SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K/A
Amendment No. 1
For the Year Ended December 31, 1998
Commission File No. 0-21177
NETSMART TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3680154
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
146 Nassau Avenue
Islip, New York 11751
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 968-2000
Purpose of Amendment: To include Part III.
Part III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Registrant are as follows:
Name Age Position
- ---- --- --------
James L. Conway 50 President, Chief Executive Officer and Director
Edward D. Bright(1) 62 Chairman of the Board and Director
Anthony F. Grisanti 50 Chief Financial Officer, Treasurer and Secretary
John F. Phillips 61 President of Creative Socio-Medics Corp.
and Director
Gerald O. Koop 60 Chief Executive Officer of Creative Socio-Medics
Corp. and Director
Seymour Richter(1) 62 Director
Joseph G. Sicinski(1) 67 Director
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1 Member of the audit and compensation committees.
Mr. James L. Conway has been our president and a director since January
1996 and our chief executive officer since April 1998. From 1993 until April
1998, he was president of S-Tech Corporation, a manufacturer of specialty
vending equipment for postal, telecommunication and other industries, which,
until April 1998, was a wholly-owned subsidiary of Consolidated Technologies
Group Ltd. ("Consolidated"). From 1997 until April 1998, Mr. Conway was also
president of other subsidiaries of Consolidated engaged in manufacturing.
Consolidated, our largest stockholder, is a public company which had been
engaged in various businesses. Mr. Conway is also a director of Trans Global
Services, Inc. ("Trans Global"), which provides technical temporary staffing
services. Consolidated is presently also the largest stockholder of Trans
Global.
Mr. Edward D. Bright has been our chairman of the board and a director
since April 1998. In April 1998, Mr. Bright was also elected as chairman,
secretary, treasurer and a director of Consolidated. From January 1996 until
April 1998, Mr. Bright was an executive officer of or advisor to Creative
Socio-Medics Corp., our subsidiary which was acquired in June 1994. From June
1994 until January 1996, he was our chief executive officer. For more than two
years prior thereto, he was a senior executive officer of Creative Socio-Medics
Corp. and its former parent. Mr. Bright is also a director of Trans Global.
Mr. Anthony F. Grisanti has been our treasurer since June 1994, our
secretary since February 1995 and our chief financial officer since January
1996. He was chief financial officer of Creative Socio-Medics and its former
parent more than five years prior thereto.
Mr. John F. Phillips has been a director and president of our subsidiary,
Creative Socio-Medics Corp., since June 1994. He also served as our vice
president -- marketing from June 1994 to January 1996. From January 1993 until
June 1994, he was chairman of the board of Creative Socio-Medics Corp. and its
former parent.
Mr. Gerald O. Koop has been a director since June 1998. He has held
management positions with Creative Socio-Medics Corp. for more than the past
five years, most recently as its chief executive officer, a position he has
held since 1996.
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Mr. Seymour Richter has been a director since April 1998. Since April
1999, Mr. Richter has been a consultant to Consolidated. From April 1998 until
April 1999, he was president, chief executive officer and a director of
Consolidated. From July 1995 until April 1998, Mr. Richter was employed by
Patterson Travis Operating Account, Inc., a private company that makes
investments for its own account. For more than five years prior thereto, he was
the chief executive officer of Touch Base Ltd., an independent selling
organization in the apparel industry. Mr. Richter is also a director Trans
Global.
Mr. Joseph G. Sicinski has been a director since June 1998. He is
president and a director of the Trans Global, a position he held with Trans
Global and its predecessor since September 1992. Since April 1998, he has also
been chief executive officer of Trans Global.
The Board of Directors has created audit and compensation committees, both
of which consists of Messrs. Bright, Richter and Sicinski, each of whom is a
non-employee director. The audit committee has the authority to approve our
audited financial statements, to meet with our independent auditors, to review
with the auditors and with management any management letter issued by the
auditors and generally to exercise the power normally accorded an audit
committee of a public corporation. In addition, any transactions between us or
our subsidiaries, on the one hand, and any officer, director or principal
stockholder or any affiliate of any officer, director or principal stockholder,
on the other hand, requires the prior approval of the audit committee.
