nature of such claim or
demand and the amount or the estimated amount thereof to the extent then
feasible. The Company and/or the appropriate Guarantor may, at its option,
with the consent of the Bank in its sole discretion defend the Bank against
such claim or demand with counsel satisfactory to the Bank.
8.15 Authority to Disclose: All Federal, state, municipal and other
authorities (including the United States Treasury Department and the Internal
Revenue Service) and all banks, trust companies and other banking or financial
corporations, and organizations and all accountants, auditors, appraisers and
examiners with which or whom the Company or any Guarantor has heretofore, now
has or hereafter may have banking or professional relations, are hereby
irrevocably authorized and directed to permit representatives of the Bank to
have full access during regular business hours and from time to time upon
reasonable request to make copies of and extracts from all reports,
examinations, audits, appraisals, and returns by or with respect to the Company
or any Guarantor and all information concerning the Company or any Guarantor
from time to time contained in their files and records subject to reasonable
restrictions as requested by the Company provided such restrictions do not
conflict with applicable law. The Bank shall hold information so obtained in
confidence except that it may disclose such information as it may be required by
law to disclose. The Company or any Guarantor may disclose the existence of this
Agreement in connection with its filings with the Securities and Exchange
Commission and this Agreement may be filed and made available as a public record
in connection with such filings.
8.16 Severability: In the event that any one or more of the provisions of
this Agreement or the Revolving Credit Note shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.
<PAGE>
8.17 Counterparts: This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one counterpart.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
the year and date first above written.
BORROWER:
SANDSPORT DATA SERVICES, INC.
By: /s/ Bert E. Brodsky
Bert E. Brodsky
Chairman
GUARANTORS:
SANDATA, INC.
By: /s/ Bert E. Brodsky
Bert E. Brodsky
President
SANDATA HOME HEALTH
SYSTEMS, INC.
By: /s/ Bert E. Brodsky
Bert E. Brodsky
President
SANDATA PRODUCTIVITY, INC.
By: /s/ Bert E. Brodsky
Bert E. Brodsky
President
SANDATA SPECTRUM, INC.
By:/s/ Bert E. Brodsky
Bert E. Brodsky
President
SANDATA INTECK, INC.
By: /s/ Bert E. Brodsky
Bert E. Brodsky
President
<PAGE>
SANTRAX SYSTEMS, INC.
By: /s/ Bert E. Brodsky
Bert E. Brodsky
President
BANK:
MARINE MIDLAND BANK
By:/s/ Gary Sarro
Gary Sarro
Vice President
<PAGE>
SCHEDULE I
Subsidiaries of Sandata, Inc.
State of Percentage
Name Incorporation Ownership
The Company New York 100%
Sandata Home Health Delaware 100%
Systems, Inc.
Sandata Productivity, Inc. Delaware 100%
Sandata Spectrum, Inc. Delaware 100%
Sandata Inteck, Inc. Delaware 100%
Santrax Systems, Inc. New York 100%
Neither the Company nor any of the other Guarantors has any Subsidiaries.
Section 3.5 Litigation
None.
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
$3,000,000.00 Melville, New York
April 18, 1997
FOR VALUE RECEIVED, SANDSPORT DATA SERVICES, INC., a New York corporation
("Company") promises to pay to the order of MARINE MIDLAND BANK ("Bank") at its
office located at 534 Broad Hollow Road, Melville, New York the principal sum of
the lesser of: (a) Three Million and 00/100 ($3,000,000.00) Dollars; or (b) the
aggregate unpaid principal amount of all Advances made by Bank to Company
pursuant to the Agreement hereinafter referred to, on March 1, 2000.
Company shall also pay interest on the unpaid balance from time to time
outstanding, at said office at the rate and times and in accordance with the
provisions of Section 2.7 of the Revolving Credit Agreement among the Company,
certain affiliated corporations and the Bank dated as of April 18, 1997.
Interest on payments which are past due whether at the stated maturity or by
acceleration or otherwise shall accrue at the otherwise applicable rate per
annum plus three (3%) percent. All computations of interest hereunder shall be
made on the basis of a 360 day year for the actual number of days elapsed.
All payments including prepayments on this Note shall be made in lawful
money of the United States of America in immediately available funds. If a
payment becomes due and payable on a Saturday, Sunday, or public or other
banking holiday under the laws of the State of New York, the maturity thereof
shall be extended to the next succeeding business day, and interest shall be
payable thereon at the rate herein specified during such extension.
Company hereby authorizes Bank to enter from time to time the amount of
each Advance to Company on the schedule annexed hereto and made a part hereof.
Failure of Bank to record such information on such schedule shall not in any way
affect the obligation of Company to pay any amount due under this Note.
This Note is the Revolving Credit Note referred to the Agreement as such
Agreement may be further amended from time to time, and is subject to prepayment
and its maturity is subject to acceleration upon the terms contained in said
Agreement.
