As filed with the Securities and Exchange Commission on November 6, 1996.
Registration No. 333-8155
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2
to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEW YORK HEALTH CARE, INC.
(Name of small business issuer in its charter)
New York 7373 11-2636089
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1667 Flatbush Avenue, Brooklyn, NY 11210 (718) 421-0500
(Address and telephone number of principal executive offices)
1667 Flatbush Avenue, Brooklyn, NY 11210 (718) 421-0500
(Address of principal place of business or intended place of business)
JERRY BRAUN, PRESIDENT
New York Health Care, Inc.
1667 Flatbush Avenue
Brooklyn, NY 11210
Telephone: (718) 421-0500
Facsimile: (718) 421-4365
(Name, address and telephone number of agent for service)
Copies to:
WILLIAM J. DAVIS, ESQ. FRAN STOLLER, ESQ.
Scheichet & Davis, P.C. Bachner, Tally, Polevoy &
505 Park Avenue, 20th Floor Misher LLP
New York, NY 10022 380 Madison Avenue
(212) 688-3200 New York, NY 10017
(212) 687-7000
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
Proposed maximum Amount of
Title of each class of securities to be registered aggregate offering price (1)registration fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value .................................................... $5,750,000 $1,983
- -------------------------------------------------------------------------------------------------------------------------------
Redeemable Warrants, two are exercisable for one share of Common Stock........... $ 287,500 -0-(2)
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Redeemable Warrants....................... $5,750,000 $1,983
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the Representative's Warrants............. $ 600,000 $ 207
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Redeemable Warrants issuable upon exercise of the Representative's Warrants...... $ 30,000 -0-(2)
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the Redeemable Warrants
issuable upon exercise of the Representative's Warrants........................ $ 525,000 $ 181
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL(3) ................................................................................................. $4,357
===============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended (the
"Securities Act").
(2) No fee pursuant to Rule 457(g) under the Securities Act.
(3) The filing fee has already been paid.
Pursuant to rule 416(a) under the Securities Act, there are also being
registered such additional securities as may be issued pursuant to the
antidilution provisions of the Redeemable Warrants and the Representative's
Warrants.
<PAGE>
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED NOVEMBER 6, 1996
PROSPECTUS
NEW YORK HEALTH CARE, INC.
1,250,000 Shares of Common Stock and
2,500,000 Redeemable Warrants
New York Health Care, Inc., (the "Company") hereby offers 1,250,000 shares
(the "Shares") of Common Stock, $.01 par value (the "Common Stock"), and
2,500,000 redeemable warrants (the "Warrants"). The Shares and the Warrants
(collectively, the "Securities") may only be purchased together on the basis of
one Share and two Warrants until completion of the initial distribution of the
Securities and will be separately tradeable immediately thereafter. Two Warrants
entitle the registered holder thereof to purchase one share of Common Stock at
an exercise price of $4.00 per share, subject to adjustment, commencing on the
first anniversary of the date of this Prospectus through the fifth anniversary
of the date of this Prospectus. The Warrants are redeemable by the Company at
any time commencing _____________, 1998, at a redemption price of $.05 per
Warrant, provided that the average closing bid price of the Common Stock shall
equal or exceed $6.00 per share for 20 consecutive trading days ending on the
tenth day prior to the date of the notice of redemption. See "Description of
Securities - Redeemable Warrants."
Prior to this offering, there has been no public market for the Securities,
and there can be no assurance that such a market will develop after the
completion of this offering or, if a market develops, that it will be sustained.
The initial public offering prices of the Securities and the exercise price and
other terms of the Warrants have been arbitrarily determined by negotiations
between the Company and the Representative and do not necessarily bear any
relationship to the Company's asset value, book value, net worth or any other
recognized criterion of value. See "Risk Factors -- Arbitrary Determination of
Offering Prices; Possible Volatility of Common Stock and Warrant Prices" and
"Underwriting." Application has been made for quotation of the Common Stock and
the Warrants on the Nasdaq SmallCap Market ("Nasdaq") and the Boston Stock
Exchange under the symbols NYHC and NYHW, and NYH and NYW, respectively.
----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON PAGE 6 AND "DILUTION."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Price to Public Underwriting Discounts Proceeds to Company (2)
and Commissions (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ........................ $ 4.00 $ .40 $ 3.60
- ------------------------------------------------------------------------------------------------------------------------------------
Per Redeemable Warrant ........... $ .10 $ .01 $ .09
- ------------------------------------------------------------------------------------------------------------------------------------
Total (3) ....................... $5,250,000 $525,000 $4,725,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(footnotes on following page)
The Securities are being offered by the Underwriters subject to prior sale
when, as and if delivered to and accepted by the Underwriters and subject to
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this offering and to reject any order in whole or in part. It is expected that
delivery of the certificates representing the Shares and Warrants will be made
against payment at the offices of the Representative, RAS Securities Corp., 2
Broadway, New York, New York 10004-2801, on or about _______________, 1996.
RAS SECURITIES CORP.
The date of this Prospectus is __________________ , 1996
<PAGE>
(cover continued from previous page)
(1) Does not include additional compensation to RAS Securities Corp., acting as
representative (the "Representative") of the several underwriters (the
"Underwriters") in the form of a (i) non-accountable expense allowance
equal to 3% of the gross proceeds of this offering; and (ii) warrants (the
"Representative's Warrants") to purchase up to 125,000 shares of Common
Stock and/or 250,000 Warrants. In addition, the Company has agreed to
indemnify the Underwriters against certain liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of approximately $472,500 payable by
the Company, including the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable within 30
days after the date of this Prospectus to purchase up to an additional
375,000 shares of Common Stock and/or up to an additional 187,500 Warrants
upon the same terms and conditions as set forth above, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $6,037,000, $603,750 and $5,433,750, respectively. See
"Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish the holders of the Common Stock and the
Warrants, annual reports containing audited consolidated financial statements
with a report thereon by independent certified public accountants and quarterly
reports containing unaudited consolidated financial information for the first
three quarters of each fiscal year.
2
<PAGE>
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless the context otherwise requires, all share and per share information in
this Prospectus gives effect to a 56,625 for 1 stock split effected March 26,
1996 and a 1.25 for 1 stock split effected October 17, 1996, but does not give
effect to the exercise of (i) the Underwriters' over-allotment option to
purchase up to 187,500 shares of Common Stock and/or 375,000 Warrants; (ii) the
Representative's Warrant to purchase up to 125,000 shares of Common Stock and/or
250,000 Redeemable Warrants; (iii) options to purchase up to 262,500 shares of
Common Stock reserved for issuance pursuant to the Company's Stock Option Plan;
or (iv) an option to purchase 93,750 shares outstanding on the date hereof. See
"Management -- Savings and Stock Option Plans" and "Underwriting."
The Company
New York Health Care, Inc. (the "Company") is a licensed home health care
agency engaged primarily in supplying the services of paraprofessionals who
provide a broad range of health care support services to patients in their
homes. The Company operates in all five boroughs of New York City and the
counties of Nassau, Westchester, Rockland, Orange, Duchess, Ulster, Putnam and
Sullivan, in the State of New York. The Company's services are supplied
principally pursuant to contracts with health care institutions and agencies
such as various county departments of social services, Beth Abraham Health
Services in the Bronx and Westchester County, Kingsbridge Medical Center, Mt
Sinai Medical Center and New York Methodist Hospital in Brooklyn.
The Company operates 24 hours a day, seven days a week to receive referrals
and coordinate services with physicians, case managers, patients and their
families. It offers a broad range of support services, including assistance with
personal hygiene, dressing and feeding, meal preparation, light housekeeping and
shopping, and, to a limited extent, standard skilled nursing services such as
the changing of dressings, injections, catheterizations and administration of
medications and physical therapy. The Company's personnel also train patients in
their own care, monitor patient compliance with treatment plans, make reports to
the physicians and process reimbursement claims to third-party payors. Among the
paraprofessionals and nurses supplied by the Company are those fluent in
Spanish, Yiddish and Russian as well as personnel knowledgeable in the
requirements and practices of Kosher homes.
In August 1993, the Company established a maternal/child care division,
called "Special Deliveries," which presently accounts for approximately 5% of
the Company's business and which supplies comprehensive nursing services for
women during pregnancy, and for them and their newborn children after
childbirth. The Company provides its skilled nursing staff with special
additional training in this division, which offers a wide range of quality
health services to patients at home through the provision of Registered Nurses,
including those with at least two years of experience in maternal child care,
Neonatal Intensive Care Unit ("NICU") Nurses, Maternal/Newborn Registered
Nurses, Certified Childbirth Educators and Certified Lactation Consultants.
Referral services are also available for support programs providing social
workers, bereavement counselors and nutritionists. Each patient's individual
treatment plan and insurance coverage is reviewed prior to commencement of
services being rendered, except for childbirth education, which is privately
contracted.
High quality service is emphasized throughout the various divisions of the
Company, both in hiring, Company training and testing of its personnel and in
the manner in which services are delivered. The Company is approved by the New
York Department of Health and the New York Department of Social Services to
train its paraprofessional Home Health Aides and Personal Care Aides,
respectively. Training and quality assurance programs are regularly reviewed and
directed by management and corporate support staff consisting of experienced
health care professionals. The Company received "Accreditation with
Commendation" from the Joint Commission on Accreditation of Health Care
Organizations ("JCAHO") after its initial and only review, in 1994, and, in
February 1996, was selected by the University of Colorado Health Sciences Center
as one of only 22 home health care agencies participating in a two to three year
study known as the Outcome-Based Quality Improvement in Home Care New York State
Demonstration Project being funded by the New York State Department of Health,
by reason of the Company's commitment to both quality assurance and improvement.
The Company believes that its reputation for quality patient care has been and
will continue to be a significant factor in its success.
- --------------------------------------------------------------------------------
3
<PAGE>
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The Company believes that cost containment pressures in the health care
industry, together with the development of new technology, have increasingly
shifted the provision of many health care services from institutions, such as
hospitals and nursing homes, to home care. As a result of the continuing
pressure to restrain costs, the structure of health care payments has been
shifting from the traditional fee-for-service reimbursement model to the
contract care reimbursement model, and this has resulted in patients being
released from hospitals earlier and, often, sicker. The earlier detection of
cancer and the incidence of AIDS, together with the general aging of the
American population, have increased the opportunities for home treatment, as
opposed to institutionalization, resulting in growth in the home health care
industry.
The Company's primary objective is to enhance its position in the home
health care market by increasing the promotion of its full service and specialty
health care capabilities to existing and new referral sources; expand its
markets and enter new markets by establishing additional branch offices and
acquiring other related health care businesses; expand its provision of skilled
nursing services, principally infusion therapy and the care of women during
pregnancy and their newborn children; and develop complimentary home health care
products and services, as well as maintaining its regular training and testing
programs, and recruitment activities.
The Company has been treated as an "S Corporation" under Subchapter S of
the Internal Revenue Code since its inception. As a result, the Company was
exempt from federal and certain state income taxes attributable to its earnings
and such income taxes were instead the obligation of the Company's stockholders.
The Company is terminating its S Corporation status prior to the completion of
this offering. As a result of the termination, the Company will be subject to
federal income taxes at rates of up to 35 percent and may, in certain
circumstances, become subject to the federal alternative minimum tax imposed on
corporations. The Company is also subject to state and local income taxes.
The Company was incorporated under the laws of the State of New York in
February 1983 and maintains its principal offices at 1667 Flatbush Avenue,
Brooklyn, NY 11210, telephone (718) 421-0500.
The Offering
<TABLE>
<S> <C>
Securities Offered by the Company ...... 1,250,000 shares of Common Stock and 2,500,000 Warrants.
Terms of the Redeemable Warrants......... Two Warrants entitle the holder thereof to purchase one share of Common
Stock at a price of $4.00 per share, subject to adjustment, at any time
commencing ,1997 through ,2001. See "Description of
Securities."
Common Stock Outstanding
Before the Offering (1)................ 2,925,000 shares
Common Stock Outstanding
After the Offering(1) (2).............. 4,175,000 shares
Use of Proceeds ........................ Acquisitions, establishment of additional branch offices, funding of
infusion therapy and pediatric service divisions, sales and marketing,
establishment of new principal office, upgrading of facilities and
computer systems and working capital. See "Use of Proceeds."
Risk Factors............................. The Securities offered hereby involve a high degree of risk and immediate
substantial dilution. See "Risk Factors" and "Dilution."
