-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SEMu6B/7Y/YmkirLBeT/CeiCz43TLm1FMebK1BUpIrs8kgJjXdbn19gsC3kicBc/ Hh5hAUVDG3HDZge4B37ppQ== 0000893816-97-000010.txt : 19970612 0000893816-97-000010.hdr.sgml : 19970612 ACCESSION NUMBER: 0000893816-97-000010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970611 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER OUTSOURCING SERVICES INC CENTRAL INDEX KEY: 0000893816 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133252333 STATE OF INCORPORATION: NY FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20824 FILM NUMBER: 97622674 BUSINESS ADDRESS: STREET 1: 360 WEST 31ST ST STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 2125643730 10QSB 1 U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: April 30, 1997 Commission file number: 0-20824 COMPUTER OUTSOURCING SERVICES, INC. (Exact name of small business issuer as specified in its charter) New York 13-3252333 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 360 West 31st Street New York, New York 10001 (Address of principal executive offices) (212) 564-3730 (Issuer's telephone number) Check whether the registrant (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 [ ] There were 3,789,850 shares of the registrant's Common Stock, $0.01 par value, outstanding as of June 11, 1997. Transitional Small Business Disclosure Form (check one); Yes [ ] No [X] Page 1 of 14 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April October 31, 1997 31, 1996 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents, including short-term, interest bearing invest- ments of $781,801 and $316,346 ............ $ 794,719 $ 1,083,545 Trade accounts receivable, net of allowance for doubtful accounts of $361,145 and $305,874 .................................. 3,960,882 3,716,343 Refundable income taxes ..................... 45,204 62,988 Prepaid expenses ............................ 844,841 699,005 Other current assets ........................ 170,058 125,850 ---------- ---------- 5,815,704 5,687,731 ---------- ---------- PROPERTY and EQUIPMENT, net ................... 2,983,314 3,132,847 ---------- ---------- OTHER ASSETS: Deferred software costs, net ................ 2,191,108 1,912,505 Intangibles, net ............................ 7,807,277 7,764,535 Due from related parties, net ............... 96,066 106,472 Security deposits and other non-current assets .................................... 453,074 705,307 ---------- ---------- 10,547,525 10,488,819 ---------- ---------- TOTAL ASSETS .................................. $ 19,346,543 $ 19,309,397 ========== ========== See Notes to Consolidated Interim Financial Statements Page 2 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) April October 31, 1997 31, 1996 ------------- ------------- (Unaudited) LIABILITIES and STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................ $ 1,693,179 $ 1,535,816 Current portion of long-term debt ........... 878,291 1,054,352 Current portion of capitalized lease obligations ............................... 198,627 195,979 Accrued expenses and taxes .................. 1,831,535 1,757,355 Customer deposits and other current liabilities ............................... 223,603 282,075 ---------- ---------- 4,825,235 4,825,577 ---------- ---------- LONG-TERM LIABILITIES: Long-term debt .............................. 1,258,621 1,629,234 Capitalized lease obligations ............... 243,079 284,775 Deferred income taxes ....................... 880,322 837,219 Stock option obligation ..................... - 133,146 ---------- ---------- 2,382,022 2,884,374 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued ............ - - Common stock, $0.01 par value; 7,000,000 shares authorized; shares issued and out- standing, 3,789,848 and 3,734,848.......... 37,898 37,348 Additional paid-in capital .................. 9,445,669 9,233,952 Retained earnings ........................... 2,673,285 2,363,278 Deferred costs arising from a financing and consulting agreement .................. (17,566) (35,132) ---------- ---------- 12,139,286 11,599,446 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $ 19,346,543 $ 19,309,397 ========== ========== See Notes to Consolidated Interim Financial Statements Page 3 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Six Months Ended Three Months Ended April 30, April 30, 1997 1996 1997 1996 -------------------------- -------------------------- REVENUES ........... $ 16,171,062 $ 14,317,091 $ 7,988,961 $ 7,209,976 ---------- ---------- ---------- ---------- COSTS and EXPENSES: Data processing costs .......... 10,749,481 8,833,068 5,357,301 4,462,754 Selling and promotion costs 1,328,559 1,356,594 676,458 647,019 General and administrative expenses ....... 3,400,972 3,635,788 1,597,753 1,807,902 Interest expense, net of interest income ......... 142,049 181,245 67,935 87,319 ---------- ---------- ---------- ---------- 15,621,061 14,006,695 7,699,447 7,004,994 ---------- ---------- ---------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES ..... 550,001 310,396 289,514 204,982 PROVISION FOR INCOME TAXES ............ 220,400 153,985 106,400 94,593 ---------- ---------- ---------- ---------- NET INCOME ......... $ 329,601 $ 156,411 $ 183,114 $ 110,389 ========== ========== ========== ========== INCOME PER COMMON SHARE AND SHARE EQUIVALENTS ...... $ 0.08 $ 0.04 $ 0.04 $ 0.03 ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND SHARE EQUIVALENTS OUTSTANDING ...... 3,895,610 3,775,917 3,937,936 3,791,192 ========== ========== ========== ========== See Notes to Consolidated Interim Financial Statements Page 4 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended April 30, 1997 1996 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income..................................... $ 329,601 $ 156,411 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization ............... 1,123,178 964,390 Deferred income taxes ....................... 43,103 81,191 Decrease/(increase) in: Trade accounts receivable ................. (269,734) 42,387 Refundable taxes .......................... 17,784 34,062 Prepaid expenses .......................... (145,836) (166,720) Other current assets ...................... (44,208) 84,435 Security deposits and other noncurrent assets .................................. 36,410 47,703 Increase/(decrease) in: Accounts payable .......................... 157,363 393,056 Accrued expenses and taxes ................ 97,574 (385,715) Customer deposits and other current liabilities ............................. (58,472) (15,222) ---------- ---------- Net cash provided by operating activities ... 1,286,763 1,235,978 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment .......... (300,673) (359,569) Disposal of equipment ....................... 2,074 60,993 Settlement of contingencies relating to acquisitions ............................. (39,425) (90,539) Increase in deferred software costs ......... (489,138) (503,213) ----------- ----------- Net cash used in investing activities ....... $ (827,162) $ (892,328) ----------- ----------- Continued on Next Page See Notes to Consolidated Interim Financial Statements Page 5 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - Continued) Six Months Ended April 30, 1997 1996 ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt ................. $ (635,373) $ (808,479) Proceeds from issuance of long-term debt .... - 227,255 Repayments of amounts by related parties, net .............................. 10,406 14,335 Repayments of capital leases ................ (123,460) (99,063) ----------- ----------- Net cash used in financing activities ....... (748,427) (665,952) ----------- ----------- Net decrease in cash and cash equivalents ... (288,826) (322,302) Cash and cash equivalents at the beginning of the period.............................. 