If any action or proceeding be commenced to collect this Note or enforce
any of its provisions, Company further agrees to pay all costs and expenses of
such action or proceeding and reasonable attorneys' fees and further expressly
waives any and every right to interpose any counterclaim in any such action or
proceeding. Company hereby submits to the jurisdiction of the Supreme Court of
the State of New York and agrees with Bank that personal jurisdiction over
Company shall rest with the Supreme Court of the State of New York for purposes
of any action on or related to this Note or the enforcement of same. Company
hereby expressly waives any and every right to a trial by jury in any action on
or related to this Note or the enforcement of the same.
Bank may transfer this Note and may deliver the security or any part
thereof to any transferee or transferees, who shall thereupon become vested with
all the powers and rights above given to Bank in respect thereto, and Bank shall
thereafter be forever relieved and fully discharged from any liability or
responsibility in the matter. The failure of any holder of this Note to insist
upon strict performance of each and/or all of the terms and conditions hereof
shall not be construed or deemed to be a waiver of any such term or condition.
Company and all endorsers and guarantors hereof waive presentment and
demand for payment, notice of non-payment, protest, and notice of protest.
This Note and its provisions shall be construed in accordance with the laws
of the State of New York.
SANDSPORT DATA SERVICES, INC.
By:
Bert E. Brodsky
Chairman
Address:
26 Harbor Park Drive
Port Washington, NY 11050
Schedule of Advances and Payments of Principal
Amount of Principal Paid or Prepaid Name of Person Making Notation
Amount of Advance Unpaid Principal Balance
<PAGE>
EMPLOYMENT AGREEMENTPRIVATE sh****************************_
EMPLOYMENT AGREEMENT, dated February 1, 1997, by and between SANDATA, INC.,
a Delaware corporation with an office and place of business at 26 Harbor Park
Drive, Port Washington, New York 11050 (the "Company"), and BERT E. BRODSKY, who
resides at South Road, Harbor Acres, Sands Point, NY 11050 (the "Employee").
RECITALS: A. The Company is engaged in providing computerized data
processing services and custom software and programming services principally to
the health care industry, but also to the general commercial market.
B. The Company wishes to assure itself of the services of the Employee for
the period provided in this Agreement, and the Employee is willing to serve in
the employ of the Company, except for other disclosed obligations and
investments, for said period, and upon the other terms and conditions
hereinafter provided.
AGREEMENT:
1 . TERM OF EMPLOYMENT.
1.1 The Company hereby employs the Employee, and the Employee hereby
accepts employment with the Company, all in accordance with the terms and
conditions hereof, for a term of five (5) years (the "Employment Period")
commencing on the Commencement Date (as defined in Subsection 1.2 hereof) and
ending (subject to the provisions of Section 5 hereof) on the date immediately
preceding the fifth anniversary of the Commencement Date.
<PAGE>
1.2 As used in this Agreement, the term "Commencement Date" shall mean
February 1, 1997.
2. DUTIES.
During the Employment Period, the Employee shall be employed by the Company
and shall serve as its Chairman of the Board, President, Treasurer and Chief
Financial and Accounting Officer, and shall perform such duties and have such
powers relating to the Company as shall from time to time be assigned to him by
the Board of Directors of the Company. Notwithstanding the foregoing, the
Employee may, with or without the consent of the Company, perform duties for
entities other than the Company on a part-time basis, provided, however that
such duties do not interfere with the Employee's obligations under this
Agreement.
3. COMPENSATION.
3.1 As full compensation for his services and undertakings pursuant to this
Agreement, the Employee shall receive a salary at the rate of $500,000.00 per
year, or a reduced rate, if mutually agreed upon by both parties, subject to
adjustment as hereafter provided, payable in equal monthly installments or other
more frequent installments in accordance with the regular pay policies of the
Company. In addition, the Employee shall be entitled to receive such bonus or
incentive compensation and salary increases as the Board of Directors of the
Company may, on the basis of improvements in the Company's performance or other
reasonable criteria, deem appropriate. If elected as a director of the Company,
the Employee shall serve in such capacity without additional compensation.
3.2 During the Employment Period, the Employee shall also be (a) provided
with a full- time use of a Company automobile (b) entitled to six (6) weeks paid
vacation annually and (c)
<PAGE>
entitled to participate in group medical insurance and other benefits or
programs of the Company hereafter established and made available by the Company
to its employees. 3.3 The Company shall deduct from the Employee's salary, bonus
or incentive compensation any federal, state or city withholding taxes, social
security contributions and any other amounts which may be required to be
deducted or withheld by the Company pursuant to any federal, state or city laws,
rules or regulations.
3.4 The Company shall reimburse the Employee, or cause him to be
reimbursed, for all reasonable out-of-pocket expenses incurred by him in the
performance of his duties hereunder or in furtherance of the business and/or
interest of the Company, provided, however, that the Employee shall have
previously furnished to the Company an itemized account, satisfactory to the
Company, in substantiation of such expenditures.
4. OPTIONS.
From time to time and at the discretion of the Board of Directors, the
Employee may be granted options to purchase shares of the Company's common
stock, which may be exercised in accordance with the terms of the Company's
option plans.