Proposed Nasdaq and
Boston Stock Exchange Symbols:
Nasdaq
Common Stock ..................... NYHC
Warrants ......................... NYHW
Boston Stock Exchange
Common Stock ..................... NYH
Warrants ......................... NYW
</TABLE>
- ------------
(1) Includes 93,750 shares of Common Stock issuable upon exercise of an
outstanding option, exercisable at $3.00 per share, held by the Company's
President. See "Capitalization," "Management -- Savings and Stock Option
Plans," "Principal Stockholders" and "Certain Transactions."
(2) Excludes 1,250,000 shares issuable upon the exercise of the Warrants.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Summary Financial Information
<TABLE>
<CAPTION>
Nine Months
Years Ended December 31, Ended September 30,
----------------------- ------------------------
1994 1995 1995 1996
------ ------ ------- -------
(In thousands, except per share data)
Statement of Income Data:
<S> <C> <C> <C> <C>
Net patient service revenue ...................... $8,981 $11,810 $8,582 $8,999
------ ------- ------ ------
Professional care of patients .................... 6,301 8,128 5,848 6,167
General and administrative expenses............... 1,793 2,391 1,758 2,047
------ ------- ------ ------
Income from operations ........................... 887 1,291 976 785
Interest expense, net ............................ (85) (82) (67) (99)
Other income ..................................... 6 -- -- 11
Loss on sale of accounts receivable............... -- -- -- (217)
Provision for income taxes(1) .................... (37) (81) (60) (55)
------ ------- ------ ------
Net income ....................................... $ 771 $ 1,128 $ 849 $ 425
====== ======= ====== ======
Pro Forma Data:(1)
Income before provision for income taxes.......... $ 808 $ 1,209 $ 909 $ 480
Pro forma provision for income taxes.............. 353 520 391 206
------ ------- ------ ------
Pro forma net income ............................. $ 455 $ 689 $ 518 $ 274
====== ======= ====== ======
Pro forma net income per common share and
common share equivalents........................ $ .19 $ .07
======= ======
Pro forma weighted average number of
common shares and common share
equivalents(2).................................. 3,684 3,684
======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ---------------------------------
Actual As adjusted (3)
------------- ---------------
(In thousands)
Balance Sheet Data:
<S> <C> <C> <C>
Working capital (deficit) ........................................... $2,775 $ (81) $3,981
Total assets ........................................................ 4,840 2,853 6,915
Total liabilities ................................................... 1,799 2,613 2,613
Retained earnings ................................................... 3,011 210 210
Stockholders' equity ................................................ 3,041 240 4,302
- ------------
</TABLE>
(1) The Company has been an S Corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code") for U.S.
federal and New York State income tax purposes since its inception. As an S
Corporation, the Company was not subject to federal income tax, but
remained subject to a reduced New York State income tax. The Company will
terminate its S Corporation status prior to the completion of this
offering. See "The Company." Pro forma amounts give effect to additional
income taxes that would have been reported assuming that the Company was a
C Corporation for years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996. See "Former S Corporation Tax
Treatment" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(2) Pro forma weighted average number of common share equivalents outstanding
includes 829,066 shares whose proceeds would be necessary to pay the S
Corporation distribution and 23,437 shares relating to the dilutive effect
of a stock option grant. See "Former S Corporation Tax Treatment,"
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Principal Stockholders," "Certain Transactions" and Financial Statements.
(3) Adjusted to give effect to the sale of 1,250,000 shares of Common Stock and
2,500,000 Warrants offered by the Company hereby at the initial public
offering prices of $4.00 per share and $.10 per Warrant, and the
application of net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
- --------------------------------------------------------------------------------
5
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk and prospective investors, prior to making an investment in the Securities,
should carefully consider the following risk factors relating to the Company and
this offering.
Indirect Dependence Upon Reimbursement by Third-Party Payors; Health Care
Reform; Pricing Pressure. More than 90% of the revenues of the Company are paid
by Certified Home Health Agencies ("CHHA's") and Long-Term Home Health Care
Programs ("LTHHCP's"), as well as other clients who receive their payments from
"third-party payors," such as private insurance companies, self-insured
employers, HMOs and governmental payors under the Medicare and Medicaid
programs. The levels of revenues and profitability of the Company, like those of
other health care companies, are affected by the continuing efforts of
third-party payors to contain or reduce the costs of health care by lowering
service hours, and reimbursement or payment rates, increasing case management
review of services and negotiating reduced contract pricing. Because home care
is generally less costly to third-party payors than hospital-based care, home
nursing and home care providers have benefited from cost containment initiatives
aimed at reducing the costs of medical care. However, as expenditures in the
home health care market continue to grow, cost containment initiatives aimed at
reducing the costs of delivering services at non-hospital sites are likely to
increase. A significant reduction in service hours and reimbursement or payment
rates of public or private third-party payors would have a material adverse
effect on the Company's revenues and profit margins. While the Company is not
aware of any substantive changes in the Medicare or Medicaid reimbursement
systems for home health care which are about to be implemented, New York State
reduced its overall Medicaid budget for its 1996-1997 fiscal year by
approximately $50 million dollars. The new federal budget proposal for fiscal
year 1996-1997 and the New York State budget for fiscal year 1997-1998 could
result in significant limitations or reductions in the reimbursement of home
care costs and in the imposition of limitations on the provision of services
which will be reimbursed. As a result, there can be no assurance that government
regulations concerning Medicare or Medicaid will not change in the future in a
manner detrimental to the Company. Recently, attention has also been focused on
reform of the health care system in the United States. However, until specific
legislation is proposed to the Congress, the Company cannot accurately predict
what additional legislation, if any, may be adopted relating to the Company's
business or the health care industry. Under certain circumstances, third party
payors may negotiate fee discounts and reimbursement caps for services which the
Company provided. During 1996 the Company has thus far agreed to a 5% reduction
in rates for Beth Abraham Hospital and a 2% prompt payment discount for the
Center for Nursing and Rehabilitation, two of its largest referral sources. At
this time, the Company can neither estimate the frequency or rates of the
negotiated discounts or the maximum reimbursement amounts nor predict whether
the Company's revenues will be thereby materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Third-Party Reimbursement" and "Business -- Government
Regulation."
Reduction in Usage by Major Customers; New Areas of Operations. Net Patient
Service Revenues decreased in the third quarter of 1996 as compared to both the
third quarter of l995 and the second quarter of 1996. This resulted primarily
from reductions in revenues derived from referrals from major clients, including
a reduction in service hours from Beth Abraham Health Services and reduced
referrals from Mt. Sinai Medical Center. Revenues derived from Beth Abraham
Health Services, and certain others which had reduced referrals in the third
quarter of 1996, have since somewhat increased. While Beth Abraham Health
Services has implemented a policy of reducing the per patient hours of home
health care referrals, the Company believes, although there can be no assurance,
that the reduced referrals from other health care institutions were due
primarily to normal fluctuations in patient care and, to a lesser extent,
personnel changes in the Company's Rockland County branch office, where the
Company has recently hired a new branch manager and made other administrative
changes. In addition, there continued to be decreases in referrals from two of
the five county departments of social services that comprise, in the aggregate,
the Company's largest referral source. The county departments of social services
reductions reflect cost-cutting efforts implemented in the New York State budget
for the 1996-1997 fiscal year. There can be no assurance that cost-cutting
efforts, such as those implemented by New York State and Beth Abraham Health
Services, will not continue in future state and institutional budgets. The
Company has sought to offset such reductions in Medicaid revenues by continuing
to expand its client base and service capabilities, principally in the areas of
maternal and newborn care, infusion therapy and other services. While the
Company has, in the fourth quarter of 1996, experienced increased referrals from
certain existing sources and has entered into new agreements with, and received
additional referrals from, new sources, there can be no assurance that existing
or new sources will generate sufficient referrals to offset decreases in
revenues from New York State or other major referral sources. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
6
<PAGE>
Possible Working Capital Shortages Resulting from Delays in Reimbursement;
Bad Debts. The Company generally collects payments from its contractors within
one to six months after services are rendered, but pays its accounts payable and
employees currently. This timing delay may cause working capital shortages from
time to time. In the past, the Company has been able to obtain financing to
cover these shortages through bank borrowings guaranteed by the current
stockholders. There can be no assurance that bank borrowings or other methods of
financing will be available when needed or, if available, will be on terms
acceptable to the Company. The Company has recognized a bad debt expense of
$69,764 for the nine months ended September 30, 1996. Any significant increase
in bad debts may adversely affect the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business --
Third-Party Reimbursement," "Certain Transactions" and Financial Statements.
Adequacy and Availability of Professional Liability Insurance. The
administration of home care and therapy and the provision of nursing services
entails certain liability risks. The Company maintains professional liability
insurance coverage with limits of $1,000,000 per claim and $3,000,000 annual
aggregate, with an umbrella policy providing an additional $5,000,000 of
coverage. Although the Company believes the insurance it maintains is sufficient
for its present operations, professional liability insurance is expensive and
becoming increasingly difficult to obtain. There can be no assurance that the
Company's present coverage will continue to be adequate or that the Company will
be able to maintain the current levels of such insurance in the future or secure
additional insurance on terms satisfactory to the Company or at all. A
successful claim against the Company in excess of, or not covered by, the
Company's insurance coverage could have a material adverse effect on the
Company's business and financial condition. Claims against the Company,
regardless of their merit or eventual outcome, also could have a material
adverse effect on the Company's reputation and business. See "Business --
Insurance."
State and Federal Regulation Affecting Costs and Control. The Company's
operations are subject to substantial regulation at the state level and also
under the federal Medicare and Medicaid laws. In particular, the Company is
subject to state laws governing home care, nursing services, health planning and
professional ethics, as well as state and federal laws regarding fraud and abuse
in government funded health programs. Changes in the law or new interpretations
for existing laws can have a material adverse effect on permissible activities,
the relative costs of doing business and the amount of reimbursement by
government and private third-party payors. The establishment of additional
branch offices by the Company and any future acquisitions will be subject to
compliance with all applicable laws, rules and regulations. If any person should
become the owner or holder, or acquire control of or the right to vote 10% or
more of the issued and outstanding Common Stock of the Company, such person
could not exercise control of the Company until an application for approval of
such ownership, control or holding has been submitted to the New York State
Public Health Council and approved. In the event such an application is not
approved, such owner or holder may be required to reduce their ownership or
holding to less than 10% of the Company's issued and outstanding Common Stock.
Although the Company has not experienced any difficulties to date complying with
any of such laws, rules or regulations, the failure of the Company to obtain,
renew or maintain any required regulatory approvals or licenses could adversely
affect the Company and could prevent it from offering its existing services to
patients or from further expansion.
Increasing Competition. The home health care industry is highly
competitive. The Company competes with hospitals, nursing homes and other
businesses that provide home health care services, most of which are larger and
more established companies with significantly greater resources and access to
capital and greater name recognition than the Company. Among the national
companies with which the Company competes are Olsten Kimberly Quality Care,
Inc., Staff Builders Inc., Coram Health Care Corp., Interim Personnel, Inc.,
Transworld Home Health Care, Inc. and Health Force, Inc. Additionally, as a
regional rather than a national provider of home health care services,
competition in the Company's markets as well as general economic conditions may
be more acutely felt than if the Company's operations were spread over a larger
market area. Among the Company's competitors in the New York metropolitan area
are U.S. Home Care, Inc., Star Multicare, Inc., VIP Home Health Care, Inc.,
Patient Care, Inc., Plaza Nurses Agency, Inc. and Personal Touch Home Care
Services, Inc. Moreover, other companies, hospitals and health care
organizations may elect to enter the home care and home nursing markets, and
existing and future competitors can be expected to expand the varieties of
therapies and nursing services that they offer. See "Business -- Competition."
Dependence Upon Relationships with Referral Sources and Major Customers.
The development and growth of the Company's home care and nursing businesses
depends to a significant extent on its ability to establish close working
relationships with hospitals, clinics, nursing homes, physician groups, HMO's,
governmental health
7
<PAGE>
care agencies and other health care providers. There can be no assurance that
existing relationships can be successfully maintained or that additional
relationships can be successfully developed and maintained in existing and any
future markets. The Company's ten largest customers accounted for approximately
76% and 74% of revenues during the years ended December 31, 1994 and 1995,
respectively. The various county departments of social services were
collectively responsible for approximately 27% and 28% of the Company's gross
revenues for the years ended December 31, 1994 and 1995, respectively. Another
referral source, Beth Abraham Medical Center, was responsible for approximately
18% and 13% of gross revenues for the years ended December 31, 1994 and 1995,
respectively. The loss of or a significant reduction in referrals by either of
such sources, as well as certain other key sources, could have a material
adverse effect on the Company's results of operations. Many of the Company's
contractual arrangements with its customers are renewable annually. See
"Business."