1,083,545 1,406,016 ---------- ---------- Cash and cash equivalents at the end of the period..................................... $ 794,719 $ 1,083,714 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest .................................. $ 173,444 $ 216,572 ========== ========== Income taxes .............................. $ 51,215 $ 1,356 ========== ========== SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: New capitalized leases for data processing equipment ................................. $ 90,612 $ 135,202 ========== ========== For the six months ended April 30, 1997 and 1996, $19,594 and $23,406 (net of tax benefits), respectively, were accreted through a charge to retained earnings in connection with a stock option. See Notes to Consolidated Interim Financial Statements Page 6 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED APRIL 30, 1997 (Unaudited) Deferred Costs in Connection with a Financing/ Common Par Paid in Retained Consulting Shares Value Capital Earnings Agreement Total ------------------------------------------------------------------ Balances, October 31, 1996 ..... 3,734,848 $37,348 $9,233,952 $2,363,278 $(35,132) $11,599,446 Common Stock issued in connection with a covenant not to compete .. 15,000 150 54,225 54,375 Exercises of stock option ... 40,000 400 157,492 157,892 Amortization of deferred costs in connection with a financing and consulting agreement 17,566 17,566 Accretion in connection with stock option obligation, net ...... (19,564) (19,564) Net income . 329,601 329,601 ------------------------------------------------------------------ Balances, April 30, 1997 ..... 3,789,848 $37,898 $9,445,669 $2,673,285 $(17,566) $12,139,286 ================================================================== See Notes to Consolidated Interim Financial Statements Page 7 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The Consolidated Balance Sheet as of April 30, 1997, and the Consolidated Statements of Income and the Consolidated Statements of Cash Flows for the six month periods ended April 30, 1997 and 1996, have been prepared by the Company without audit. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the periods indicated have been made. The results of operations for the periods ended April 30, 1997 and 1996 are not necessarily indicative of the operating results for the full fiscal years. Certain reclassifications have been made to the prior periods to conform to the current presentation. Certain disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-KSB for the fiscal year ended October 31, 1996. The consolidated financial statements include the accounts of Computer Outsourcing Services, Inc. and its wholly-owned subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated. 2. DEBT At April 30, 1997, the Company was indebted to a bank for three term loans under a Term Loan Agreement ("Agreement") originally aggregating $2,620,000. The proceeds of these loans were used for acquisitions. The Agreement provides for monthly principal and interest payments in varying amounts through May 2000, with interest computed at the bank's prime rate. As last amended on March 20, 1997, the term loans bear interest, at the Company's option, at either the Adjusted Eurodollar Rate (as defined) plus 2.25%, or the bank's prime rate. An aggregate of $1,212,087 was outstanding at April 30, 1997 under this facility. Substantially all of the assets of the Company are pledged as collateral for this indebtedness. In March 1997, the Company and the bank entered into an additional agreement for a line of credit whereby the Company may borrow up to an additional $1,500,000. Interest on these borrowings, when made, may be at either of the rates discussed above. No amounts were owing on this line at April 30, 1997. The line of credit expires on April 30, 1998. 3. ACQUISITION OF CUSTOMER LIST Effective as of March 1997, the Company acquired the customer list and certain fixed assets from a client for whom the Company had been performing processing services. Consideration of $346,742 was given, consisting primarily of the forgiveness of approximately $240,500 of long-term notes receivable from the Page 8 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued) 3. ACQUISITION OF CUSTOMER LIST (Continued) client and cash payments of $2,800 per month for 36 months. The processing agreement between the Company and the client was terminated 4. STOCK OPTIONS The Company applies the provisions of APB Opinion 25 and related Interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized for stock options granted. The excess, if any, of the fair market value of shares on the measurement date over the exercise price is charged to operations each year as the options become exercisable. Had compensation cost for these options been determined using the Black-Scholes option-pricing model described in FASB Statement 123, (which permits, but does not require, companies to recognize as expense over the vesting period the fair value of all stock-based awards, measured as of the date of grant), the Company would record aggregate compensation expense of approximately $155,331 which would be expensed over the options' vesting period as follows: Fiscal Years Ended October 31, ------------------ 1997 $69,474 1998 33,802 1999 33,802 2000 9,126 2001 9,127 -------- $155,331 ======== The assumptions used in the option-pricing model include a risk-free interest rate of 6.5%, expected lives of three to five years, and expected volatility of 45%. The pro forma impact of following the provisions of FASB Statement 123 on the Company's net income and net income per share would be as follows: Six Months Ended April 30, 1997 ---------------- Net income - as reorted $329,601 ======== - pro forma $314,435 ======== Net income per common share - as reported $0.08 ===== - pro forma $0.08 ===== Net income per common share has been calculated using the weighted average number of shares of common stock outstanding during the period. Page 9 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------- RESULTS OF OPERATIONS, SIX MONTH PERIODS ENDED APRIL 30, 1997 AND 1996 During the period ended April 30, 1997, revenues increased $1,854,000 to $16,171,000, an increase of 13% over the period ended April 30, 1996. The Company's Information Processing Division recorded a revenue increase of $1,137,000 and the Pay USA Division recorded an increase of $717,000, primarily due to contracts entered into in the prior fiscal year. Data processing costs increased $1,916,000 to $10,749,000 (66% of revenues) during the current period compared to $8,833,000 (62% of revenues) in the prior year's period. The Information Processing Division's data processing costs increased $1,530,000 to $8,232,000, compared to $6,702,000 in the prior period. The increase as a percentage of revenues is attributable to the mix of services provided in the current period compared to the prior year's period. The Pay USA's data processing costs increased $386,000 to $2,517,000. The Company continued the process of standardizing the Pay USA Division into one processing system and consolidating the computer operations of the Information Processing Division. Until the total integration of operations is completed, including payroll system standardization, the Company will continue to experience higher costs due to the cost of the conversion effort and the duplication of facilities and personnel. Selling and promotion costs decreased $28,000 to $1,329,000, a decrease of 1% as a percentage of revenues. A decrease of $182,000 in the Information Processing Division was partially offset by an increase of $154,000 in the Pay USA division. The decrease as a percentage of revenues resulted from the consolidation of the sales and marketing efforts in each of the divisions. General and administrative expenses decreased $235,000 to $3,401,000 in the current period, a decrease of 4% as a percentage of revenues, as the Company was successful in holding down administrative costs while growing its businesses. Net interest expense decreased $39,000 to $142,000 in the current period primarily as a result of a decreased level of outstanding debt. For the period ended April 30, 1997, the provision for income taxes was $220,000, an effective tax rate of 40%. For the comparable period of the prior year, the provision for income taxes was $154,000, a 50% effective tax rate. The decrease in the effective tax rate is the result of the amortization of nondeductible goodwill having less of an impact on a higher level of earnings, coupled with the increased investment in high quality, low risk tax exempt securities. The Company recorded a profit of $330,000 ($0.08 per share) for the period ended April 30, 1997 compared to a profit of $156,000 ($0.04 per share) for the period ended April 30, 1996. Page 10 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS, QUARTERS ENDED APRIL 30, 1997 