5. TERMINATION.
5.1 If the Employee dies or becomes disabled during the Employment Period,
his salary and all other rights under this Agreement shall continue for one year
subsequent to the date of the occurrence of such death or diability. For the
purposes of this Agreement, the Employee shall be deemed to be "disabled" if he
has been unable to perform his duties for six consecutive months or nine months
in any twelve-month period, all as determined in good faith by the Boards of
Directors of the Company. Notwithstanding the definition of disabled contained
in the preceding sentence, in the event that the Employee is receiving
disability insurance benefits during any period prior to
<PAGE>
termination of this Agreement as provided in this Section 5.1, the Employee's
salary shall be reduced by an amount equal to such disability insurance benefits
during such period. 5.2 Company may terminate this Agreement with or without
cause by delivering to Employee written notice of same two (2) weeks prior to
such effective date of termination. Employee shall be entitled to severance pay
for the balance of the Employment Period based on the annual rate of
compensation in effect at the time of termination or one year's compensation,
whichever is greater.
6. WAIVERS.
A waiver by the Company or the Employee of a breach of any of the
provisions of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
7. BINDING EFFECT; BENEFITS.
This Agreement shall inure to the benefit of, and shall be binding upon,
the parties hereto and their respective successors, assigns, heirs, and legal
representatives, including any corporation or other business organization with
which the Company may merge or consolidate or to which it may transfer
substantially all of its assets. Insofar as the Employee is concerned, this
Agreement, being personal, cannot be assigned.
8. NOTICES.
All notices, requests, demands and other communications which are required
or may be given under this Agreement shall be in writing and shall be deemed to
have been duly given or made when delivered in person or four (4) days after
dispatch by registered or certified mail, postage paid, return receipt
requested, to the party to whom the same is so given or made, to the address of
such party hereinabove set forth. 9. ENTIRE AGREEMENT; AMENDMENTS; SURVIVAL
COVENANTS.
<PAGE>
This Agreement contains the entire Agreement, and supersedes all prior
agreements and understandings, oral or written, between the parties hereto with
respect to the subject matter hereof.
This Agreement may not be waived, changed, amended, modified or discharged
orally, but only by an agreement in writing signed by the party against whom any
waiver, change, amendment, modification or discharge is sought. The covenants of
the Employee contained in Sections 6, 7 and 8 (insofar as they relate to the
Employment Period) of this Agreement shall survive the termination of the
Employment Period.
10. HEADINGS.
The headings contained in this Agreement are for reference purposes only
and shall not affect the construction or interpretation of this Agreement.
11. SEVERABILITY.
The invalidity of all or any part of any Section of this Agreement shall
not render invalid the remainder of this Agreement or the remainder of such
Section. If any provision of this Agreement is so broad as to be enforceable,
such provisions shall be interpreted to be only so broad as is enforceable.
12. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall, when executed, be deemed to be an original, but all of which together
shall constitute one and the same instrument.
13. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to principles relating to
conflict of laws.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
SANDATA, INC.
By: /s/ Hugh Freund
Hugh Freund, Executive Vice President
/s/ Bert E. Brodsky
Bert E. Brodsky
<PAGE>
SUBSIDIARIES OF REGISTRANT
% of
State of
Name Ownership Incorporation
Sandata Inteck, Inc. 100% Delaware
Sandata Spectrum, Inc. 100% Delaware
Sandsport Data Services, Inc. 100% New York
Sandata Home Health Systems, Inc. 100% Delaware
SanTrax Systems, Inc. 100% New York
SanTrax Productivity, Inc. 100% Delaware
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Sandata, Inc.
We consent to the reference to our firm under the caption "Experts" in the
Registration Statements on (Form S-8) and (Form S-3) and related prospectus of
Sandata Inc. and to the incorporation by reference therein of our report dated
August 13, 1997 with respect to the consolidated financial statements included
in its Annual Report on Form 10-KSB for the year ended May 31, 1997, as filed
with the Securities and Exchange Commission.
MARCUM & KLIEGMAN, LLP
/s/ Marcum & Kliegman, LLP
Woodbury, New York
August 29, 1997
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> May-31-1997
<PERIOD-START> Jun-01-1996
<PERIOD-END> May-31-1997
<CASH> 1,200,014
<SECURITIES> 0
<RECEIVABLES> 2,547,184
<ALLOWANCES> 330,615
<INVENTORY> 16,335
<CURRENT-ASSETS> 3,747,899
<PP&E> 10,205,031
<DEPRECIATION> 4,925,519
<TOTAL-ASSETS> 9,538,548
<CURRENT-LIABILITIES> 2,199,255
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0
5,690,571
<COMMON> 1,216
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<SALES> 11,312,809
<TOTAL-REVENUES> 11,881,469
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<TOTAL-COSTS> 10,956,828
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<INTEREST-EXPENSE> 354,960
<INCOME-PRETAX> 569,681
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262,681
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
