About EDGAR Online | Login
 
Enter your Email for a Free Trial:
The following is an excerpt from a S-1 SEC Filing, filed by NETSMART TECHNOLOGIES INC on 7/30/1997.
Next Section Next Section Previous Section Previous Section
NETSMART TECHNOLOGIES INC - S-1 - 19970730 - CERTAIN_TRANSACTIONS

CERTAIN TRANSACTIONS

Loan and Equity Transactions

During the period between the Company's organization in September 1992 and September 30, 1995, the Company borrowed approximately $2.9 million and $97,000 from SISC and DLB, respectively. These loans bear interest at 10% per annum. In April 1994, SISC purchased from DLB the note representing the Company's obligations to DLB and DLB's Series B Preferred Stock. At such time, SISC also purchased an Interim Note for $54,000 from an unrelated party for $54,000. The largest amounts owed by the Company at any one time to SISC during 1995 were approximately $3.0 million, which was outstanding on September 30, 1995. At September 30, 1995:

(a) SISC accepted 2,210 shares of Series D Preferred Stock, which have a redemption price of $1,000 per share, or an aggregate of $2,210,000 in exchange for cancellation of the Company's indebtedness in the principal amount of $2.2 million. The Series D Preferred Stock is not voting and there are limitations on the redemption of such shares. See "Description of Securities -- Series D Preferred Stock." The Company issued a $750,000 promissory note to SISC in respect of the balance of its indebtedness to SISC. The note was paid in August 1996.

(b) The Company issued 1,125,000 shares of Common Stock to Holdings in consideration of the cancellation by SISC of accrued interest at September 30, 1995 of $388,000, reflecting a price of $.345 per share.

In January 1996, SISC exchanged 1,000 shares of Series D Preferred Stock for 1,125,000 shares of Common Stock. As a result of this exchange, the aggregate redemption price of the Series D Preferred Stock was reduced to $1.2 million. SISC holds 1,210 shares of Series D Preferred Stock, which provides for an annual dividends in the aggregate amount of $72,600. Such dividend may be paid in cash or in shares of Common Stock. The Company issued 5,542 and 7,260 shares of Common Stock in payment of dividends of $72,600 and

30

$36,300 which were due on October 1, 1996 and April 1, 1997, respectively. SISC transferred an aggregate of 1,280 shares of such Common Stock to Mr. Lewis S. Schiller pursuant to Mr. Schiller's employment agreement with Consolidated.

During 1994 and 1995, ACT lent the Company $58,000 and $109,000, respectively. The outstanding balance on December 31, 1995 and 1994 were $167,000 and $58,000, respectively, representing the largest amounts owed during such years. ACT has lent money to the Company during 1996, and, at March 31, 1996 and July 17, 1996, the balance due to ACT was $232,000 and $256,000, respectively, which was paid from the proceeds of the Company's initial public offering in August 1996. Mr. John F. Phillips, a director of the Company, is a director of ACT, and ACT is the parent of Old CSM.

The Company believes that the transactions described above are fair and reasonable to the Company and were made on terms that are not less favorable to the Company than could have been obtained from non-affiliated third parties, if such third parties were available, and it intends that transactions with related parties will be on an arms-length basis.

At the time of the Company's initial public offering in August 1996, there were outstanding 80 shares of Series B Preferred Stock, which had a redemption price of $1,200 per share. Such shares were owned by SISC, which owned 40 shares, Mr. E. Gerald Kay, who was at the time a director of the Company, who owned 20 shares, and one non-affiliated person who owned 20 shares. All of the shares of Series B Preferred Stock were redeemed from the proceeds of the Company's initial public offering. Pursuant to such redemption, SISC and Mr. Kay received $48,000 and $24,000, respectively.