AND 1996 During the quarter ended April 30, 1997, revenues increased $779,000 to $7,989,000, an increase of 11% over the quarter ended April 30, 1996. The Company's Information Processing Division recorded a revenue increase of $417,000 and the Pay USA Division recorded an increase of $362,000. Data processing costs increased $895,000 to $5,357,000 (67% of revenues) during the current quarter compared to $4,463,000 (62% of revenues) in the prior year's quarter. The Information Processing Division's data processing costs increased $714,000 and the Pay USA division's data processing costs increased $180,000. The increases in revenues and data processing costs were as a result of factors noted in the six month discussion above. Selling and promotion costs increased $29,000 to $676,000, a decrease, however, of 1% as a percentage of revenues. An increase of $127,000 in the Pay USA Division was partially offset by a decrease of $98,000 in the Information Processing division, as that division undergoes a consolidation of its marketing efforts. General and administrative expenses decreased $210,000 to $1,598,000 in the current quarter, a decrease of 5% as a percentage of revenues. Net interest expense decreased $19,000 to $68,000 in the current quarter. For the quarter ended April 30, 1997, the provision for income taxes was $106,000, an effective tax rate of 37%. For the comparable quarter of the prior year, the provision for income taxes was $95,000, a 46% effective tax rate. The decreases in general and administrative expenses, net interest expense, and the tax provision resulted from the same factors noted in the six month discussion above. The Company recorded a profit of $183,000 ($0.04 per share) for the quarter ended April 30, 1997 compared to a profit of $110,000 ($0.03 per share) for the quarter ended April 30, 1996. LIQUIDITY AND CAPITAL RESOURCES During the six months ended April 30, 1997, the Company provided $1,287,000 from operations principally by generating $1,496,000 in net income before deductions for depreciation, amortization, and deferred taxes. The Company invested $301,000 for the purchase of equipment and spent $489,000 for product enhancements. In its financing activities, the Company used $759,000 to repay long-term debt and capital leases. In the aggregate, the Company's investing and financing activities used $1,575,000. As a result of these factors, the Company's cash and cash equivalents decreased by $289,000. As of April 30 1997, the Company had cash and cash equivalents of $795,000 and working capital of $990,000. Its current ratio (i.e., the ratio of current assets to current liabilities) was 1.21 to 1, and its debt to equity ratio was 0.59 to 1. Page 11 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES (Continued) At April 30, 1997, the Company was indebted to a bank for three term loans under a Term Loan Agreement ("Agreement") originally aggregating $2,620,000. The proceeds of these loans were used for acquisitions. The Agreement provides for monthly principal and interest payments in varying amounts through May 2000, with interest computed at the bank's prime rate. As last amended on March 20, 1997, the term loans bear interest, at the Company's option, at either the Adjusted Eurodollar Rate (as defined) plus 2.25%, or the bank's prime rate. An aggregate of $1,212,087 was outstanding at April 30, 1997 under this facility. Substantially all of the assets of the Company are pledged as collateral for this indebtedness. In March 1997, the Company and the bank entered into an additional agreement for a line of credit whereby the Company may borrow up to an additional $1,500,000. Interest on these borrowings, when made, may be at either of the rates discussed above. No amounts were owing on this line at April 30, 1997. The line of credit expires on April 30, 1998. Management believes that its cash flow from operations and its available line of credit will be sufficient to fund the Company's operations for at least the coming year. The Company continues to seek acquisition opportunities that fit the Company's long-term strategy. Any material acquisitions may require funding in excess of the level of current and projected operating cash flows, and would require additional debt and/or equity funding. Page 12 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits: 10.1A Satisfaction of Security Agreement dated April 16, 1997 made to Datafast, Inc. by the Company. 10.1B Asset Purchase Agreement as of April 16, 1997 made between Datafast, Inc. and the Company. 10.1C Termination Agreement as of April 25, 1997, made between Datafast, Inc. and the Company. 10.1D Promissory Note dated as of March 1, 1997 made to Datafast, Inc. by the Company. (b) Reports on Form 8-K: None Page 13 of 14 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMPUTER OUTSOURCING SERVICES, INC. June 11, 1997 Zach Lonstein Principal Executive Officer June 11, 1997 Laurence L. Carpenter Acting Principal Accounting Officer Page 14 of 14 EX-10.1A 2 SATISFACTION OF SECURITY AGREEMENT ---------------------------------- KNOW EVERYONE BY THESE PRESENTS, THAT COMPUTER OUTSOURCING SERVICES, INC., having a principal place of business located at 360 West 31st Street, New York, New York 10001 does hereby certify that the following Security Agreement IS PAID and satisfied and does hereby consent that the same be discharged of record. SECURITY AGREEMENT dated December 4, 1992 made by DATAFAST, INC., with a principal place of business located at 571A White Plains Road, Eastchester, New York 10709 to COMPUTER OUTSOURCING SERVICES, INC., with a principal place of business located at 360 West 31st Street, New York, New York 10001. Said Security Agreement being in the principal amount of TWO HUNDRED THOUSAND DOLLARS ($200,000.00) and which Security Agreement has not been assigned of record. Dated: New York, New York March , 1997 COMPUTER OUTSOURCING SERVICES, INC. By: Zach Lonstein/Chairman -------------------------------- Name/Title State of New York County of New York On the 16th day of April, 1997 before me personally came to me known, who, being by me duly sworn, did depose and say that he resides at and that he is the Chairman of COMPUTER OUTSOURCING SERVICES, INC., the corporation foregoing instrument; that he knows the foregoing instrument; that he knows the seal of said corporation; that the seal corporate seal; that it was so affixed that it was so affixed by order of the board of directors of said corporation and that he signed his name thereto by like order. - -------------------------------- Notary Public Michael Carmody Notary Public, State of New York No. 02CA5024046 Qualified in Westchester County Commission Expires Feb. 22, 1998 EX-10.1B 3 ASSET PURCHASE AGREEMENT ------------------------ This Agreement is entered into on this 16th day of April 1997 by and between DATAFAST, INC., a New York Corporation with a principal place of business located at 571A White Plains Road, Eastchester, NY 10709 (hereinafter referred to as "DFI") and COMPUTER OUTSOURCING SERVICES, INC., a New York Corporation with a principal place of business located at 360 West 31st Street, New York, NY 10001 (hereinafter referred to as "COSI"). WHEREAS, DFI and COSI are or were parties to that certain Processing Agreement dated December 4, 1992, (The "Processing Agreement"); and WHEREAS, pursuant to the Processing Agreement, DFI relocated to COSI its data processing operations to COSI's offices and facilities located at 360 West 31st Street, New York, NY, and did convert all of its operating and application software and all data files to operate on COSI's mainframe computers and further delivered to COSI its customer lists, computer equipment and furniture to COSI; and WHEREAS, pursuant to the Processing Agreement, COSI exclusively performed all data processing services for those DFI customers and accounts transferred to COSI, billed and received accounts payable and maintained books and records in connection therewith, and did and still does possess all of the computer equipment and software, customer lists and furniture transferred or relocated to COSI pursuant to the Processing Agreement; and WHEREAS, pursuant to the Processing Agreement, COSI advanced to DFI the aggregate sum of $200,000.00 and DFI executed two promissory notes to the benefit of COSI in the aggregate principal amount of two hundred thousand dollars ($200,000.00) which obligated DFI to repay to COSI said advanced sums, plus interest as set forth in the Promissory Notes, (the "Promissory Notes"); and WHEREAS, DFI now wishes to sell to COSI and COSI now wishes to purchase from DFI all of the assets of DFI which were delivered to COSI pursuant to the Processing Agreements; NOW THEREFORE, in consideration of the mutual undertakings, promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, DFI and COSI do hereby agree as follows: 1. DFI hereby irrevocably transfers to COSI all of its rights, title and interest in or to (i) all computer processing service accounts and customers and customer lists which DFI formerly serviced and which, pursuant to the Processing Agreement were or are currently being serviced by COSI; (ii) all property and equipment of whatever kind, nature and description, which was transferred and/or delivered to COSI from DFI pursuant to the Processing Agreement. 