Continuing Control by Officers and Directors Potential Conflicts of
Interest; Intercompany Arrangements. Upon completion of this offering, the
officers and directors of the Company will control the vote of approximately 70%
of the outstanding shares of Common Stock. The Company's stock option plan
provides 262,500 shares of Common Stock regarding which options may be granted
to key employees of the Company. Moreover, the Company's Board of Directors has
approved a resolution which proposes to provide for an increase in the number of
shares of Common Stock available for options under the Company's Stock Option
Plan equal to an additional 262,500 shares for each of two additional years,
subject to approval by the Company's shareholders at the first annual meeting of
shareholders which is held after the completion of this offering. As a result,
the officers and directors of the Company, alone or together with a limited
number of other shareholders, will control the election of the Company's
Directors and will have the ability to control the affairs of the Company.
Furthermore, such persons will, by virtue of such vote, have significant
influence over, among other things, the ability to amend the Company's Restated
Certificate of Incorporation and By-Laws or effect or preclude fundamental
corporate transactions involving the Company, including the acceptance or
rejection of any proposals relating to a merger of the Company or an acquisition
of the Company by another entity. See "Management" and "Principal Stockholders."
The Company's current stockholders are also the sole stockholders of 1667
Flatbush Avenue LLC ("1667 Flatbush"), a limited liability company organized
under New York law, and Heart to Heart Health Care Services, Inc. ("Heart to
Heart"), a corporation organized under New Jersey law. In November, 1995, the
Company transferred the land and building located at 1667 Flatbush Avenue,
Brooklyn, New York, which houses its principal offices, to 1667 Flatbush as a
non-cash distribution to the current stockholders of S Corporation earnings in
the aggregate sum of $144,927. The Company now leases its principal offices from
1667 Flatbush. In July, 1996, 1667 Flatbush purchased $3,500,000 of the
Company's accounts receivable for a purchase price of $3,150,000, all of which
has been paid, together with accrued interest at the rate of 12% per annum.
Heart to Heart, which does not operate in New York, has engaged in the home
health care business in northern New Jersey since 1995. The Company and Heart to
Heart are parties to a Service Agreement pursuant to which the Company provides
administrative services for a term ending June 30,1997 for which it is
reimbursed for all expenses attributable to such operations, presently totaling
approximately $15,000 per year.
The transactions described above involve actual or potential conflicts of
interest between the Company and its officers or directors. It is the Company's
policy not to enter into transactions with officers, directors or other
affiliates unless the terms of the transaction are at least as favorable to the
Company as those which would have been obtainable from an unaffiliated source.
As of the date of this Prospectus, the Company has no plans to enter into any
additional transactions which involve actual or potential conflicts of interest
between the Company and its officers or directors and will not enter into any
such transactions in the future without first obtaining an independent opinion
with regard to the fairness to the Company of the terms and conditions of any
such transaction. See "Former S Corporation Tax Treatment," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Business -- Properties," and "Certain
Transactions."
Broad Discretion by Management in Use of Proceeds. Approximately 63% of the
estimated net proceeds of this offering will be applied to the acquisition of
businesses and working capital. Accordingly, the Company's management will have
broad discretion as to the application of such proceeds. Moreover, the Company
has afforded itself broad discretion with respect to redirecting the application
and allocation of the net proceeds of the offering, in light of changes in
circumstances and the availability of certain growth opportunities. Any such
redirection can be made by management of the Company with the prior approval of
the Board of Directors of the Company. As a result of the foregoing, investors
will be substantially dependent upon the discretion and judgment of the
Company's management with respect to the application and allocation of the net
proceeds of the offering. Pending their use for
8
<PAGE>
the purposes described above, the net proceeds of the offering will be invested
by the Company in short-term, investment-grade securities. See "Use of
Proceeds."
Dependence on Key Personnel. The Company's success will, to a large extent,
depend upon the continued services of Jerry Braun, the Company's President and
Chief Executive Officer, and Jacob Rosenberg, the Company's Vice President and
Chief Operating Officer. Although the Company has employment agreements with
Messrs. Braun and Rosenberg expiring in 1999 and is the sole beneficiary of a
$2,000,000 life insurance policy covering Mr. Braun and a $1,000,000 life
insurance policy covering Mr. Rosenberg, the loss of the services of either
executive officer could have a materially adverse effect upon the Company. The
success of the Company will also depend, in part, upon its ability in the future
to attract and retain additional qualified licensed health care, operating,
marketing and financial personnel. Competition in the home health care industry
for such qualified personnel is often intense and there can be no assurance that
the Company will be able to retain or hire the necessary personnel. See
"Business -- Government Regulation" and "Management."
Limited Information on Acquisition and Expansion Strategy. The Company has
allocated $2,600,000 of the net proceeds of this offering for expansion through
the acquisition of health care related businesses and opening of additional
branch offices. The Company's ability to expand its operations depends on a
number of factors, including the availability of desirable locations for
additional facilities, the availability of acquisition candidates and the
ability of the Company to finance such expansion. To date, the Company has not
determined the specific location of any additional branch offices. Although the
Company continually explores acquisition possibilities, it is not currently
negotiating any acquisitions and has no agreements, arrangements or
understandings regarding acquisitions. There can be no assurance that the
Company will open any additional branch offices, or, if opened, that the Company
can profitably manage such offices or that the Company will make any
acquisitions or, if made, that such acquisitions will be successful. The
establishment of additional branch offices and any future acquisitions by the
Company may involve the use of cash, debt or equity securities, or a combination
thereof. A Company decision to utilize a substantial portion of the net proceeds
of this offering for acquisitions reduces the resources available to complete
its other expansion and growth objectives. In such event, the Company may be
required to obtain additional financing to achieve such objectives. There can be
no assurance that such financing will be available, or, if available, will be on
terms acceptable to the Company. In addition, the Company may explore the
potential for expanding its operations into health care businesses not related
to the Company's current operations on an opportunistic basis, and if the
Company's management deems it appropriate, a portion of the net proceeds of this
offering may be used for such purposes. The Company is not experienced in
operating any health care business unrelated to its current businesses and,
accordingly, no assurance can be given that the Company could successfully
operate any such unrelated health care business. Thus, purchasers of the
securities will be entrusting their funds to the Company's management, upon
whose judgment the investors must depend, with only limited information
concerning management's specific intentions. Depending on the form of the
transaction, certain acquisitions could be effected without stockholders having
the opportunity to vote thereon or to review the financial statements of the
potential acquiree. See "Use of Proceeds" and "Business -- Expansion Strategy."
Charge to Earnings Resulting from Sale of Accounts Receivable. By reason of
an agreement entered into by the Company on July 8, 1996 (the "Receivables Sale
Agreement") with 1667 Flatbush, pursuant to which the Company sold $3,500,000 of
its accounts receivable for a purchase price of $3,150,000, the Company recorded
a net charge to its earnings for the third quarter ended September 30, 1996 in
the amount of $217,070. The recognition of such a charge substantially reduced
net income during the period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Principal Stockholders" and "Certain Transactions."
Dilution. Purchasers of the Shares offered hereby will incur immediate
dilution of approximately $2.95 (or 73.8%) in the net tangible book value per
share of Common Stock. See "Dilution."
Arbitrary Determination of Public Offering Prices; Possible Volatility of
Common Stock and Warrant Prices. The initial public offering prices of the
Shares and Warrants and the exercise price and other terms of the Warrants were
arbitrarily determined by negotiations between the Company and the
Representative and do not necessarily bear any relationship to the Company's
asset value, book value, net worth or any other recognized criteria of value.
The trading price of the Common Stock or Warrants could also be subject to
significant fluctuations in response to variations in quarterly results of
operations, announcements of new contracts or services by the Company or its
competitors, governmental regulatory action, general trends in the industry and
other factors, including
<PAGE>
extreme price and volume fluctuations which have been experienced by the
securities markets from time to time in recent years. See "Underwriting."
No Assurance of Public Trading Market or Continued Nasdaq Inclusion; Risk
of Low-Priced Securities. Prior to the offering, there has been no public market
for the Securities and there can be no assurance that an active public market
will develop or, if developed, be sustained. The Company anticipates that the
Securities will be eligible for listing on Nasdaq. In order to qualify for
continued listing on Nasdaq, however, a company, among other things, must have
$2,000,000 in total assets, $1,000,000 in capital and surplus, $200,000 in
market value of the public float, a minimum bid price of $1.00 per share and a
minimum of 300 shareholders. If the Company is unable to satisfy the maintenance
requirements for quotation on Nasdaq, of which there can be no assurance, it is
anticipated that the Securities would be quoted in the over-the-counter market
National Quotation Bureau ("NQB") "pink sheets" or on the NASD OTC Electronic
Bulletin Board. As a result, the liquidity of the Securities could be impaired,
not only in the number of securities which could be bought and sold, but also
through delays in the timing of transactions, reduction in security analyst's
and news media's coverage of the Company and lower prices for the Company's
securities than might otherwise be attained. In addition, if the Securities are
delisted from Nasdaq they might be subject to the low-priced security or
so-called "penny stock" rules that impose additional sales practice requirements
on broker-dealers who sell such securities. For any transaction involving a
penny stock the rules require, among other things, the delivery, prior to the
transaction, of a disclosure schedule required by the Securities and Exchange
Commission (the "Commission") relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information for the penny stocks held in the customer's account.
In the event the Securities subsequently become characterized as a penny
stock, the market liquidity for the Securities could be severely affected. In
such an event, the regulations relating to penny stocks could limit the ability
of broker-dealers to sell the Securities and, thus, the ability of purchasers in
this offering to sell their Securities in the secondary market.
Current Prospectus and State Registration Required To Exercise Warrants.
The Warrants are not exercisable unless, at the time of exercise, the Company
has a current prospectus covering the shares of Common Stock issuable upon
exercise of the Warrants and such shares have been registered, qualified or
deemed to be exempt under the securities or "blue sky" laws of the state of
residence of the exercising holder of the Warrants. Although the Company has
undertaken to use its best efforts to have all of the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there is no assurance that it will be able to do so.
The value of the Warrants may be greatly reduced if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if such Common Stock is not qualified or exempt from qualification
in the states in which the holders of the Warrants then reside. The Warrants
will be separately tradeable immediately upon issuance and may be purchased
separately from the Common Stock. Although the Securities will not knowingly be
sold to purchasers in jurisdictions in which the Securities are not registered
or otherwise qualified for sale, investors may purchase the Warrants in the
secondary market or may move to jurisdictions in which the shares underlying the
Warrants are not registered or qualified during the period that the Warrants are
exercisable. In such event, the Company will be unable to issue shares to those
persons desiring to exercise their Warrants unless and until the shares are
qualified for sale in jurisdictions in which such purchasers reside, or an
exemption from such qualification exists in such jurisdictions, and holders of
the Warrants would have no choice but to attempt to sell the Warrants in a
jurisdiction where such sale is permissible or allow them to expire unexercised.
See "Description of Securities -- Redeemable Warrants."
Adverse Effect of Possible Redemption of Warrants. The Warrants are subject
to redemption by the Company at a price of $0.05 per Warrant, commencing 24
months following the date of this Prospectus, on 30 days prior written notice,
if the average closing bid price for the Common Stock equals or exceeds $6.00
per share for 20 consecutive trading days ending on the tenth trading day prior
to the date of the notice of redemption. Redemption of the Warrants could force
the holders thereof to exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for such holders to do so, to sell the
Warrants at the current market price when they might otherwise wish to hold the
Warrants or to accept the redemption price, which is likely to be substantially
less than the market value of the Warrants at the time of redemption. The
holders of the Warrants will automatically forfeit
10
<PAGE>
their rights to purchase shares of Common Stock issuable upon exercise of the
Warrants unless the Warrants are exercised before they are redeemed. See
"Description of Securities -- Redeemable Warrants."
Shares Eligible for Future Sale. The sale of substantial amounts of Common
Stock in the public market following this offering could adversely affect the
market price of the Securities. Upon the completion of this offering, all
2,831,250 of the shares of Common Stock outstanding prior to this offering will
be "restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act") and, under certain
circumstances, will be eligible for sale without registration pursuant to the
provisions of such rule. An additional 93,750 shares underlying an option will
be eligible for sale under Rule 701 of the Act. Holders of all such shares and
the option, however, have agreed that they will not sell any shares of Common
Stock for a period of 24 months from the date of this Prospectus without the
prior written consent of the Representative. See "Shares Eligible for Future
Sale" and "Underwriting."