The compensation committee serves as the stock option committee pursuant
to our stock option plans. In addition, it reviews and approves any changes in
compensation for our executive officers.
In April 1999, two members of the audit and compensation committees,
Messrs. Edward D. Bright and Joseph G. Sicinski, purchased shares of common
stock from SIS Capital pursuant to an agreement described under "Item 13 --
Certain Relationships and Related Transactions."
Directors are elected for a term of one year.
None of the Company's officers and directors are related.
The Company's certificate of incorporation includes certain provisions,
permitted under Delaware law, which provide that a director of the Company shall
not be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for any transaction from which
the director derived an improper personal benefit, or (iv) for certain conduct
prohibited by law. The Certificate of Incorporation also contains broad
indemnification provisions. These provisions do not affect the liability of any
director under Federal or applicable state securities laws.
Section 16(a) Beneficial Ownership Reporting Compliance
During 1998, Messrs. Edward D. Bright and Seymour Richter filed their
Form 3, which was due in April 1998, in June 1998.
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Item 11. Executive Compensation
Set forth below is information with respect to compensation paid or
accrued by the Company for 1998, 1997 and 1996 to its chief executive officer
and to each other officer whose salary and bonus for 1998 exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Long-Term
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Compensation Compensation
------------ ------------
(Awards)
------
Options, SARs
Name and Principal Position Year Salary Bonus(1) (Number)(2)
- --------------------------- ---- ------ ------ -------------
James L. Conway, CEO 1998 $161,563 $27,000 90,000
(from April 1998) and 1997 125,000 -- 89,582
President 1996 77,408 -- --
Lewis S. Schiller, CEO 1998 -- -- --
(prior to April 1998)(3) 1997 -- -- --
1996 -- -- --
Gerald O. Koop, Chief 1998 92,700 126,305 80,000
Executive Officer of 1997 90,000 158,094 --
Creative Socio-Medics Corp. 1996 90,000 134,768 6,000
John F. Phillips, Vice 1998 112,800 70,540 80,000
President - Marketing 1997 109,500 89,657 --
1996 100,000 33,906 9,000
Anthony F. Grisanti, Chief 1998 91,240 56,967 80,000
Financial Officer 1997 87,600 73,888 --
1996 80,000 23,500 5,000
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1 Includes commissions.
2 Includes, for 1998, option grants which were made pursuant to an amendment
to the 1998 Long Term Incentive Plan. Such option grants are subject to
stockholder approval of such amendment. Options which were repriced in
1998 are reflected in the year in which the options were initially
granted.
3 Mr. Schiller resigned as an officer and director in April 1998. Mr.
Schiller has received no compensation from us. During 1998, Consolidated
reported that Mr. Schiller's compensation for 1998 included salary of
$138,000 and other annual compensation of $3.5 million, which represented
$1.2 million paid to him and his designated family members for his
ownership in one of Consolidated's subsidiaries which was sold in 1998,
$1.9 million for the purchase of his contract rights by the Company and
$350,000 for other payments due pursuant to a settlement agreement
with Mr. Schiller. In 1997, Consolidated paid Mr. Schiller $616,000 in
salary and $358,000 in other annual compensation, which represented
commissions paid to him on Consolidated's investment activities. In
1996, Consolidated paid Mr. Schiller salary of $286,000.
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During 1998, our officers received compensation at rates of $160,000 for
Mr. Conway, $112,800 for Mr. Phillips, $92,700 for Mr. Koop and $91,240 for Mr.
Grisanti. Mr. Phillips is also entitled to a commission of 2% of all data
center revenue. In addition, for 1998, we had a commission pool of up to 10%
of sales from new contracts. Mr. Koop received 2.5% of the first $9 million of
these new sales and 1% of these sales in excess of $9 million. Mr. Grisanti
received .75% of the first $9 million of these new sales and .3% of these sales
in excess of $9 million.