2. COSI shall take title to all such property transferred hereunder in its current location and condition "AS IS" and COSI further acknowledges that DFI is making no warranties or representations of any kind as to the current condition or value of the service accounts and customer lists transferred hereunder including, but not limited to, income, expenses, accounts payable, accounts receivable nor any other matter concerning the accounts and operation of DFI, the same having been serviced and managed exclusively by COSI since the inception of the Processing Agreement. COSI shall, in a timely manner, file and tax returns and pay any taxes which may be required or due as a result of the transfer of assets hereunder. 3. In exchange for the property transferred and sold to COSI pursuant to this Agreement, COSI shall: (a) Pay to DFI the sum of One hundred thousand, eight hundred dollars ($100,800.00) which shall be paid to DFI in thirty-six equal monthly installments of $2,800.00 each, commencing on March 1, 1997 and continuing thereafter on the first of each month for the next thirty-five successive months and as set forth in the Promissory Note annexed and attached hereto as Exhibit A; (b) As of the date of this agreement and pursuant to this agreement, forgive the entire debt, including principal and interest thereon due from DFI to COSI pursuant to the Promissory Notes executed in accordance with the Processing Agreement. In connection with the forgiveness of the debt referred to in this paragraph 3(b) COSI shall deliver to DFI simultaneously with the execution of this Agreement, the original Promissory Notes referred to herein and a Satisfaction Instrument, along with the Original Security Agreement, if any, and any UCC-III termination Statements for each UCC-I filing made pursuant thereto, if any. (c) A copy of the corporate resolution of COSI, authorizing the execution of this Asset Purchase Agreement and the Promissory Note referred to in paragraph 3(a) above. 4. DFI expressly represents, warrants and covenants that: (i) it has not transferred, assigned, pledged, encumbered or hypothecated its right to any of the assets which are being transferred to COSI pursuant to this Agreement and (ii) that it has the lawful right, power, capacity and authority to transfer the assets which are being transferred to COSI pursuant to this Agreement and (iii) that signatory is authorized to execute this Agreement on its behalf. 5. This Agreement may not be modified, altered, amended, waived or revoked orally, but only by a writing signed by each of the parties or their respective representatives. The foregoing represents the entire Agreement between the parties and supersedes and replaces all prior understandings, discussions, representations and agreements between them, including without limitation, the Processing Agreement, on any and all subjects, whether written or oral. The Parties represent and acknowledge that, in executing this Agreement they have not relied upon any promises, inducements representations, understandings or agreements other than those specifically set forth herein. 6. This agreement shall be binding upon and shall inure to the benefit of each party and its successors and/or assigns. 7. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without reference to its conflict of laws provisions. Entered into as of the date and year first written above. DATAFAST, INC. COMPUTER OUTSOURCING SERVICES, INC. By: James E. Dellarmi/President-CEO By: Zach Lonstein/Chairman -------------------------------- ------------------------------- Name/Title Name/Title State of New York State of New York County of Westchester ss: County of New York On the 16th day of April, 1997 On the 16th day of April, 1997 before me personally came before me personally came to me known, who, being by me duly to me known, who, being by me duly sworn, did depose and say that he sworn, did depose and say that he resides at 571A White Plains Road, resides at Eastchester, N.Y. 10709 and that he is the President of and that he is the of DATAFAST, Inc., the corporation COMPUTER OUTSOURCING SERVICES, INC., described in and which executed the the corporation described in and foregoing instrument; that he knows which executed the foregoing the seal of said corporation; that instrument; that he knows the seal the seal affixed to said instrument of said corporation; that the seal is such corporate seal; that it was affixed to said instrument is such so affixed by order of the board of seal; that it was so affixed by directors of said corporation and order of the board of directors of that he signed his name thereto by said corporation and that he signed like order. his name thereto by like order. By: Anthony S. Colavita By: Michael Carmody - ---------------------------------- ----------------------------------- Notary Public Notary Public Anthony S. Colavita Michael Carmody Notary Public, State of New York Notary Public, State of New York No. 4868135 No. 02CA5024046 Qualified in Westchester County Qualified in Westchester County Term Expires August 18, 1998 Commission Expires Feb. 22, 1998 EX-10.1C 4 TERMINATION AGREEMENT ---------------------- This Termination Agreement is made and entered into on this 25th day of April 1997 by and between DATAFAST, INC., a New York Corporation with a principal place of business located at 571A White Plains Road, Eastchester, NY 10709 (hereinafter referred to as "DFI") and COMPUTER OUTSOURCING SERVICES, INC., a New York Corporation with a principal place of business located at 360 West 31st Street, New York, NY 10001 (hereinafter referred to as "COSI"). WHEREAS, DFI and COSI are parties to that certain Processing Agreement dated December 4, 1992, a copy of which is annexed and attached hereto as "Exhibit A" (The "Processing Agreement"); and WHEREAS, pursuant to and in accordance with said Processing Agreement, COSI advanced and delivered to DFI the sum of $200,000 and DFI executed two Promissory Notes each in the principal amount of $100,000.00 and evidencing DFI's obligation to repay the advanced sums, plus interest at the rates set forth in said Promissory Notes (the "Notes"); and WHEREAS; DFI and COSI have recently, prior to the date of this Termination Agreement, entered into an Asset Purchase Agreement whereby COSI purchased from DFI and DFI transferred to COSI (i) all computer processing service accounts and customers and customer lists which DFI formerly serviced and which, pursuant to the Processing Agreement were or are currently being serviced by COSI; (ii) all property and equipment of whatever kind, nature and description, which was transferred and/or delivered to COSI from DFI pursuant to the Processing Agreement; and WHEREAS, part of the consideration paid by COSI to DFI pursuant to the Asset Purchase Agreement was COSI's forgiveness of all of DFI's remaining debt and obligations under and pursuant to the Promissory Notes; and WHEREAS, DFI and COSI now wish to terminate the Processing Agreement in accordance with and on the terms set forth herein; NOW THEREFORE, in consideration of the sum of $10.00, each to the other in hand paid, and of the mutual undertakings, promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, DFI and COSI do hereby agree as follows: 1. The Processing Agreement is as of the date first written above terminated and neither party shall have any further rights, liabilities or, obligations pursuant to, related to or in connection with the Processing Agreement. 