Possible Restrictions on Market-Making Activities in the Company's
Securities. The Representative has advised the Company that it may make a market
in the Company's securities. Rule 10b-6 under the Exchange Act may prohibit the
Representative from engaging in any market-making activities with regard to the
Company's securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation by the
Representative of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Representative may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Representative may be
unable to provide a market for the Company's securities during certain periods
while the Warrants are exercisable. Any temporary cessation of such
market-making activities could have an adverse effect on the market price of the
Securities. See "Underwriting."
Possible Adverse Effects of Authorization of Preferred Stock; Anti-Takeover
Effects. The Company's Certificate of Incorporation authorizes the issuance of a
maximum of 2,000,000 shares of preferred stock, $.01 par value ("Preferred
Stock"), on terms which may be fixed by the Company's Board of Directors without
further stockholder action. The terms of any series of Preferred Stock, which
may include priority claims to assets and dividends, and special voting rights,
could adversely affect the rights of holders of the Common Stock. The issuance
of Preferred Stock could make the possible takeover of the Company or the
removal of management of the Company more difficult, discourage hostile bids for
control of the Company in which stockholders may receive premiums for their
shares of Common Stock, or otherwise dilute the rights of holders of Common
Stock and the market price of the Common Stock. See "Description of Securities
- -- Preferred Stock."
Possible Adverse Effect of Exercise of Representative's Warrants and
Registration Rights. The Company has agreed to sell to the Representative for an
aggregate purchase price of $37.50, Representative's Warrants to purchase an
aggregate of 125,000 shares of Common Stock and/or 250,000 Warrants at an
exercise price equal to 120% of the initial public offering price. The shares of
Common Stock and the Warrants issuable upon exercise of the Representative's
Warrants are identical to those offered hereby, except that the Warrants
issuable upon the exercise of the Representative's Warrants are not redeemable
until the Representative's Warrants have been exercised. The Representative's
Warrants are exercisable for a period of four years commencing one year from the
date hereof. The exercise of the Representative's Warrants will dilute the value
of the shares of Common Stock and may adversely affect the Company's ability to
obtain equity capital. Moreover, if the Common Stock issuable upon the exercise
of the Representative's Warrants is sold in the public market, it may adversely
affect the market price of the Common Stock. The holders of the Representative's
Warrants have been granted certain "piggyback" registration rights for a period
of seven years from the date of this Prospectus and demand registration rights
for a period of five years from the date of this Prospectus, with respect to the
registration under the Securities Act of the securities issuable upon exercise
of the Representative's Warrants. The exercise of such rights could result in
substantial expense to the Company. See "Underwriting."
Absence of Dividends. The Company does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. See "Dividend Policy."
11
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Securities offered hereby are
estimated to be approximately $4,252,500 ($4,937,625 if the over-allotment
option is exercised in full) after deducting the Underwriters' discount and
non-accountable expense allowance and other estimated expenses of the offering.
The Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
Approximate Approximate
Amount of Percentage of
Net Proceeds Net Proceeds
--------- ---------
<S> <C> <C>
Acquisition of businesses(1) ................................. $2,100,000 49.38%
Establishment of new branch offices .......................... 500,000 11.76%
Funding of Infusion Therapy Division.......................... 250,000 5.88%
Funding of Pediatric Division................................. 250,000 5.88%
Sales and marketing .......................................... 300,000 7.05%
Establishment of new principal office......................... 150,000 3.53%
Upgrade of facilities and computer systems.................... 150,000 3.53%
Working capital............................................... 552,500 12.99%
--------- ------
Total ................................................ $4,252,500 100.00%
========= ======
- ------------
</TABLE>
(1) The Company may, when and if the opportunity arises, acquire other
businesses which are related to the Company's business with a portion of
the net proceeds. Those businesses in which the Company has interest
include home health care agencies (which are expected to cost between
$500,000 and $1,000,000 each), infusion therapy businesses (which are
expected to cost between $750,000 and $1,500,000 each) and durable medical
equipment businesses (which are expected to cost between $400,000 and
$800,000 each) in the states of New York, New Jersey, Pennsylvania,
Connecticut, North Carolina, Georgia and Florida. The Company has no
specific arrangements with respect to any such acquisition at the present
time and is not presently involved in any negotiations with respect to any
such acquisition. The Company has no present plans for acquisition of any
companies affiliated with its management or stockholders and will not enter
into any such transactions in the future unless the Company first obtains
an independent opinion with regard to the fairness to the Company of the
terms and conditions of any such transaction. See "Certain Transactions."
There can be no assurance that any particular acquisition will be made.
The Company anticipates that the net proceeds of this offering, together
with the funds anticipated to be generated from its operations, will be
sufficient to fund the Company's contemplated cash requirements for at least 12
months following the consummation of the offering. While the initial allocation
of the net proceeds of this offering, as set forth above, represents the
Company's best estimates of their use, the amounts actually expended for each
purpose may vary significantly from the specific allocation of the net proceeds
set forth above, depending on numerous factors, including changes in the
economic, regulatory and competitive climates for the Company's business
operations. The Company, therefore, reserves the right to reallocate the net
proceeds of this offering among the various categories set forth above as it, in
its sole discretion, deems necessary or advisable. Depending upon the timing of
the proposed expenditures for the purposes described in the table set forth
above, the Company may use a substantial portion of the proceeds to reduce or
repay in full its current bank credit lines. In such event, borrowings under the
bank credit lines would then be used to finance the expenditures described in
the table set forth above.
Pending use of the proceeds for the purposes described above, the Company
intends to invest the net proceeds in short-term, investment grade,
interest-bearing obligations. Any proceeds received upon exercise of the
Underwriters' over-allotment option, the Warrants or the Representative's
Warrants, as well as income from investments, will be added to working capital.
12
<PAGE>
DILUTION
The Company had a net tangible book value of $29,570, or approximately $.01
per share of Common Stock as of September 30, 1996. Net tangible book value per
share is equal to the net tangible assets of the Company (total assets less
total liabilities and intangible assets), divided by the number of shares
outstanding. After giving effect to the issuance of the 1,250,000 shares of
Common Stock and the 2,500,000 Warrants offered hereby (after deduction of
estimated offering expenses and the underwriting discounts and commissions
estimated at $997,500), the pro forma net tangible book value of the Company at
September 30, 1996 would have been $4,282,070 or approximately $1.05 per share
of Common Stock representing an immediate dilution to new investors of $2.95 per
share, or 73.8%, as illustrated by the following table:
Assumed initial public offering price
per share of Common Stock ....................... $ 4.00
Net tangible book value per share
of Common Stock before offering ................. $ .01
Increase per share of Common Stock attributable
to public investors ............................. 1.04
-----
Pro forma net tangible book value per share of
Common Stock after offering ..................... 1.05
--------
Dilution per share of Common Stock to new investors $ 2.95
========
If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of Common Stock after this offering
would be $1.16 which would result in dilution to new investors in this offering
of $2.84 per share, or 71%.
The following table sets forth the number of shares of Common Stock owned
by the current stockholders of the Company, the number of shares to be purchased
from the Company by the purchasers of the shares of Common Stock offered hereby
and the respective aggregate cash consideration paid or to be paid to the
Company and the average price per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------------------------------- --------------------------
Average
Price
Number Percent Amount Percent Per Share
--------- ------------ ---------- --------- ----------
Present
<S> <C> <C> <C> <C> <C>
Stockholders(1) .................... 2,831,250 69% $ 30,000 0.6% $ .013
New Investors ...................... 1,250,000 31 5,000,000 99.4 $ 4.00
--------- ------------ ---------- ---------
Total .............................. 4,081,250 100% $5,030,000 100.0%
========= ============ ========== =========
- -----------
</TABLE>
(1) Excludes 93,750 shares of Common Stock issuable upon exercise of an
outstanding option, exercisable at $3.00 per share, held by the Company's
President. See "Capitalization," "Management -- Savings and Stock Option
Plans," "Principal Stockholders" and "Certain Transactions."
13
<PAGE>
DIVIDEND POLICY
The Company has operated as an S Corporation prior to this offering and has
paid out a substantial portion of its earnings to its current shareholders. See
"Former S Corporation Tax Treatment." The Board of Directors currently intends
to retain and reinvest any future earnings into the development and expansion of
the business and therefore does not intend to pay cash dividends. Any future
payment of dividends will be subject to the discretion of the Board of Directors
and will depend upon, among other things, future earnings, if any, the operating
and financial condition of the Company, its capital requirements and general
business conditions.
FORMER S CORPORATION TAX TREATMENT
The Company has been treated for federal income tax purposes as an S
Corporation under Subchapter S of the Internal Revenue Code and under Section
660 of the New York State Tax Law. As a result, earnings of the Company were
declared, for federal and New York State income tax purposes, by the current
shareholders of the Company. In past years, the Company distributed a
substantial portion of its earnings to its current shareholders. These
distributions aggregated $100,230 and $840,032 for the years ended December 31,
1994 and 1995, respectively. During the nine months ended September 30, 1996 the
Company made distributions of previously earned and undistributed S Corporation
earnings in the aggregate amount of $3,225,431 to the current shareholders. The
Company will no longer be treated as an S Corporation prior to the completion of
this offering and, accordingly, the Company will be subject to federal and New
York State income taxes. See "Capitalization," "Certain Transactions" and Notes
1, 2 and 4 to the Financial Statements.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
September 30, 1996 and (ii) pro forma to give effect to the sale by the Company
of the Securities offered hereby at an assumed initial public offering price of
$4.00 per share of Common Stock and $.10 per Warrant, respectively, and the
initial application of the net proceeds therefrom. The information below should
be read in conjunction with the Financial Statements and the notes thereto
included elsewhere in this Prospectus, which should be read in their entirety.
<TABLE>
<CAPTION>
September 30, 1996
------------------------------
Actual Pro forma
------------- ------------
<S> <C> <C>
Short-term debt
Note Payable-- Bank ......................................... 2,000,000 2,000,000
Long-term debt-- current portion ............................ 6,315 6,315
--------- ---------
Total short-term debt ....................................... 2,006,315 2,006,315
--------- ---------
Long-term debt
Collateralized capital leases ............................... 1,784 1,784
--------- ---------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, authorized
2,000,000 shares, no shares issued
and outstanding ............................................
Common stock, $.01 par value, authorized
12,500,000 shares; 2,831,250 shares
issued and outstanding, actual; 4,081,250
shares issued and outstanding
as adjusted(1).............................................. 28,313 40,813
Additional paid-in capital .................................. 1,687 4,051,413
Retained earnings ............................................ 210,155 210,155
--------- ---------
Total stockholders' equity .................................. 240,155 4,302,381
--------- ---------
Total capitalization ........................................ 2,248,254 6,310,480
========= =========
</TABLE>
- ------------
(1) Does not include (i) 1,250,000 shares reserved for issuance upon exercise
of the Warrants; (ii) an aggregate of 250,000 shares reserved for issuance
upon exercise of the Representative's Warrants and the Warrants included
therein; and (iii) 93,750 shares reserved for issuance upon exercise of an
option granted prior to the date of this Prospectus and shares reserved for
issuance upon exercise of options available for future grant under the
Company's Stock Option Plan. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Management -- Stock Option Plan," "Principal Stockholders,"
"Description of Securities," "Certain Transactions" and "Underwriting."
15
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company for
each of the two years ended December 31, 1994 and 1995 and for the nine months
ended September 30, 1995 and 1996. Except for pro forma data, the data as of
December 31, 1994 and 1995 and for each of the two years in the period ended
December 31, 1995 have been derived from the financial statements of the Company
appearing elsewhere in this Prospectus which have been audited by M.R. Weiser &
Co. LLP. The data for the nine month periods ended September 30, 1995 and 1996
was derived from unaudited financial statements included herein, which in the
opinion of management of the Company contain all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation thereof. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of results to be expected for the entire year. The
selected financial data set forth below should be read in conjunction with the
Financial Statements of the Company and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months
Years Ended December 31, Ended September 30,
--------------------------- ----------------------------
1994 1995 1995 1996
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Income Data:
Net patient service revenue ................... $ 8,981 $ 11,810 $8,582 $8,999
------ ------- ------ ------
Professional care of patients ................. 6,301 8,128 5,848 6,167
General and administrative expenses ........... 1,793 2,391 1,758 2,047
------ ------- ------ ------
Income from operations ........................ 887 1,291 976 785
Interest expense, net ......................... (85) (82) (67) (99)
Other income .................................. 6 -- -- 11
Loss on sale of accounts receivable............ -- -- -- (217)
Provision for income taxes(1) ................. (37) (81) (60) (55)
------ ------- ------ ------
Net income .................................... $ 771 $ 1,128 $ 849 $ 425
====== ======= ====== ======
Pro Forma Data:(2)(3)
Income before provision for income taxes ...... $ 808 $ 1,209 $ 909 $ 480
Pro forma provision for income taxes .......... 353 520 391 206
------ ------- ------ ------
Pro forma net income .......................... $ 455 $ 689 $ 518 $ 274
====== ======= ====== ======
Pro forma net income per common share
and common share equivalents (1)(3) ......... $ .19 $ .07
======= ======
Pro forma weighted average number of
common shares and common share
equivalents(2)............................... 3,684 3,684
======= ======
<CAPTION>
December 31, September 30,
1995 1996
-------------- ---------------
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital (deficit) ......................................... $2,775 $ (81)
Total assets ...................................................... 4,840 2,853
Total liabilities ................................................. 1,799 2,613
Retained earnings ................................................. 3,011 210
Stockholders' equity .............................................. 3,041 240
</TABLE>
- ------------
(1) The Company has been an S Corporation under Subchapter S of the Internal
Revenue Code for U.S. federal and New York State income tax purposes since
its inception. As an S Corporation, the Company was not subject to federal
income tax, but remained subject to a reduced New York State income tax.