In July 1998, we entered into five-year employment agreements with Messrs.
James L. Conway, John F. Phillips, Gerald O. Koop and Anthony F. Grisanti.
Pursuant to these agreements, these officers receive the following base
salaries: Mr. Conway -- $160,000, Mr. Phillips -- $140,000, Mr. Koop --
$140,000, and Mr. Grisanti -- $120,000. The agreements provide for an annual
cost of living adjustment. Except for Mr. Conway, whose compensation became
effective July 1998, the salaries for the other officers became effective in
January 1999. The agreements provide that the executives are eligible to
participate in a bonus pool to be determined annually by the Compensation
Committee. The agreements also provide each of these officers with a $1,000 per
month automobile allowance. In the event of the officer's dismissal or
resignation or a material change in his duties or in the event of a termination
of employment by the executive or by us as a result of a change of control, the
officer may receive severance payments of between 24 and 36 months'
compensation. A month's compensation means the then current monthly salary plus
one-twelfth of the bonus for the prior year. The agreement with Mr. Conway
replaced an employment agreement dated August 1996. The agreements with Messrs.
Phillips and Grisanti replaced employment agreements dated June 1994.
The following table sets forth information concerning options granted
during the year ended December 31, 1998 pursuant to our long-term incentive
plans. No SARs were granted.
Option Grants in Year Ended December 31, 1998
% of Total Potential Realizable
Options Value at Assumed
Number of Granted to Annual Rates of Stock
Shares Employees Exercise Price Appreciation
Underlying in Fiscal Price Per Expiration
Name Options Granted Year Share Date 5%($) 10%($)
---- --------------- --------- --------- ---------- ----- ------
James L. Conway 40,000 5.2% $1.50 6/29/03 $16,400 $36,800
50,000(1) 6.5% 1.00 11/2/03 14,000 30,500
Lewis S. Schiller -- 0% -- -- -- --
Gerald O. Koop 30,000(2) 3.9% 1.50 6/29/03 12,420 27,480
50,000(1) 6.5% 1.00 11/2/03 14,000 30,500
John F. Phillips 30,000(2) 3.9% 1.50 6/29/03 12,420 27,480
50,000(1) 6.5% 1.00 11/2/03 14,000 30,500
Anthony F. Grisanti 30,000(2) 3.9% 1.50 6/29/03 12,420 27,480
50,000(1) 6.5% 1.00 11/2/03 14,000 30,500
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1 These options were granted pursuant to an amendment to our 1998 Long-Term
Incentive Plan. The amendment is subject to stockholder approval at our
1999 annual meeting of stockholders.
2 These option grants do not include options which were repriced. Those
options are set forth in the Option Repricing Table.
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On June 30, 1998, the compensation committee approved the repricing of
stock options held by employees, including options held by Messrs. Gerald O.
Koop, John F. Phillips and Anthony F. Grisanti. Options to purchase an aggregate
of 42,166 shares of common stock at $6.00 per share, which were granted in April
1996, were repriced at $1.50, which was the marked price of the common stock on
the date of the repricing. The grant of the new option and cancellation of the
old option were based on our improving results notwithstanding the decline in
the stock price. There were no repricings of options prior to 1998 at a time
when we were a reporting company. Set forth below is information concerning the
repricing of such options.
Option Repricing Table
Number of
Securities Market Price
Underlying of Stock at Exercise Price
Options Time of at Time of New Length of Original Term
Name Date Repriced or Repricing or Repricing or Exercise Remaining at Date of
Amended Amendment Amendment Price Repricing or Amendment
- ---- ---- ----------- ------------ -------------- -------- ----------------------
Gerald O. Koop 6/30/98 6,000 $1.50 $6.00 $1.50 Two years, nine months
John F. Phillips 6/30/98 9,000 1.50 6.00 1.50 Two years, nine months
Anthony F. Grisanti 6/30/98 5,000 1.50 6.00 1.50 Two years, nine months
The following table sets forth information concerning the exercise of
options and warrants during the year ended December 31, 1998 and the year-end
value of options held by our officers named in the Summary Compensation Table.