Issuance of Warrants

In February 1996, the Company issued an aggregate of 3,573,125 Outstanding Warrants, of which 1,677,500 are exercisable at $2.00 per share and 1,895,625 are exercisable at $4.00 per share. These warrants were issued in connection with services rendered, which, in the case of SISC, included the guarantee of certain of the Company's promissory notes. The fair value of the Common Stock on the date of board approval was $3.20 per share, and the Company incurred a compensation expense of $2.1 million as a result of the issuance of Series B Warrants at $2.00 per share. See Notes 11 and 14 of Notes to Consolidated Financial Statements. The Outstanding Warrants expire on December 31, 1999. The Series B Warrants, which, with respect to SISC and SMACS, replaced the warrants previously granted at a higher price, were issued in February 1996 to the following persons:

      Name                       $2 Warrants          $5 Warrants
      ----                       -----------          -----------
SISC                             1,968,750              --
Lewis S. Schiller                    --                52,500
Storm R. Morgan                    225,000              --
James L. Conway                    112,500            112,500
Leonard M. Luttinger                37,500            112,500
Thomas L. Evans                      --                37,500
SMACS Holdings, Inc.                37,500            187,500
Bridge Ventures, Inc.              135,000            135,000
                                 ---------            -------
Total                            2,516,250            637,500
                                 =========            =======
-------------------------------- -------------------- --------------------

SISC has transferred Series B Warrants to purchase 700,417 shares of Common Stock to Mr. Lewis S. Schiller (206,250 warrants), James Conway (25,000 warrants), E. Gerald Kay, who was, at the time, a director of the Company (100,000 warrants), two officers and one director of Consolidated (156,667 warrants), SMI (62,500 warrants) and two other individuals who are not affiliated with the Company (150,000 warrants). Mr. Schiller has an employment agreement with Consolidated pursuant to which he has 10% of Consolidated's or SISC's or their subsidiaries' interest in equity securities owned by them. The transfer of the Series B Warrants to Mr. Schiller was made pursuant to such employment agreement and for other services to SISC. In February 1996, Mr. Schiller transferred to DLB 133,500 shares of Common Stock and Series B Warrants to purchase 106,250 shares of Common Stock at $2.00 per share in satisfaction of certain of his obligations to DLB or its stockholder. DLB and Mr. Schiller have transferred 15,000 shares and 35,000 shares, respectively, of Common Stock to each of the Schillers' three adult children and one person who is an officer and director of Consolidated. Mr. Schiller and DLB disclaim any beneficial interest in the shares owned by the Schillers' adult children.

Bridge Ventures, Inc. ("Bridge") transferred Series B Warrants to purchase 67,500 shares of Common Stock at $2.00 per share and 67,500 shares of Common Stock at $5.00 per share to Saggi Capital Corp. ("Saggi"), and SMACS transferred Series B Warrants to purchase 18,750 shares of Common Stock at $2.00 per share and 93,750 shares of Common Stock at $5.00 per share to Saggi. As a result of such transfers, Saggi held Outstanding Warrants to purchase 86,250 shares of Common Stock at $2.00 and 161,250 shares of Common Stock at $5.00 per share.

31

In July 1996, pursuant to a warrant exchange, (a) the holders of Series B Warrants having a $2.00 exercise price exchanged one third of such warrants for Series B Warrants to purchase, at an exercise price of $4.00 per share, 150% of the number of shares of Common Stock issuable upon exercise of the Series B Warrants that were exchanged, and (b) the exercise price of the Series B Warrants having a $5.00 exercise price was reduced to $4.00. Prior to the warrant exchange, there were Series B Warrants to purchase 2,516,250 shares of Common Stock at $2.00 per share and Series B Warrants to purchase 637,500 shares of Common Stock at $5.00 per share outstanding. As a result of the warrant exchange, there were Series B Warrants to purchase 1,677,500 shares of Common Stock at $2.00 per share and 1,895,625 shares of Common Stock at $4.00 per share.

The IPO Registration Statement also includes the 800,000 Series B Warrants with an exercise price of $2.00 per share. In August 1996, SISC, Bridge and Saggi sold Series B Warrants to purchase 750,000 shares, 25,000 shares and 25,000 shares, respectively, pursuant to such registration statement, and such Series B Warrants were exercised in August 1996.

EDGAR® is a federally registered trademark of the U.S. Securities and Exchange Commission. EDGAR®Online is not affiliated with or approved by the U.S. Securities and Exchange Commission.