2. DFI, on behalf of itself and its parents, subsidiaries, affiliates, officers, successors, assigns, predecessors in interest, past and present officers, directors, shareholders, employees, attorneys, accountants, representatives, and agents does hereby release COSI and, its parents, subsidiaries, affiliates, officers, successors, assigns, predecessors and successors in interest, past and present officers, directors, shareholders, employees, attorneys, accountants, representatives, and agents, of and from any and all manner of actions, causes of action (at law or in equity), suits, claims, counterclaims, demands, agreements, obligations, promises, liability, damages, costs and expenses of any nature whatsoever, liquidated or unliquidated which DFI had, now has or may hereinafter accrue, or which DFI may hereafter claim to have or which DFI may hereafter discover, against COSI or against any other such person, entity or beneficiary above enumerated, upon or by reason of any matter, cause or thing whatsoever from the beginning of time to the date hereof, including, but not limited to, (i) any and all claims and/or counterclaims which were set forth in, arise from or relate to the Arbitration Proceeding commenced by DFI on or about November 10, 1995 by filing a Demand with the Arbitration Association of America and which Arbitration Proceeding was designated as case number 19-117-0101-95; (ii) any further performance, obligation or liability whatsoever arising from or related to the Processing Agreement. 3. COSI, on behalf of itself and its parents, subsidiaries, affiliates, officers, successors, assigns, predecessors in interest, past and present officers, directors, shareholders, employees, attorneys, accountants, representatives, and agents does hereby release DFI and, its parents, subsidiaries, affiliates, officers, successors, assigns, predecessors and successors in interest, past and present officers, directors, shareholders, employees, attorneys, accountants, representatives, and agents, of and from any and all manner of actions, causes of action (at law or in equity), suits, claims, counterclaims, demands, agreements, obligations, promises, liability, damages, costs and expenses of any nature whatsoever, liquidated or unliquidated which COSI had, now has or may hereinafter accrue, or which COSI may hereafter claim to have or which COSI may hereafter discover, against DFI or against any other such person, entity or beneficiary above enumerated, upon or by reason of any matter, cause or thing whatsoever from the beginning of time to the date hereof, including, but not limited to, (i) any and all claims and/or counterclaims which were set forth in, arise from or relate to the Arbitration Proceeding commenced by DFI on or about November 10, 1995 by filing a Demand with the Arbitration Association of America and which Arbitration Proceeding was designated as case number 19-117-0101-95; (ii) any further performance, obligation or liability whatsoever arising from or related to the Processing Agreement. 4. Each of the parties expressly represents, warrants and covenants that : (i) it has not transferred, assigned, pledged, encumbered or hypothecated its right to assert any claim, demand, action, cause of action, suit, liability, indebtedness, duty, obligation or responsibility which is released in this Agreement; (ii) that it has the lawful right, power, capacity and authority to release such claims, demands, actions, cause of action, suits, liabilities, indebtedness, duties, obligations, and responsibilities in accordance with the terms herein; (iii) that there are no parties related or otherwise, that have any right, power, authority, capacity, or standing to assert any claim, demand, action, cause of action, suit or liability, indebtedness, duty, obligation or responsibility that it has released in this Agreement. Each party further represents that its signatory is authorized to execute this Agreement and the Release embodied herein on its behalf. 5. This agreement shall be binding upon and shall inure to the benefit of each party and its successors and/or assigns. 6. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without reference to its conflict of laws provisions. Entered into as of the date and year first written above. DATAFAST, INC. COMPUTER OUTSOURCING SERVICES, INC. By: James E. Dellarmi/President-CEO By: Zach Lonstein/Chairman -------------------------------- ----------------------------------- Name/Title Name/Title State of New York State of New York County of Westchester ss: County of New York On the 25th day of April, 1997 On the 25th day of May, 1997 before before me personally came me personally came James E. Dellarmi Zach Lonstein to me known, who, being by me duly to me known, who, being by me duly sworn, did depose and say that he sworn, did depose and say that he resides at 571A White Plains Road, resides at 360 W. 31st St., Eastchester, N.Y. 10709 NYC. and that he is the President of and that he is the President/Chairman DATAFAST, Inc., the corporation of COMPUTER OUTSOURCING SERVICES, described in and which executed the Inc., the corporation described in and foregoing instrument; that he knows which executed the foregoing the seal of said corporation; that instrument; that he knows the seal of the seal affixed to said instrument said corporation; that the seal is such corporate seal; that it was affixed to said instrument is such so affixed by order of the board of seal; that it was so affixed by order directors of said corporation and of the board of directors of said that he signed his name thereto by corporation and that he signed his like order. name thereto by like order. By: Anthony S. Colavita By: Michael Carmody - ---------------------------------- ------------------------------------- Notary Public Notary Public Anthony S. Colavita Michael Carmody Notary Public, State of New York Notary Public, State of New York No. 4868135 No. 02CA5024046 Qualified in Westchester County Qualified in Westchester County Term Expires August 18, 1998 Commission Expires Feb. 22, 1998 PROCESSING AGREEMENT dated December 4, 1992 between COMPUTER OUTSOURCING SERVICES, INC., a New York corporation with its chief office and principal place of business located at 360 West 31st Street, New York, New York 10001 ("COSI"), and DATAFAST, INC., a New York corporation with its chief office and principal place of business located at 132 Montgomery Street, Scarsdale, New York 10583 ("DFI"). WHEREAS, COSI owns and operates a computer service business in The City of New York which provides both on-line and batch data processing services; and WHEREAS, DFI owns and operates a computer service business in Scarsdale, New York which provides accounts receivable batch data processing services; and WHEREAS, DFI desires to subcontract to COSI DFI's data processing requirements on the terms and conditions hereinafter set forth; and WHEREAS, COSI and DFI are willing to perform their respective obligations hereunder on the terms and conditions hereinafter set forth. In consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, COSI and DFI hereby agree as follows: 1. Concurrently with the execution and delivery of this Processing Agreement (this "Agreement"), COSI is advancing to DFI the sum of $100,000 by delivering to DFI its certified check in such amount payable to DFI's order. To evidence such advance, DFI is concurrently delivering to COSI its promissory note (the "First Advance Note") in the principal amount of $100,000. The First Advance Note shall be in the form annexed hereto as Annex A. 2. Promptly after the execution and delivery of this Agreement, DFI will, at its own expense, relocate DFI's data processing operations to COSI's office located at 360 West 31st Street, New York, New York. COSI and DFI will attempt to accommodate such relocated operations of DFI within COSI's existing leased offices at such location, and, if COSI's existing offices are too small to fully accommodate such relocated operations, COSI will procure a short term rental of such additional space as may be required from time to time (any such required lease of additional space being hereinafter referred to as the "Additional Lease"). 