No stock appreciation rights ("SARs") have been granted.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
Number of Value of
Securities Unexercised In-
Underlying the-Money
Unexercised Options at Fiscal
Options(1) at Year End(2)
Fiscal Year End
Shares
Acquired Value Exercisable/ Exercisable/
Name Upon Exercise Realized Unexercisable Unexercisable
---- ------------- --------- ------------- -------------
James L. Conway -- -- 97,249/70,000(3) $21,260/$99,410
Lewis S. Schiller -- -- 55,555/--(4) --/--
Gerald O. Koop -- -- 22,984/65,000 $26,019/$94,095
John F. Phillips -- -- 36,922/65,000 $49,586/$94,095
Anthony F. Grisanti -- -- 30,821/65,000 $40,359/$94,095
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1 The number of shares of Common Stock subject to options includes shares of
common stock issuable upon exercise of warrants. Options granted in
November 1998 pursuant to an amendment
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to our 1998 stock option plan are unexercisable. Such options are subject
to stockholder approval of the amendment.
2 The determination of "in the money" options at December 31, 1998, is based
on the closing price of the common stock on the Nasdaq SmallCap Market on
December 31, 1998, which was $2.563.
3 Includes warrants to purchase 23,916 shares of common stock held by Mr.
Conway's wife, as to which he disclaims beneficial ownership.
4 Does not include warrants held by DLB, Inc., which is owned by Mr.
Schiller's wife. Mr. Schiller disclaims beneficial ownership in DLB or in
any securities owned by DLB. Warrants held by Mr. Schiller include
warrants issued to him by us and warrants transferred to him by SIS
Capital.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Set forth below is information as of April 26, 1999, as to each person
owning of record or known by us, based on information provided to us by the
persons named below, to own beneficially at least 5% of our Common Stock, each
director, each officer listed in the Summary Compensation Table and all officers
and directors as a group.
Percent of Outstanding
Name and Address(1) Shares Common Stock
- ---------------- ------ ----------------------
SIS Capital Corp. 508,874 17.6%
Consolidated Technology Group Ltd.
160 Broadway
New York, NY 10038
James L. Conway 143,917(2) 5.0%
146 Nassau Avenue
Islip, NY 11751
John F. Phillips 133,922(3) 4.8%
Edward D. Bright 123,922 4.4%
Gerald O. Koop 77,823(4) 2.8%
Anthony F. Grisanti 58,061(5) 2.1%
Joseph G. Sicinski 10,000(6) *
Seymour Richter 5,000(7) *
All directors and officers as a group 552,645(8) 18.7%
(seven individuals)
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* Less than 1%.
1 Unless otherwise indicated, each person has the sole voting and sole
investment power and direct beneficial ownership of the shares. Each
person is deemed to beneficially own shares of common stock issuable upon
exercise of options or warrants which are exercisable on or within 60 days
after the date as of which the information is provided. Shares of common
stock issued pursuant to options granted pursuant to an amendment to our
1998 Long-Term Incentive Plan are not deemed to be presently exercisable
since the options were granted subject to stockholder approval of the
amendment.
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2 Includes (a) 65,667 shares of common stock issuable upon exercise of
warrants owned by Mr. Conway and (b) 23,916 shares of common stock
issuable upon exercise of warrants held by Mr.
Conway's wife, as to which he disclaims beneficial ownership.
3 Includes 24,000 shares of common stock issuable upon exercise of
outstanding options held by Mr. Phillips.
4 Includes 22,984 shares of common stock issuable upon exercise of
outstanding options held by Mr. Koop.
5 Includes 20,000 shares of common stock issuable upon exercise of
outstanding options held by Mr. Grisanti.