The Company will terminate its S Corporation status prior to the completion
of this offering. See "The Company." Pro forma amounts give effect to
additional income taxes that would have been reported assuming that the
Company was a C Corporation for years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996. See
16
<PAGE>
"Former S Corporation Tax Treatment" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) Pro forma weighted average number of common share equivalents outstanding
includes 829,066 shares whose proceeds would be necessary to pay the S
Corporation distribution and 23,437 shares relating to the dilutive effect
of a stock option grant. See "Former S Corporation Tax Treatment,"
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Principal Stockholders," "Certain Transactions" and Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains certain forward-looking statements that
involve various risks and uncertainties. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below and in "Business" and "Risk Factors." The following discussion should be
read in conjunction with the financial statements of the Company and the notes
thereto, and is qualified in its entirety by the foregoing and by more detailed
financial information appearing elsewhere in this Prospectus. Results of
Operations
The Company's revenues are derived from the current contracts with 52
health care institutions and agencies. The Company's ten largest referral
sources accounted for approximately 73% of net revenues for 1995, 76% of net
revenues for 1994 and 70% of net revenues for the first nine months of 1996. The
various county departments of social services with which the Company has
contracts accounted, in the aggregate, for approximately 25% of net revenues for
the first nine months of 1996, 26.8% of net revenues for 1995 and 27.5% of net
revenues for 1994.
Revenues for the three months ended September 30, 1996 (the "third quarter
of 1996") decreased 8.5% to approximately $2,852,000 from approximately
$3,116,000 for the three months ended September 30, 1995 (the "third quarter of
1995"), while selling, general and administrative expenses in the third quarter
of 1996 increased 15.4% to approximately $661,000 from approximately $573,000 in
the third quarter of 1995, resulting in a net loss of approximately ($85,000)
for the third quarter of 1996 as compared with net income of approximately
$357,000 for the third quarter of 1995. The results of operations during the
third quarter of 1996 were adversely affected by (i) implementation of a policy
of reducing the per patient hours of home health care service referrals by one
of the Company's largest referral sources and the Company's provision of a 2%
prompt payment discount to another of its largest referral sources; (ii) a
significant decrease in referrals of patients to the Westchester County branch
office from one of the Company's five largest referral sources during the third
quarter of 1996; (iii) a reduction in revenues from the Company's Rockland
County branch office as a result of turnover in the branch offices management
and supervisory personnel; (iv) the termination of a contract with a referring
institution (which accounted for .92% of net revenues for 1995), that the
Company declined to renew because it was unable to obtain acceptable rates of
compensation in the new contract; (v) increased recruitment costs related to the
hiring of additional administrative personnel; (vi) increased telephone costs
resulting from installation of dedicated telephone lines to connect branch
computer systems to the principal office computer system; and (vii) recognition
of a non-operating loss of $217,070 as a result of its sale of receivables for
less than their face value pursuant to the Receivables Sale Agreement.
In response to the factors which resulted in decreased revenues and a net
loss in the third quarter of 1996 as compared to higher revenues and net income
for the third quarter of 1995, the Company has expanded its marketing efforts
and increased its emphasis on higher paying nursing cases and its Special
Deliveries division providing care for newborns and their mothers. The Company
has also entered into new contracts during the fourth quarter of 1996 with an
institution to which it supplies maternal and newborn care and with an
additional county department of social services and a hospital home health
agency, and has hired a new branch manager for its Rockland County Office. The
recent increases in selling, general and administrative expenses are expected to
enable the Company to handle significantly increased volumes of business without
further significant additional increases in such expenses. However, there can be
no assurance that existing or new sources will generate sufficient referrals to
offset decreases in revenues from major referral sources, or that the Company
will not experience significant additional increases in expenses.
Nine Months Ended September 30, 1996 Compared with the Nine Months Ended
September 30, 1995
Revenues for the nine months ended September 30, 1996 (the "first three
quarters of 1996") increased 4.9% to approximately $8,999,000 from approximately
$8,582,000 for the nine months ended September 30, 1995 (the "first three
quarters of 1995"). The increase resulted primarily from new business.
Cost of professional care of patients for the first three quarters of 1996
increased 5.5% to approximately $6,167,000 from approximately $5,848,000 for the
first three quarters of 1995. The increase resulted primarily from the hiring of
additional home health care personnel to service the increased new business. The
cost of professional care of patients as a percentage of revenues was relatively
stable at approximately 68% for both the first three quarters of 1996 and the
first three quarters of 1995.
18
<PAGE>
Selling, general and administrative expenses for the first three quarters
of 1996 increased 16.5% to approximately $2,048,000 from approximately
$1,758,000 for the first three quarters of 1995. The increase resulted primarily
from increased management recruitment and staffing expenses to manage the
supervision of the care of patients requiring extended nursing and technical
support, a provision for bad debts and from the hiring of additional office
staff to support anticipated growth in the Company's business.
Interest expense, net of interest income, for the first three quarters of
1996 increased 45.6% to approximately $99,000 as compared to approximately
$68,000 for the first three quarters of 1995, primarily as a result of an
increase in borrowings to finance an increase in accounts receivable that
occurred during the month of December 1995 and distributions to shareholders in
the first three quarters of 1996.
The provision for New York State and New York City income taxes for the
first three quarters of 1996 decreased to $55,000 from $60,000 for the first
three quarters of 1995, because of lower taxable income.
During the third quarter ended September 30, 1996, the Company recognized a
non-recurring net charge to its earnings of $217,070 as a result of the
Receivables Sale Agreement pursuant to which it sold $3,500,000 of its accounts
receivable to 1667 Flatbush for $3,150,000, which was less than their face
value. See "Former S Corporation Tax Treatment," "--Liquidity and Capital
Resources" and "Certain Transactions."
In view of the foregoing, net income for the first three quarters of 1996
decreased 49.9% to approximately $425,000, as compared to approximately $849,000
for the first three quarters of 1995.
Year Ended December 31, 1995 compared with the Year Ended December 31, 1994.
Revenues for the year ended December 31, 1995 ("1995") increased 31.5% to
approximately $11,810,000 from approximately $8,981,000 for the year ended
December 31, 1994 ("1994"). The increase resulted primarily from an increase in
services provided to existing clients and increased new business.
Cost of professional care of patients for 1995 increased 29% to
approximately $8,127,000 from approximately $6,301,000 for 1994. The increase
resulted primarily from the hiring of additional home health care personnel to
service the increased new business and increase in services rendered to existing
clients. The cost of professional care of patients as a percentage of revenues
approximated 69% for 1995 as compared to 70% of 1994.
Selling, general and administrative expenses for 1995 increased 33.4% to
approximately $2,391,000 from approximately $1,793,000 for 1994. The increase
resulted primarily from the hiring of additional office support staff to support
the growth in the Company's business.
Interest expense for 1995 decreased 3.7% to approximately $82,000, as
compared to approximately $85,000 for 1994, primarily as a result of a reduction
in borrowings resulting from the Company's increased cash flow.
In view of the foregoing, net income for 1995 increased 46.3% to
approximately $1,128,000, as compared to approximately $771,000 for 1994.
Liquidity and Capital Resources
The Company has required cash to fund the growth of its operations,
particularly to finance expansion of accounts receivable and the opening of new
branch offices. Historically, the Company's internally generated funds have been
insufficient to meet all of its cash needs. To satisfy these requirements, the
Company has supplemented its internally generated funds with borrowings under
bank lines of credit. The Company presently has a credit facility with UMB Bank
and Trust Company in the amount of $3,500,000, which is secured by substantially
all of the Company's assets. Repayment of outstanding amounts under such
facility is guaranteed by all of the Company's directors and current
stockholders. This credit facility provides for interest at the prime rate
published in the Wall Street Journal, plus .75%, payable monthly, and is
renewable in May 1997. At September 30, 1996, the Company had outstanding
borrowings of $2,000,000.
For the first three quarters of 1996, net cash used in operations was
approximately $631,000, as compared to approximately $1,413,000 provided by
operations for the first three quarters of 1995. This decrease in net cash from
operations was primarily a result of an increase in accounts receivable and
unbilled receivables of approximately $1,503,000 for the first three quarters of
1996 compared to a decrease of $324,000 for the first three quarters of 1995,
and a decrease in loans to stockholders of $145,000 during the first three
quarters of 1996. Net cash used in financing activities for the first three
quarters of 1996 totalled approximately $2,646,000, primarily as a result of the
payment of S Corporation distributions to the Company's stockholders which
aggregated approximately $3,225,000 during the period as compared to
approximately $655,000 for the first three quarters of 1995. See "Former S
Corporation Tax Treatment" and "Certain Transactions."
19
<PAGE>
As of September 30, 1996, approximately $1,796,000 (approximately 63%) of
the Company's total assets consisted of accounts receivable derived from
payments made to contractors by third-party payors. Such payors generally
require substantial documentation in order to process claims.
On July 8, 1996, the Company entered into the Receivables Sale Agreement
with 1667 Flatbush, pursuant to which 1667 Flatbush purchased $3,500,000 of the
Company's accounts receivable for a purchase price of $3,150,000. The purchase
price was represented by a negotiable promissory note which bore interest at the
rate of 12% per annum and was payable $1,100,000 on August 1, 1996, $1,100,000
on September 1, 1996 and $950,000 at the earlier of October 1, 1996 or the date
of this Prospectus. The note was collaterized by a lien on the accounts
receivable purchased from the Company and was personally guaranteed by each of
the members of 1667 Flatbush. The note was paid in full on September 30, 1996.
As a result of the Company's sale of accounts receivable for less than their
face value, the Company recognized a net charge to its earnings during the third
quarter ended September 30, 1996 in the amount of $217,070. See "Principal
Stockholders" and "Certain Transactions."
Days Sales Outstanding ("DSO") is a measure of the average number of days
taken by the Company to collect its accounts receivable, calculated from the
date services are performed. For the years ended December 31, 1994 and December
31, 1995, the Company's DSOs were 152 days and 130 days, respectively, a
reduction of approximately 14.5%, primarily as a result of additional
concentration on collection of accounts receivable. For the first three quarters
of 1995 and 1996, the Company's DSOs were 109 days and 62 days, respectively, a
decrease of approximately 43%. As a result of the Receivable Sale Agreement, the
amount of receivables outstanding as at September 30, 1996 decreased 34.1% to
$2,256,000 as compared to $3,420,000 at September 30, 1995. For the first three
quarters of 1995 and 1996, the Company's DSOs were 109 and 62 days,
respectively. The reduction of approximately 43% in DSOs during the first three
quarters of 1996 is principally the result of the Company having received the
purchase price of $3,150,000 pursuant to the Receivables Sale Agreement and is
therefore not indicative of any trend.
The Company has allocated a portion of the net proceeds of this offering to
upgrade its computer systems, one of the results of which is expected to be the
expediting of its internal billing procedures which can be expected to have the
effect of generally decreasing the Company's DSOs. See "Use of Proceeds."
However, there can be no assurance that any expected decrease in DSOs due to
computer upgrades will not be offset by an increase in DSOs resulting from the
efforts of third-party payors to increase their audit and review facilities and
reduce costs.
The Company's liquidity and long-term capital requirements depend upon a
number of factors, including the rate at which new offices and facilities are
established and acquisitions, if any, are made. The Company believes that the
development and start-up costs for a new branch office aggregate approximately
$100,000, including leasehold improvements, lease deposits, office equipment,
marketing, recruiting, labor and operating costs during the pre-opening and
start-up phase, and also the provision of working capital to fund accounts
receivable. Such costs will vary depending upon the size and location of each
facility and, accordingly, may vary substantially from these estimates.