3. COSI and DFI will cooperate with each other by making their respective employees available without charge to convert all of the operating and application software and all of the data files used by DFI in its computer service business to run on COSI's IBM mainframe computers and peripheral equipment. COSI and DFI will use their respective best efforts to complete this conversation as soon as reasonably practicable, and in any case before January 30, 1993. The date on which such conversion is completed to the mutual satisfaction of COSI and DFI is hereinafter referred to as the "Commencement Date". 4. On the Commencement Date, COSI will advance to DFI the additional sum of $100,000 by delivering to DFI its certified check in such amount payable to DFI's order. To evidence such additional advance, on the Commencement Date DFI will deliver to COSI its promissory note (the "Second Advance Note") in the principal amount of $100,000. The Second Advance Note shall have the same terms as the First Advance Note except that it shall be called the Second Advance Note and shall be dated the Commencement Date. The First Advance Note and the Second Advance Note are hereinafter collectively referred to as the "Notes". 5. During the four-year period commencing on the Commencement Date (the "Initial Term") and, if the Initial Term is extended as hereinafter provided in Section 10, during the Additional Term (the Initial Term together with the Additional Term, if any, being hereinafter collectively referred to as the "Term"), COSI will perform its services under this Agreement through a newly-created division (the "Division"). 6. Prior to the Commencement Date, the Division will offer to hire selected employees of DFI whose services will be necessary to the operation of the Division. All employees of DFI hired by the Division will receive a base salary as indicated on the Division Budget for the first year of the Inital Term annexed hereto as 'Annex B'. In addition, all of such hired employees will participate in all COSI plans and receive all other benefits which other newly-hired employees of COSI are entitled to participate in and to receive. No less than 30 days prior to the beginning of each year after the first year during the Term, DFI and COSI shall agree to a Division Budget for the coming year which new Division Budget shall be substituted as 'Annex B' hereto for the year covered thereby. 7. All DFI employees hired by the Division other than Joseph Sudul will be "at will" employees of the Division and will not be entitled to any written employment agreement. Joseph Sudul will be offered a written employment agreement by the Division to be its Operations Manager for a term coextensive with the Initial Term. 8. During the Term, COSI will perform all data processing services required by DFI except those permitted to be offered or performed by DFI pursuant to Section 11. During the Term, the Division will bill all clients of DFI for all data processing services and disbursements and expenses incurred in rendering such services and collect on behalf of DFI all accounts receivable so generated. On a quarterly basis COSI will provide DFI with copies of all programs and data files used by the Division in connection with the data processing services performed by the Division for DFI's clients (collectively, the "Division Software"). During the Term, DFI will continue to perform all selling and customer service functions in connection with the data processing services performed by the Division for DFI's clients and may, subject to Section 11, solicit new clients for data processing services. DFI represents and warrants that during the calendar year ending december 31, 1992, the excess of its gross billings for data processing services over the billed-through amounts included in such gross billings for such things as postage, forms, outside messenger service, telephone toll charges and sales or use taxes imposed by any jurisdiction, will exceed $1,000,000. 9. COSI will keep the books and records of the Division in accordance with generally accepted accounting principles consistently applied and will determine the Division's Adjusted Gross Revenues, Pass Through Billings and Permitted Expenses promptly after the end of each Measuring Month. Such books and records and determinations of Adjusted Gross Revenues, Pass Through Billings and Permitted Expenses shall be final and binding on all parties hereto in the absence of manifest error. DFI shall have the right during normal business hours to examine the books and records of the Division in respect of each Measuring Month. As used herein, the terms "Measuring Month" means any month during the Term in respect of which Adjusted Gross Revenues, Pass Through Billings and Permitted Expenses are to be determined; "Adjusted Gross Revenues" means the excess of the gross billings generated by the Division during the Measuring Month over the Pass Through Billings of the Division during the Measuring Month; "Pass Through Billings" means the billed-through amounts included in gross billings generated by the Division for such things as postage, forms, outside messenger service, telephone toll charges and sales or use taxes imposed by any jurisdiction on the services performed by COSI under this Agreement; and "Permitted Expenses" means the sum of: (i) all bad debt expense of the Division during the Measuring Month, whether for the creation of an initial reserve of 5% for doubtful accounts or for adjustment of such reserve from Measuring Month to Measuring Month based on an increase in the level of accounts receivable of the Division or the experience of the Division in collecting its accounts receivable; (ii) the incremental out-of-pocket expenses incurred by COSI during the Measuring Month for such things as rent under the Additional Lease and payroll expense for all employees of the Division which would not have been incurred by COSI during the Measuring Month except for the operation of the Division; and (iii) the excess, if any, of the Permitted Expenses of the Division during the month immediately preceding the Measuring Month over the Adjusted Gross Revenues of the Division during such immediately preceding month. COSI shall operate the Division so that the Permitted Expenses of the Division during each year of the Term do not exceed 105% of the amounts budgeted therefor on the Division Budget for such year unless otherwise agreed to in writing by DFI and COSI. Within 20 days after the end of each Measuring Month, COSI shall determine and advise DFI of the respective amounts of Adjusted Gross Revenues, Pass Through Billings and Permitted Expenses for such Measuring Month. Within 25 days after the end of each Measuring Month, COSI will cause the Division to distribute amounts equal to the Adjusted Gross Revenues and Pass Thgough Billings for such Measuring Month in the following strict order of priority to the maximum extent possible: (a) with respect to each of the first twelve Measuring Months during the Initial Term and also with respect to each other Measuring Month during the Term as to only those Adjusted Gross Revenues attributable to new clients: 'first', an amount equal to the sum of the Pass Through Billings and the Permitted Expenses for such Measuring Month shall be distributed to COSI to reimburse it for its out-of-pocket costs of performing its services under this Agreement; 'second', an amount equal to 8% of the Adjusted Gross Revenues for such Measuring Month shall be distributed to COSI as its base fee for performing its services under this Agreement; 'third', an amount equal to 20% of the Adjusted Gross Revenues for such Measuring Month shall be distributed to DFI except that out of such distribution to DFI an amount equal to 5% of the Adjusted Gross Revenues for such Measuring Month shall be applied by COSI to pay on behalf of DFI principal and/or interest on the Notes so long as the Notes remain unpaid; and 'fourth', if the Adjusted Gross Revenues for such Measuring Month exceed the distributions pursuant to clauses "second" and "third" above, an amount equal to such excess shall be distributed to COSI as the balance of its fee for performing its services under this Agreement; and (b) with respect to each of the Measuring Months in the second, third and fourth years of the Initial Term and each of the Measuring Months in the Additional Term, if any, except for any Adjusted Gross Revenues for such Measuring Month attributable to new clients and included in the calculation made pursuant to Section 9(a) with respect to such Measuring Month: 'first', an amount equal to the sum of the Pass Through Billings and the Permitted Expenses for such Measuring Month shall be distributed to COSI to reimburse it for its out-of-pocket costs of performing its services under this Agreement; 'second', an amount equal to 8% of the Adjusted Gross Revenues for such Measuring Month shall be distributed to COSI as its base fee for performing its services under this Agreement; 'third', an amount equal to 15% of the Adjusted Gross Revenues for such Measuring Month shall be distributed to DFI except that out of such distribution to DFI an amount equal to 5% of the Adjusted Gross Revenues for such Measuring Month shall be applied by COSI to pay on behalf of DFI principal and/or interest on the Notes so long as the Notes remain unpaid; and 'fourth', if the Adjusted Gross Revenues for such Measuring Month exceed the distributions pursuant to clauses "second" and "third" above, an amount equal to such excess shall be distributed to COSI as the balance of its fee for performing its services under this Agreement. 