6 Includes 5,000 shares of common stock issuable upon exercise of
outstanding options held by Mr. Sicinski.
7 Represents shares of common stock issuable upon exercise of outstanding
options held by Mr. Richter.
8 Footnotes 2 through 8 are incorporated by reference.
Item 13. Certain Relationships and Related Transactions
During 1998 the Company discontinued its CarteSmart division which
included its interest in a joint venture. On June 30, 1998 the Company sold this
division, with an option to purchase the Company's interest in the joint venture
if the other party to the venture did not elect to acquire the Company's
interest, to Granite Technologies, Inc. ("Granite"), a corporation formed by the
former management of the division. Granite issued to the Company its $500,000
promissory note and a 20% equity interest in Granite. Granite also agreed to pay
certain royalties to the Company and granted the Company a license with respect
to the CarteSmarte software. The note was subject to cancellation if the other
party to the joint venture elected to purchase the Company's interest. As the
Company does not have significant influence over the operations of Granite, the
20% interest is accounted for using the cost method.
We had a management services agreement with Consolidated pursuant
to which we paid Consolidated $15,000 per month. This agreement was terminated
in April 1998. During 1998, we paid Consolidated $45,000 pursuant to this
agreement.
In connection with the April 1998 resignations of Mr. Lewis S. Schiller as
chief executive officer and a director and Mr. E. Gerald Kay as a directors, we
exchanged general releases with such persons.
In connection with our accounts receivable financing, Mr. Anthony F.
Grisanti, our chief financial officer, issued his guaranty which is limited to
the losses or liability resulting from certain irregularities by us in the
submission of invoices for advances and the failure to pay over the proceeds
from accounts to the lender. We know of no such irregularities. The advances
under this facility were $1.6 million at December 31, 1998 and $780,000 at April
21, 1999. The maximum borrowings under the facility, subject to the borrowing
formula, is $2.0 million.
In March 1999, we and members of our management, together with other
employees and non-affiliated investors, entered into an agreement with
Consolidated, its subsidiary, SIS Capital Corp. and Mr. Anthony Grisanti, as
agent, pursuant to which:
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o The purchasers bought an aggregate of 585,750 shares of our common stock
from SIS Capital for $2.015 per share in April 1999.
o The purchasers have the right to buy up to 206,874 additional shares of
the our common stock from SIS Capital at the same purchase price per
share.
o Consolidated Technology transferred to us shares of our preferred stock
(including the right to receive dividends thereon) and warrants to
purchase shares of our common stock, for which we issued 100,000 shares of
common stock to Consolidated in April 1999.
The following officers and directors purchased the following number of
shares of common stock from SIS Capital pursuant to this agreement:
Name Number of Shares Purchase Price
- ---- ---------------- --------------
John F. Phillips 75,000 $151,118
Edward D. Bright 62,500 125,931
Gerald O. Koop 34,600 69,716
James L. Conway 26,000 52,387
Anthony F. Grisanti 20,600 41,507
Joseph G. Sicinski 5,000 10,075
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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.
NETSMART TECHNOLOGIES, INC.
Dated: April 29, 1999 By /s/ James L. Conway
---------------------------------------
James L. Conway, President and CEO
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.
Signature Title Date
--------- ----- ----
/s/ James L. Conway President, Chief Executive April 29, 1999
- ---------------------
James L. Conway Officer and Director (Principal
Executive Officer)
/s/ Anthony F. Grisanti Chief Financial Officer April 29, 1999
- -----------------------
Anthony F. Grisanti (Principal Financial and
Accounting Officer)
/s/ Edward D. Bright Director April 29, 1999
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Edward D. Bright
/s/ John F. Phillips Director April 29, 1999
John F. Phillips
/s/ Gerald O. Koop Director April 29, 1999
Gerald O. Koop
By: /s/ James L. Conway
----------------------
- ---------------------- Director James L. Conway
Joseph G. Sicinski Attorney-in-Fact
April 29, 1999
- ---------------------- Director
Seymour Richter
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