Although the Company does not have any pending material commitments
regarding capital expenditures, it anticipates making additional capital
expenditures in connection with the acquisition of home health care companies,
development of a new principal office and improved branch facilities, and the
improvement of its management systems. See "Use of Proceeds." Further expansion
of the Company's business (particularly through acquisitions) may require the
Company to incur additional debt or offer additional equity if internally
generated funds, cash on hand and amounts available under its bank credit
facilities are inadequate to meet such needs. There can be no assurance that
such additional debt or equity will be available to the Company or, if
available, will be on terms acceptable to the Company. Inflation
Inflation has not had a significant impact on the Company's operations to
date.
Recent Pronouncements of the Financial Accounting Standards Board
Recent pronouncements of the Financial Accounting Standards Board ("FASB"),
which include Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" and SFAS No. 123, "Accounting for Stock-Based Compensation," are
effective for fiscal years beginning after December 15, 1995. The adoption of
SFAS 121 and SFAS 123 does not have a material impact on the Company's financial
statements.
20
<PAGE>
BUSINESS
General
The Company is a licensed home health care agency engaged primarily in
supplying the services of paraprofessionals who provide a broad range of health
care services to patients' in their homes. The Company operates in all five
boroughs of New York City and the counties of Nassau, Westchester, Rockland,
Orange, Duchess, Ulster, Putnam and Sullivan, in the State of New York. The
Company's services are supplied principally pursuant to contracts with health
care institutions and agencies such as the various county departments of social
services, Beth Abraham Health Services in the Bronx and Westchester County,
Kingsbridge Medical Center, Mt. Sinai Medical Center and New York Methodist
Hospital in Brooklyn.
When the Company was initially organized, in February 1983, it engaged
principally in the business of providing nursing staff in nursing homes.
In 1988, the Company purchased the equipment, fixtures, client lists and
paraprofessional aide lists of National Medical Home Care, Inc. located in
Brooklyn, Queens Village, Rockville Centre and Mount Vernon, New York.
Thereafter, the Company maintained offices in Brooklyn, Hempstead and Mount
Vernon, New York and shifted the focus of its business to the provision of home
health care support services.
In 1992, the Company opened a fourth office, in Spring Valley, New York
and, in 1993, opened its fifth office, in Newburgh, New York. Each of the
Company's five offices are responsible for the sales and health care operations
within their respective territories and maintain their own recruitment,
scheduling, training and quality assurance programs. The Brooklyn office also
serves as the Company's central administrative and financial operations
location.
In 1993, the Company opened its maternal/child services division, "Special
Deliveries", providing both pre-and post-delivery care for pregnant women and
their newborn children, which operates out of the Hempstead office.
The Company currently offers a broad range of support services, including
assistance with personal hygiene, dressing and feeding, meal preparation, light
housekeeping and shopping, and, to a limited extent, physical therapy and
standard skilled nursing services such as the changing of dressings, injections,
catheterizations and administration of medications. The Company's personnel also
train patients in their own care, monitor patient compliance with treatment
plans, make reports to the physicians and process reimbursement claims to
third-party payors. Among the paraprofessionals and nurses supplied by the
Company are those fluent in Spanish, Yiddish and Russian as well as personnel
knowledgeable in the requirements and practices of Kosher homes.
Industry Background
The home health care industry has grown substantially over the past decade
according to published industry information. The New York State Association of
Home Care Providers estimates (from annual reports submitted by agencies) that
Medicaid and Medicare spending on home health care has grown from approximately
$2.9 billion in 1985 to in excess of approximately $19.4 billion in 1994. The
Company believes that the primary reasons for the growth in the home health care
market include the aging of the U.S. population; the realization of substantial
cost savings through treatment at home as an alternative to hospitalization;
advances in medical technology which have enabled a growing number of treatments
to be provided in the home rather than requiring hospitalization; the eneral
preference of patients to receive treatment in a familiar environment;
reductions in the length of hospital stays as a result of increasing cost
containment efforts in the health care industry; growing acceptance within the
medical profession of home health care and the rapid increase in the incidence
of AIDS-related diseases and cancer.
Aging Population. The number of individuals over age 65 in the United
States is estimated to have grown from 25.7 million in 1980, or 11.3% of the
population, to approximately 34.1 million in 1996, or 12.9% of the population,
and is projected to increase to more than 35 million, or 12.8% of the
population, by the year 2000. The elderly have traditionally accounted for two
to three times the average per capita share of health care expenditures. As the
number of Americans over age 65 increases, the need for home health care
services is also expected to increase.
Cost Effectiveness of Home Health Care Services. National health care
expenditures increased from approximately $697 billion in 1990 (12.6% of the
United States gross national product) to approximately $1,008 billion in 1995
(14.2% of the United States gross national product), and is projected to
increase to more than $1,481 billion (15.9% of the United States gross national
product) by the year 2000. In response to rapidly rising costs,
21
<PAGE>
governmental and private payors have adopted cost containment measures that
encourage reduced hospital admissions, reduced lengths of stay in hospitals and
delayed nursing home admissions. Changes in hospital reimbursement methods under
Medicare from a cost-based method to a fixed reimbursement method based on the
patient's diagnosis have created an incentive for earlier discharge of patients
from hospitals. These measures have in turn fostered an increase in home health
care which, when appropriate, provides medically necessary care at significantly
less expense than similar care provided in an institutional setting.
Advances in Technology. Advances in technology in the past decade now
enable patients who previously required hospitalization to be treated at home.
For example, the development of a compact and portable phototherapy blanket
performing the same functions as bilirubin lighting systems in hospitals for the
treatment of newborn children with jaundice, a common condition, permits these
infants to be treated at home. Prior to the development of this device, these
infants were kept in the neonatal unit of a hospital even after the mother was
discharged. This practice delayed mother-infant bonding, made breast-feeding
difficult and otherwise caused substantial inconvenience and concern to families
at a time when the mother was in a weakened state. Similar advances have been
made in home infusion therapy (which is presently provided by the Company only
on a limited basis) and rehabilitation equipment permitting treatments at home
which used to require hospital settings.
Patient Preference and Physician Acceptance. The Company believes that, if
possible in any given case, a patient will prefer to be treated at home rather
than in an institutional setting. Further, in the last decade, the medical
profession has shown greater acceptance of home health care in the clinical
management of patients. As evidence of this greater acceptance, the American
Medical Association Councils on Scientific Affairs and Medical Education has
recommended that training in the principles and practice of home health care be
incorporated into the undergraduate, graduate and continuing education of
physicians.
Incidences of AIDS and Cancer. Increases in the incidence of AIDS/HIV
infections and cancer have also been responsible for a significant portion of
the growth in the home care market. As of December 1995, more than 513,486 cases
of AIDS had been reported to the Center for Disease Control (not including those
with less advanced HIV who could still benefit from treatment). During their
treatment, AIDS/HIV patients may receive several courses of infusion and other
therapies typically administered by infusion therapy companies, including AZT,
aerosolized Pentamidine(TM), antibiotics and nutritional support. The Company
presently provides a limited amount of infusion therapy with pharmaceuticals
provided by licensed suppliers. The Company plans to expand its infusion therapy
operations during the next year. See "- Home Health Care Services."
The American Cancer Society estimates that 83 million (or 33%) of Americans
now living will eventually be diagnosed with cancer. Approximately one million
new cases are reported annually. At the same time, improvements in cancer
diagnosis and treatment have caused mortality rates to increase more slowly than
the increase in incidence rates. Cancer treatment is one of the fastest growing
segments of outpatient infusion therapy due to increasing numbers of patients
and new technologies that allow for the therapy's safe and effective
administration in the home and at alternate site locations. Over the course of
their treatment, cancer patients may require a range of infusion therapies,
including chemotherapy, pain management and nutritional support.
Home Health Care Services
The Company's home health care services are provided principally by its
paraprofessional staff, who provide personal care to patients and, to a lesser
extent, by its skilled nursing staff, who provide various therapies employing
medical supplies and equipment and, to a lesser extent, infusion therapy.
Personal care and nursing services for a particular patient can extend from a
few visits to years of service and can involve intermittent or continuous care.
Approximately 95% of the Company's total net revenues in 1995 were attributable
to services by its paraprofessional staff.
Certified Paraprofessionals
The Company's certified paraprofessional staff provide a combination of
unskilled nursing and personal care services to patients, as well as assistance
with daily living tasks such as hygiene and feeding. Consistent with applicable
regulations, all of the Company's aides are certified and work under the
supervision of a licensed professional nurse. Certain aides have been specially
trained by the Company to work with patients with particular needs, such as new
mothers and their newborn infants, patients with particular diseases such as
cancer, AIDS or Alzheimer's Disease, and particular classes of patients such as
the developmentally disabled and terminal.
22
<PAGE>
The Company is approved by the New York State Department of Health to train
"Home Health Aides" and by the New York Department of Social Services to train
"Personal Care Aides." Medicaid provides reimbursement for services performed by
both Home Health Aides and Personal Care Aides, while Medicare provides
reimbursement only for the services provided by Home Health Aides. In order to
provide a qualified and reliable staff, the Company continuously recruits,
trains, provides continuing education for, and offers benefits and other
programs to encourage retention of its staff. Recruiting is conducted primarily
through advertising, direct contact with community groups and employment
programs, and the use of benefits programs designed to encourage new employee
referrals by existing employees.
All paraprofessional personnel must pass a written exam and a skills
competency test prior to employment, with all certificates having been validated
by the issuing agency. The Director of Nursing or Director of Maternal/Child
Health in each of the Company's branch offices validates the professional
competency of all new hires. Newly hired employees are re-evaluated as to
competency within six months of their employment and all employees are
re-evaluated on an on-going basis at least semi-annually. In addition, they
undergo an orientation program which includes material regarding HIV patients,
Hepatitis B, essential precautions which must be taken with all patients,
patient's rights issues, and the Company's policies and procedures. An
orientation manual is also provided to each employee.
High quality service is emphasized throughout the various divisions of the
Company, both in hiring, Company training and testing of its personnel, and in
the manner in which services are delivered. Training and quality assurance
programs are regularly reviewed and directed by management and corporate support
staff consisting of experienced health care professionals. The Company received
"Accreditation with Commendation" from the Joint Commission on Accreditation of
Health Care Organizations ("JCAHO") after its initial and only review, in 1994,
and, in February 1996, was selected by the University of Colorado Health
Sciences Center as one of only 22 home health care agencies participating in a
two to three year study known as the Outcome-Based Quality Improvement in Home
Care New York State Demonstration Project funded by the New York State
Department of Health, by reason of the Company's commitment to both quality
assurance and improvement. The Company believes that its reputation for quality
patient care has been and will continue to be a significant factor in its
success.
Competition for qualified staff has been intense in recent years. The
Company competes to attract and retain personnel on the basis of compensation
and working conditions. Among the benefits which the Company provides to its
staff are competitive salaries, a 401(k) Plan and unlimited Company-paid visits
to a walk-in clinic. The Company has generally not experienced difficulties in
the past in attracting and retaining personnel. It believes it will be able to
compete effectively in this area and satisfy its overall staffing requirements.
However, there can be no assurance that shortages of health care professionals
in the future will not occur and such shortages could materially effect the
Company's ability to maintain or increase its current obligations.
Licensed Professional Nurses
The Company employs licensed professional nurses (both registered nurses
and licensed practical nurses) who provide special and general professional
nursing services (these nurses are employed on a per diem basis). The Company
also employs registered nurses who are responsible for training and supervising
the Company's paraprofessional staff, as well as providing backup in the field
for the nursing staff which is providing care (these nurses are employed on a
salaried basis). General nursing care is provided by registered and licensed
practical nurses and includes periodic assessments of the appropriateness of
home care, the performance of therapy procedures, and patient and family
instruction. Patients receiving such care include stabilized post-operative
patients recovering at home, patients who, although acutely ill, do not need to
be cared for in an acute care facility and patients who are chronically or
terminally ill.
Specialty nurses are registered nurses with experience or certification in
particular specialties, such as emergency service, intensive care, oncology,
intravenous therapy or infant and pediatric nursing. The Company employs
specialty nurses to provide a variety of therapies and special care regimes to
patients in their homes. These specialty nurses also instruct patients and their
families in the self administration of certain therapies and in infection
control, emergency procedures and the proper handling and usage of medications,
medical supplies and equipment.