10. As collateral security for the prompt payment when due of the principal of and interest on the Notes, DFI hereby grants to COSI a continuing 'first priority security' interest in all of its general intangibles consisting of its client lists, trade name, operating and application software and all of the data files used by DFI in its computer service business (collectively, the "Collateral"). In the event that DFI shall fail to pay in full the principal of and all accrued interest on the Notes on the last day of the Initial Term after COSI has made demand for such payment, COSI shall have the option in its sole and absolute discretion of extending the Initial Term for such minimum length of time (the "Additional term") as may be necessary for the principal of and interest on the Notes to be paid in full by applying all amounts that would otherwise be payable to DFI during the Additional Term pursuant to Section 9(b) to the payment of the principal of and interest on the Notes. Such option may be exercised by COSI at any time prior to 120 days prior to the end of the Initial Term by delivering written notice of its election to DFI. If DFI shall have paid in full the principal of and all accrued interest on the Notes on or prior to the last day of the Initial Term, the Term of this Agreement shall end on the fourth anniversary of the Commencement Date. COSI shall have all of the rights and remedies of a secured party in and to the Collateral provided by Article 9 of the New York Uniform Commercial Code. DFI hereby authorizes COSI to file Uniform Commercial Code financing statements, amendments thereto and continuations thereof with regard to the Collateral without signature of DFI, to the extent permitted by applicable law. In addition, DFI does hereby further irrevocably make, constitute and appoint COSI or any officer or designee thereof its true and lawful attorney-in-fact in the name of DFI or in the name of COSI to execute any such financing statements, amendment thereto or continuation thereof. 11. DFI hereby agrees during the Term not to offer to, or perform data processing services for, any client or prospective client of the Division unless the data processing services are to be performed by the Division. For purposes of this Section 11, a "prospective client of the Division" means any entity requiring data processing services of the type now rendered by DFI or rendered by the Division during the Term. In addition, if DFI shall hereafter offer any new types of data processing services, DFI hereby agrees to offer COSI a right of first refusal to have the Division perform under this Agreement the data processing services for all of their permitted clients. 12. COSI will use due care in processing all work delegated to it by DFI. COSI will cause the Division to use its best efforts to promptly respond to immediate problems brought to its attention. 13. COSI shall not be liable for any failure to perform its obligations under this Agreement if prevented from doing so by a cause or causes beyond its control, such as acts of God, war, fire, electrical failure, explosion, earthquake, flood, weather, governmental order or regulation, acts of public enemies, shortage of suitable parts, materials and/or manpower not under COSI's control, and transportation accidents, labor disputes, postal delays, strikes and lockouts. 14. Nothing in this Agreement to the contrary withstanding shall relieve any party to this Agreement from liability for its own gross negligence or willful misconduct. 15. Neither COSI nor DFI will divulge any information learned by it concerning the other party or its clients without the prior written consent of the other party unless it learned such information prior to the date of this Agreement under circumstances not requiring confidentiality or such other party makes the information available to the general public. COSI will utilize computer industry standards for data security. Promptly after the end of the Term, COSI will deliver to DFI all copies of the Division Software and all client lists, telephone lists and other written information concerning DFI's clients in its possession or under its control, and will destroy all stationery, billing materials and other materials including the "Datafast" name in its possession or under its control. COSI hereby acknowledges that the name "Datafast" is and shall remain the sole property of DFI. COSI agrees for a period of two years following the Term not to solicit any data processing business from, or provide any data processing services to, any client of DFI for whom the Division performed any data processing services at any time during the Term. 16. At the end of the Term, COSI will assist DFI in moving its data processing operations to another location specified by DFI. In connection therewith, COSI will make available to DFI without charge up to 50 hours of systems and programming time and at 50% of COSI's standard rates for any additional systems and programming assistance requested by DFI to convert and/or modify all of the Division Software for use by DFI. 17. This Agreement and the Notes constitute the entire understanding between COSI and DFI with respect to subject matter hereof and thereof and supersede and cancel all prior written and oral understandings and agreements with respect to such matters. Except as specifically set forth in this Agreement, COSI makes no representations or warranties, express or implied, including without limitation any warranty of merchantability or fitness for a particular purpose. However, COSI shall be responsible for providing maintenance of all computer hardware and peripherals and all software used by the Division. 18. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person or forty-eight (48) hours after deposit thereof in the U.S. mails, postage prepaid, for delivery as certified or registered mail, return receipt requested, addressed as set forth in the heading of this Agreement, or to such other address as the party to be notified may specify by notice to the other party. 19. COSI will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of its business and/or assets, by agreement in form and substance satisfactory to DFI, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that COSI would be required to perform it if no such succession had taken place. Except as provided in the foregoing sentence, neither COSI nor DFI may assign its rights nor delegate its duties under this Agreement without obtaining the prior written consent of the other party hereto, such consent not to be unreasonably withheld. This Agreement and all rights of the parties hereunder shall inure to the benefit of and be enforceable by the successors and permitted assigns of the parties hereto. 