In August 1993, the Company established a maternal/child care division,
called "Special Deliveries," which provides comprehensive nursing services for
women during pregnancy, and for them and their newborn children after
childbirth. The Company provides its skilled nursing staff with special
additional training in this division, which offers a wide range of quality
health services to patients at home through the provision of Registered Nurses,
23
<PAGE>
including those with at least two years of experience in maternal child care,
Neonatal Intensive Care Unit ("NICU") Nurses, Maternal/Newborn Registered
Nurses, Certified Childbirth Educators and Certified Lactation Consultants.
Referral services are also available for support programs providing social
workers, bereavement counselors and nutritionists. Each patient's individual
treatment plan and insurance coverage is reviewed prior to commencement of
services being rendered, except for childbirth education, which is privately
contracted.
The Company's licensed professional nurses also provide a very limited
amount of in-home administration to patients of nutrients, antibiotics and other
medications intravenously (into a vein), subcutaneously (under the skin) or
through feeding tubes, utilizing supplies provided by licensed suppliers. Such
intravenous therapy is used for antibiotic treatment, parenteral nutrition (the
administration of nutrients), enteral nutrition (the administration of nutrients
directly into the digestive tract), growth hormone therapy, pain management, and
chemotherapy. The duration, progression and complexity of infusion therapy is
governed by the patient's disease and condition and can range anywhere from a
few weeks to many years.
All nurses hired by the Company must have at least one year of current,
verifiable experience, including references and license verification.
Maternal/Child care nurses must have at least two years of experience.
While the provision of licensed professional nursing services accounted for
less than 5% of the Company's net revenues in 1995, the Company intends to
expand its maternal/child care and infusion therapy operations in its existing
markets as well as new geographic locations. See "Use of Proceeds" and " --
Company Strategy."
Company Strategy
The Company's objective is to become a comprehensive provider of efficient
and high quality home health care to an increased share of expanding markets.
The primary elements of the Company's strategy to achieve this objective are
geographic expansion of its branch office network by investment in additional
branch offices and by the acquisition of other home health care companies, and
by expansion of the services provided by its licensed professional nurses,
principally in the areas of infusion therapy, pediatrics and maternal/child
care. The Company intends to initially concentrate its expansion efforts in its
current market areas and the counties surrounding those market areas. In
addition to expansion into geographic areas in proximity to the Company's
current branch offices, the Company will generally seek to enter and expand into
new metropolitan areas in the Northeast and Southeast regions of the United
States which have large patient populations and, in particular, patients
traveling between these regions.
Acquisitions
A major element of the Company's strategy is to acquire home health care
and related companies in order to diversify in additional geographic markets,
and to increase market share in the Company's current markets, and add patients
and referral sources to existing branch offices without adding substantial
overhead cost. The Company will also seek to expand into other metropolitan
areas through acquisition, if it can identify appropriate opportunities which
make an acquisition more cost-effective than a direct investment for facilities
and personnel in areas outside of its current branch office network. The Company
is interested in home health care agencies (which are expected to cost between
$500,000 and $1,000,000 each), infusion therapy companies (which are expected to
cost between $750,000 and $1,500,000 each) and durable medical equipment
businesses (which are expected to cost between $400,000 and $800,000 each) in
the states of New York, New Jersey, Pennsylvania, Connecticut, North Carolina,
Georgia and Florida. However, the Company has not yet identified any particular
potential acquisition and there can be no assurance that any such acquisition
which may be consistent with the Company's strategy will be available or, if
available, that it will be at a price which the Company deems to be favorable.
See "Use of Proceeds".
Branch Offices
The home health care industry is, fundamentally, a local one in which both
the patients and the referral sources (such as hospitals, home health agencies,
social service agencies and physicians) are located in the local geographic area
in which the services are provided. The Company seeks to serve local market
needs through its branch office network, run by branch managers who are
responsible for all aspects of local office decision-making, including
recruiting, training, staffing and marketing. The Company intends to open
additional branch offices with a portion of the net proceeds of this offering in
the Counties of Suffolk, Putnam, Ulster and Duchess, in New York State, subject
to entering required agreements with the local New York Department of Social
Services Agencies. In addition, the Company hopes to expand into New Jersey,
Pennsylvania and Connecticut in order to offer a wider geographic coverage to
the health maintenance organizations ("HMO's") and health care insurance
organizations
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with which it deals, and to add additional organizations. This further expansion
is subject to the completion of market surveys in the various locations to
ascertain the extent to which existing home care medical needs are not being met
as well as competition and recruitment issues.
Expansion of Infusion Therapy
The Company presently provides a limited amount of infusion therapy service
to patients, utilizing pharmaceuticals provided by licensed suppliers.
Management believes that the total market for home infusion therapy is
continuing its growth and that increasing the provision of infusion therapy will
build on the Company's strength in providing nursing services, because such
therapies generally require administration by specialty nurses. The Company will
also seek to supply infusion therapy patients with the other home health care
services and therapies which they often require and which are offered by the
Company. While the Company has no current commitments to establish infusion
therapy facilities, it intends to pursue the establishment of such facilities
during the next 18 months in order to increase its very small market share. See
"Use of Proceeds." However, there can be no assurance that the Company will
succeed in expanding an infusion therapy business or, if expanded, that it will
conduct such a business on a profitable basis.
Professional Care Resources
The Company intends to expand its maternal/child care division, Special
Deliveries, as well as its pediatric care programs in order to meet the needs
which management believes are being created by early discharge programs. The
existing referral base utilized by the Company from the various agencies, social
workers, case managers and positions will be used to meet what management
perceives to be a need not being met by the current pool of home health care
agencies. The Company expects that the expansion of this program will require
the hiring of an additional services director with an extensive background in
pediatrics to assist the Directors of Nursing in each of the Company's branch
offices. Additional support staff will also be required, as well as new training
materials, assistant directors, coordinators and marketing staff. The Company
also expects that expansion of the Special Deliveries division will result in
the acquisition of additional office facilities.
Organization and Operations
The Company operates 24 hours a day, seven days a week, to receive
referrals and coordinate services with physicians, case managers, patients and
their families. The Company provides services through its five principal and
branch offices and one recruitment and training office. The Company seeks to
achieve economies of scale by having each branch office serve a large patient
population. Each office conducts its own marketing efforts, negotiates contracts
with referral sources, recruits and trains professionals and paraprofessionals
and coordinates patient care and care givers. Each office is typically staffed
with a branch manager, director of nursing, home care coordinators, clerical
staff and nursing services staff.
The Company's principal office retains all functions necessary to ensure
quality of patient care and to maximize financial efficiency. Services performed
at the principal office include billing and collection, quality assurance,
financial and accounting functions, policy and procedure development, system
design and development, corporate development and marketing. The Company uses
financial reporting systems through which it monitors data for each branch
office, including patient mix, volume, collections, revenues and staffing. The
Company's systems also provide monthly budget analysis, financial comparisons to
prior periods and comparisons among the Company's branch offices. The Company
has committed a portion of the proceeds to this offering to acquire new computer
hardware and upgrade its software and other systems with the intention of
increasing its processing capacity, enhancing its database capabilities and
clinical management capacities and improving collections and financial
management. See "Use of Proceeds."
Work Flow
A case is initiated by one of the Company's referral sources contacting a
branch office and advising it of the patient's general location, diagnosis,
types of services required, hours of service required and the time of day when
the services are to be rendered. The branch office then contacts the referral
source as promptly as possible with the identification of the staff person who
will be rendering the service, after which the referral source transmits to the
branch office a detailed copy of the plan for the patient's home care, which
includes the type of care to be rendered, the method by which it should be
rendered, the precise location and hours.
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The supervisory staff at the branch office then reviews the care plan with
the staff member(s) who will be providing the care and then dispatches the staff
member(s) to begin rendering the care, usually the next day.
The clerical staff at the branch office enters all of the information
regarding the case into the local area computer network of the branch office,
which then generates the work schedule for the staff member(s), which provides a
detailed description of the services to be rendered, the hours and number of
days during which the care is to be provided. All of this information is
spontaneously received by the Company's principal office by way of the wide area
computer network linking the principal office to each of the branch offices.
This information is then processed by the principal office computer system on a
weekly basis to generate the documentation of the services being provided. Such
documentation is then used to generate the billing for the service as well as
process the payroll for the staff member(s) providing the service.
Referral Sources
The Company obtains patients primarily through referrals from hospitals,
community-based health care institutions and social service agencies. Referrals
from these sources accounted for substantially all of the Company's net revenues
in 1995. The Company generally conducts business with most of its institutional
referral sources, including those referred to below, under one-year contracts
which fix the rates and terms of all future referrals but do not require that
any referrals be made. Under these contracts, the referral sources refer
patients to the Company and the Company bills the referral sources for services
provided to patients. These contracts also generally designate the kinds of
services to be provided by the Company's employees, liability insurance
requirements, billing and recordkeeping responsibilities, complaint procedures,
compliance with applicable laws, and rates for employee hours or days depending
on the services to be provided. A total of 52 such contracts were in effect as
of November 1, 1996.
One or more referring institutions have accounted for more than 5% of the
Company's net revenues during the Company's last two fiscal years, as set forth
in the following table:
Percentage of Net Revenues
--------------------------
Referring Institution 1994 1995
- ----------------------- ------ ------
County Departments of Social Services(1).... 27.5% 26.8%
Beth Abraham Health Services ............... 13.4% 12.5%
Kingsbridge Medical Center ................. 6.9% 6.1%
Mt. Sinai Medical Center(2) ................ -- 6.0%
Methodist Medical Center ................... 3.1% 5.1%
Center for Nursing ......................... 5.6% 4.6%
Franklin Medical Center .................... 6.4% 3.1%
- ------
(1) The various county departments of social services are funded by the New
York State Department of Health which, as of October 1, 1996, assumed the
responsibility for the overall administration of Medicaid programs in New
York formerly administered by the New York Department of Social Services.
(2) The Mount Sinai Medical Center contract was established in March 1995.
Overall, the Company's ten largest referring institutions accounted for
approximately 73% of net revenues for 1995 76% of net revenues for 1994 and 70%
for the first nine months of 1996.
Billing and Collection
The Company screens each new case to determine whether adequate
reimbursement will be available and has developed substantial expertise in
processing claims. The Company makes a concerted effort to provide complete and
accurate claims data to the relevant payor sources in order to accelerate the
collectibility of its accounts receivable. For the years ended December 31, 1994
and 1995, the Company's days' sales outstanding, which are measured from the
date services are performed, were 153 days and 130 days, respectively. For the
nine months ended September 30, 1995 and September 30, 1996, the Company's DSOs
were 109 days and 62 days, respectively. As a result of the Receivable Sale
Agreement, the amount of receivables outstanding as at September 30, 1996
decreased 34.1% to $2,256,000 as compared to $3,420,000 at September 30, 1995.
For the first three quarters of 1995 and 1996, the Company's DSOs were 109 and
62 days, respectively. The reduction of approximately 43% in DSOs during the
first three quarters of 1996 is principally the result of the Company having
received the purchase price of $3,150,000 pursuant to the Receivables Sale
Agreement and is therefore not indicative of any trend. Certain accounts
receivable are outstanding for more than 90 days, particularly where the
agreement provides for payment terms of
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90 days or more, the services relate to new patients, or existing patients
receive additional services requiring medical review. The DSOs may increase in
subsequent periods due to the accounts receivable increasing to levels
comparable to those prevailing before the Receivable Sale Agreement was
executed. There can therefore be no assurance that the Company's DSO will not
increase in subsequent fiscal periods.
The Company licenses the Dataline Home Care System, a computerized payroll
system designed to produce invoices for services rendered as a by-product of
employee compensation. Automated schedules and staffing requirements are
maintained in the Company's offices, with the ability to enter all relevant
patient and employee demographic information. The payroll is processed weekly at
the Company's principal office in Brooklyn. This office is responsible for the
processing of data, ensuring the availability of all required billing
documentation and its accuracy, and the printing and distributing of payments.
Once payroll processing is completed, the Company's computer system
generates the resulting invoices automatically. The necessary documentation is
attached to all invoices that are mailed to clients.
Management reviews reports for all phases of the billing process and
prepares reconciliations for the purpose of ensuring accuracy and maintenance of
controls. When errors are found, new processes are developed, as appropriate, to
ensure and improve the quality and accuracy of the billing process and
responsiveness to clients' needs and requirements.
Accounts receivable reports are produced weekly and are analyzed and
reviewed by staff and management to locate negative trends or emerging problems
which would require immediate attention. All unpaid invoices are reviewed and
telephone contacts established for invoices over 90 days old. The Company's
experience with collection of accounts receivable has been quite favorable, with
uncollectible accounts remaining negligible.