20. No Provisions of this Agreement or the Annexes hereto may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing both COSI and DFI. No waiver by COSI or DFI at any time of any breach by the other, or of compliance with, any condition or provision of this Agreement to be performed by the other shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 21. Any controversy or claim arising out of this Agreement, the Notes, or the breach hereof or thereof, shall be settled by arbitration in the County of Westchester in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The dispute shall be heard by a panel of three arbitrators, with DFI designating one arbitrator, COSI designating one arbitrator and the two arbitrators so designated selecting the third arbitrator. Judgment upon the award rendered by the arbitration panel may be entered in any court having jurisdiction thereof. Such arbitration shall be a condition precedent to any suit upon or by reason of such controversy or claim except a suit commenced to compel arbitration in accordance with this Section 21. Both COSI and DFI shall be bound to perform their obligations under this Agreement and the Notes during the pendency of the dispute. 22. COSI and DFI shall pay their own respective expenses in connection with the negotiation, execution and delivery of this Agreement and the Notes and shall indemnify and hold each other harmless from any claims of finders or brokers in connection with the transactions contemplated by this Agreement and the Notes. 23. This Agreement may be executed in two or more counterparts each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 24. This Agreement is governed by and is to be construed and enforced in accordance with the laws of the State of New York. COMPUTER OUTSOURCING SERVICES, INC. By: Zach Lonstein -------------------------------- Zach Lonstein, President DATAFAST, INC. By: James E. Dellarmi -------------------------------- James E. Dellarmi, President and Chief Executive Officer EX-10.1D 5 PROMISSORY NOTE ---------------- $100,800.00 New York, New York March 1, 1997 FOR VALUE RECEIVED, COMPUTER OUTSOURCING SERVICES, INC., a New York Corporation with its principal place of business located at 360 West 31st Street, New York, New York 10001 hereinafter referred to as Maker, promises to pay to the order of DATAFAST, INC. with its principal place of business located 571A White Plains Road, Eastchester, New York 10709 hereinafter referred to as Payee or Note Holder, the sum of One Hundred Thousand Eight Hundred and No/100 ($100,800.00) Dollars payable as follows: Beginning on the first day of March, 1997 and on the first day of each month and each and every month thereafter, for a total period of thirty-six (36) consecutive months in equal monthly installments in the sum of Two Thousand Eight Hundred and No/100 ($2,800.00) Dollars until maturity on February 1st, 2000 at which time the remaining principal balance shall be payable to the Payee. The Maker shall pay the monthly installments due hereunder by check made payable to Payee or Holder hereof at the address set forth above for Payee or at such other place as the Payee or Holder hereof may from time to time designate in writing to the Maker. Should any payment due pursuant to this Note not be received by the Payee by the 10th day of the month in which same is due, the Maker shall pay a penalty of five (5%) percent of the amount of said payment. This provision however shall no way limit the Holder's further rights contained herein. The Payee or any subsequent Holder of this Note may declare the principal of and accrued interest on this Note immediately due and payable upon the occurrence of any of the following conditions or events which shall be deemed a default: (a) If any installment of principal or other amounts payable hereunder remains unpaid for a period of thirty (30) days after becoming due; or (b) The failure of Maker to perform any of its covenants as set forth herein; or (c) The failure of Maker to perform any term, covenant or condition set forth in the Asset Purchase Agreement executed between the Payee and Maker herein; or (d) Any other obligation or indebtedness of the Maker is not paid when due, or is in default; or (e) Maker shall become insolvent or bankrupt (voluntarily or involuntarily or fail to pay its debts as they mature or any judgments shall be rendered against the Maker or the commencement of any proceeding, procedure or other remedy supplemental to the enforcement of a judgment against the Maker or Maker commences a dissolution proceeding or Maker hereunder shall make an assignment for the benefit of creditors or a trustee or receiver or liquidator shall be appointed for the Maker for a substantial part of the corporate assets or a bankruptcy reorganization, arrangement, insolvency or other similar proceeding shall be instituted by the Maker or the Maker indicates consent to, approval of, or acquiesces in the same and within ninety days after the appointment of such trustee, receiver or liquidator same shall have not been vacated or such proceeding shall not have been dismissed; or In the event of a default Maker expressly waives notice of presentment for payment, notice of dishonor, protest, notice of protest or further notice of any other kind. In the event of a default herein interest shall accrue upon the unpaid and remaining principal balance at a rate of ten (10%) per centum per annum until the obligations of Maker to Payee are satisfied. In the event that is necessary for the Payee or a Holder hereof to commence any legal action to collect any monies due pursuant to this Promissory Note, then and in such event, the Payee or a Holder hereof shall be entitled to recover the cost, and disbursements, and resonable attorney's fees incurred in any such proceeding or in the preparation of said proceeding. This Promissory Note may be prepaid, in whole or in part, at any time, without penalty, provided that the Payee or a Holder hereof is notified in writing by the Maker of the Maker's intention to prepay this Promissory Note. If a law, which applies to this Promissory Note which sets the maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with this Promissory Note exceed the permitted limits, then any such interest or other loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limits and any sums already collected from the Maker which exceeded permitted limits will be refunded to the Maker. The Payee or a Holder hereof may choose to make this refund by reducing the principal owed under this Promissory Note or by Making a direct payment to the Maker. If a refund reduces the principal, the reduction will be treated as a partial prepayment. Should the Payee or a Holder hereof not declare the entire principal of and interest due on this Promissory Note immediately due and payable upon the occurrence of any of the conditions or events of default specified herein, same shall not be deemed a waiver of the Payee's or Holder's rights hereunder and the Payee or a Holder hereof shall retain the right to do so should any of the aforementioned conditions or events continue or occur at a later time. Any notice that must be given to the Maker pursuant to this Promissory Note or pursuant to applicable law, shall be given to the Maker by delivering it or by mailing it by First Class Mail to the Maker at the address stated above unless the Maker gives the Payee or a Holder hereof written notice of a different address. By : Zach Lonstein ------------------------------ MAKER STATE OF NEW YORK ) COUNTY OF NEW YORK ) ss: On this day of March, 1997 before me personally came Zack Lonstein to me known, who being by me duly sworn, did depose and say that he resides at 360 West 31st Street, New York, New York that he is the Chairman of Computer Outsourcing Services, Inc. the Corporation described in and which executed the foregoing instrument; that he knows the Seal of said Corporation; that the Seal affixed to said instrument is such Corporate Seal; that it was so affixed by order of the Board of Directors of said Corporation, and that he signed his name thereto by like order. By : Michael Carmody ------------------------------ NOTARY PUBLIC Michael Carmody Notary Public, State of New York No. 02CA5024046 Qualified in Westchester County Commission Expires Feb. 22, 1998 EX-27 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD ENDED APRIL 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 1 US DOLLARS 6-MOS OCT-31-1997 NOV-01-1996 APR-30-1997 1 794,719 0 4,322,027 361,145 0 5,815,704 7,771,916 4,788,602 19,346,543 4,825,235 2,578,618 0 0 37,898 12,101,388 19,346,543 0 16,171,062 0 10,749,481 4,729,531 124,252 162,039 550,001 220,400 329,601 0 0 0 329,601 .08 .08 INCLUDES CURRENT PORTION OF 1,076,918
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