Private patients are required to pay the one week fee for their service in
advance, as a deposit for services to be provided. For patients with insurance
covering home health services, the Company accepts assignment of the insurance
and submits claims if the carrier first verifies coverage and eligibility.
Payments from private patients are required to be made weekly, as invoices are
submitted and, if unpaid over three weeks, result in follow-up telephone calls
to ensure prompt payment. Requests for terms from private patients are generally
honored and payment arrangements structured based on the patient's financial
resources and ability to pay. Unresponsive accounts are referred to outside
collection agencies.
Reimbursement
The Company is reimbursed for its services, primarily by referring
institutions, such as health care institutions and social service agencies,
which in turn receive their reimbursement from Medicaid, Medicare and, to a much
lesser extent, through direct payments by insurance companies and private
payors. New York State Medicaid programs constitute the Company's largest
reimbursement source, when including both direct Medicaid reimbursement and
indirect Medicaid payments through many of the Company's referring institutions.
For 1994 and 1995, payments from referring institutions which receive direct
payments from Medicare and New York State Medicaid, together with direct
reimbursement to the Company from New York State Medicaid, accounted for
approximately 89% and 92%, respectively, of net revenues. For the same periods,
a significant number of referring institutions (which are primarily private
not-for-profit organizations) with home health care programs that the Company
believes are reimbursed to varying extents by New York State Medicaid accounted
for approximately 74% and 76%, respectively, of net revenues. Direct
reimbursements from private insurers, prepaid health plans, patients and other
private sources accounted for approximately 11% and 8%, respectively, of net
revenues for the calendar years 1994 and 1995.
The New York State Department of Health, in conjunction with local
Departments of Social Services, promulgates annual reimbursement rates for
patients covered by Medicaid. These rates are generally established on a
county-by-county basis, using a complex reimbursement formula applied to cost
reports filed by providers. The Company has filed all required annual cost
reports for each of its offices which provide services to Medicaid recipients.
Generally, the first report filed (called a "budgeted" report) uses projections
to develop the current year's reimbursement rate, subject to retroactive
recapture of any monies paid by local Departments of Social Services for
budgeted expenses which are greater than the actual expenses incurred. The
Company's expenses have always equaled or exceeded the budgeted amounts.
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Third party payors, including Medicaid, Medicare and private insurers, have
taken extensive steps to contain or reduce the costs of health care. These steps
include reduced reimbursement rates, increased utilization review of services,
negotiated prospective or discounted pricing and adoption of a competitive bid
approach to service contracts. Home health care, which is generally less costly
to third party payors than hospital-based care, has benefited from many of these
cost containment measures.
The New York State Department of Health issues Certificates of Need for
Certified Home Health Agencies ("CHHA's"), which provide post-acute home care
services for people who have just been discharged from a hospital but are not
yet fully recovered, and Long-Term Home Health Care Programs ("LTHHCP's"), also
known as the "Nursing Home Without Walls," which is intended to provide elderly
people with an alternative for long-term care other than by entering a nursing
home at less than the cost of nursing home care. The Company negotiates its
contracts with CHHA's and LTHHCP's on the basis of services to be provided, in
connection with contracts either currently in effect with the Company or with
other agencies. Prevailing market conditions are such that, despite escalating
operating expenses, reduced contract rates are regularly "demanded" as a result
of internal budget restraints and reductions mandated by managed care contracts
between the Company's clients and HMO's and other third party administrators.
While management anticipates that this trend is likely to continue for the
foreseeable future, it does not expect the impact on the Company to be
significant, since its rates are competitive and, therefore, are expected to be
subject to only minor reductions. However, as expenditures in the home health
care market continue to grow, initiatives aimed at reducing the costs of health
care delivery at non-hospital sites are increasing. A significant change in
coverage or a reduction in payment rates by third party payors, particularly New
York State Medicaid, would have a material adverse effect upon the Company's
business.
Quality Assurance
The Company has established a quality assurance program to ensure that its
service standards are implemented and that the objectives of those standards are
met. The Company believes that it has developed and implemented service
standards that comply with or exceed the service standards required by JCAHO.
The Company received "Accreditation with Commendation" from JCAHO after its
initial, and only, review in 1994. In February 1996, the Company was selected by
the University of Colorado Health Sciences Center as one of only 22 home health
care agencies participating in a two to three year study known as the New York
State Outcome-Based Quality Improvement in Home Care Demonstration project being
funded by the New York State Department of Health, by reason of the Company's
commitment to both quality assurance and improvement. The Company believes that
its reputation for quality patient care has been and will continue to be a
significant factor in its success. An adverse determination by JCAHO regarding
the Company on any branch office could adversely affect the Company's reputation
and competitive position.
The Company's quality assurance program includes the following:
Quality Advisory Boards. The Company maintains two Quality Advisory Boards,
one for its northern group of branch offices and the other for the southern
offices. Each Quality Advisory Board consists of a physician, nursing
professionals and representatives of branch management. The Quality Advisory
Boards identify problems and suggest ways to improve patient care based on
internal quality compliance audits and clinical and personnel record reviews.
Internal Quality Compliance Review Process. Periodic internal reviews are
conducted by the Company's management to ensure compliance with the
documentation and operating procedures required by state law, JCAHO standards
and internal standards. Written reports are forwarded to branch managers. The
Company believes that the internal review process is an effective management
tool for branch managers.
Case Conferences. Staff professionals regularly hold case conferences to
review problem and high risk cases, the physician's plan of treatment and
Company services provided for such cases in order to ensure appropriate, safe
patient care and to evaluate patient progress and plans for future care.
Clinical Record Review. Clinical record review is the periodic evaluation
of the documentation in patient clinical records. In this review process, the
Company evaluates the performance of the nursing services staff to ensure that
professional and patient care policies are followed in providing appropriate
care and that the needs of patients are being met. Clinical record review
findings are documented and reviewed by the applicable Quality Advisory Board
for recommendations.
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Sales and Marketing
The Company's executive officers, Jerry Braun and Jacob Rosenberg, are
principally responsible for the marketing of the Company's services. Each branch
office director is also responsible for sales activities in the branch office's
local market area. The Company attempts to cultivate strong, long-term
relationships with referral sources through high quality service and education
of local health care personnel about the appropriate role of home health care in
the clinical management of patients.
Government Regulation
The federal government and the State of New York, where the Company
currently operates, regulate various aspects of the Company's business. Changes
in the law or new interpretations of existing laws can have a material effect on
permissible activities of the Company, the relative costs associated with doing
business and the amount of reimbursement by government and other third-party
payors.
The Company is licensed by New York State as a home care services agency.
The State requires approval by the New York State Public Health Council
("Council") of any change in "the controlling person" of an operator of a
licensed home care services agency ( a "LHCSA"). Control of an entity is
presumed to exist if any person owns, controls or holds the power to vote 10% or
more of the voting securities of the LHCSA. A person seeking approval as a
controlling person of a LHCSA, or of an entity that is the operator of a LHCSA,
must file an application for Council approval within 30 days of becoming a
controlling person and, pending a decision by the Council, such person may not
exercise control of the LHCSA. If any person should become the owner or holder,
or acquire control of or the right to vote 10% or more of the issued and
outstanding Common Stock of the Company, such person could not exercise control
of the Company's LHCSA until an application for approval of such ownership,
control or holding has been submitted to the Council and approved. In the event
such an application is not approved, such owner or holder may be required to
reduce their ownership or holding to less than 10% of the Company's issued and
outstanding Common Stock.
The Company is also subject to federal and state laws prohibiting payments
for patient referrals and regulating reimbursement procedures and practices
under Medicare, Medicaid and state programs. The federal Medicare and Medicaid
legislation contains anti-kickback provisions which prohibit any remuneration in
return for the referral of Medicare and Medicaid patients. Courts have, to date,
interpreted these anti-kickbacks laws to apply to a broad range of financial
relationships. Violations of these provisions may result in civil and criminal
penalties, including fines of up to $15,000 for each separate service billed to
Medicare in violation of the anti-kickback provisions, exclusion from
participation in the Medicare and state health programs such as Medicaid and
imprisonment for up to five years.
The Company's healthcare operations potentially subject it to the Medicare
and Medicaid anti-kickback provisions of the Social Security Act. These
provisions are broadly worded and often vague, and the future interpretation of
these provisions and their applicability to the Company's operations cannot be
fully predicted with certainty. There can be no assurance that the Company will
be able to arrange its acquisitions or business relationships so as to comply
with these laws or that the Company's present or future operations will not be
accused of violating, or be determined to have violated, such provisions. Any
such result could have a material adverse effect on the Company.
Various Federal and state laws regulate the relationship among providers of
healthcare services, including employment or service contracts, and investment
relationships. These laws include the broadly worded fraud and abuse provisions
of the Social Security Act that are applicable to the Medicare and Medicaid
programs, which prohibit various transactions involving Medicare or Medicaid
covered patients or services. Among other things, these provisions restrict
referrals for certain designated health services by physicians to entities with
which the physician or the physician's immediate family member has a "financial
relationship" and the receipt of remuneration by anyone in return for, or to
induce, the referral of a patient for treatment or purchasing or leasing
equipment or services that are paid for, in whole or in part, by Medicare or
Medicaid. Violations of these provisions may result in civil or criminal
penalties for individuals or entities and/or exclusion from participation in the
Medicare and Medicaid programs. The future interpretation of these provisions
and their applicability to the Company's operations cannot be fully predicted
with certainty.
In May 1991, the United States Department of Health and Human Services
adopted regulations creating certain "safe harbors" from federal criminal and
civil penalties by identifying certain types of joint venture and management
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arrangements that would not be treated as violating the federal anti-kickback
laws relating to referrals of patients for services paid by the Medicare and
Medicaid programs. It is not possible to accurately predict the ultimate impact
of these regulations on the Company's business.
New York and other states also have statutes and regulations prohibiting
payments for patient referrals and other types of financial arrangements with
health care providers which, while similar in many respects to the federal
legislation, vary from state to state, are often vague and have infrequently
been interpreted by courts or regulatory agencies. Sanctions for violation of
these state restrictions may include loss of licensure and civil and criminal
penalties. In addition, the professional conduct of physicians is regulated
under state law. Under New York law, it is unprofessional conduct for a
physician to receive, directly or indirectly, any fee or other consideration for
the referral of a patient. Finally, under New York law, a physician with a
financial interest in a health care provider must disclose such information to
the patients and advise them of alternative providers.
The Company believes that the foregoing arrangements in particular and its
operations in general comply in all material respects with applicable federal
and state laws relating to anti-kickbacks, and that it will be able to arrange
its future business relationships so as to comply with the fraud and abuse
provisions.
Management believes that the trend of federal and state legislation is to
subject the home health care and nursing services industry to greater
regulation, particularly in connection with third-party reimbursement and
arrangements designed to induce or encourage the referral of patients to a
particular provider of medical services. The Company is attempting to be
responsive to such regulatory climate. However, the Company is unable to
accurately predict the effect, if any, of such regulations or increased
enforcement activities on the Company's future results of operations.
In addition, the Company is subject to laws and regulations which relate to
business corporations in general, including antitrust laws, occupational health
and safety laws and environmental laws (which relate, among other things, to the
disposal, transportation and handling of hazardous and infectious wastes). None
of these laws and regulations have had a material adverse effect on the
Company's business or competitive position or required material expenditures on
the part of the Company, although no assurance can be given that such will
continue to be the case in the future.
The Company is unable to accurately predict what additional legislation, if
any, may be enacted in the future relating to the Company's business or the
health care industry, including third-party reimbursement, or what effect any
such legislation may have on the Company.
The Company has never been denied any license it has sought to obtain. The
Company believes that its operations are in material compliance with all state
and federal regulations and licensing requirements.
Competition
The home health care market is highly fragmented, and significant
competitors are often localized in particular geographical markets. The
Company's largest competitors include U.S. Home Care, Inc., Star Multicare,
Inc., TransWorld Home Health Care, Inc., Patient Care, Inc., Plaza Nurses
Agency, Inc. and Personal Touch Home Care Services, Inc. The home health care
business is marked by low entry costs. The Company believes that, given the
increasing level of demand for nursing services, significant additional
competition can be expected to develop in the future. Some of the companies with
which the Company presently competes in home health care have substantially
greater financial and human resources than the Company. The Company also
competes with many other small temporary medical staffing agencies.
The home infusion therapy market is highly competitive, and the Company
expects that the competition will intensify. As the Company seeks to expand its
provision of infusion therapy services, it will compete with a large number of
companies and programs in the areas in which its facilities are located. Many of
these are local operations servicing a single area; however, there are a number
of large national and regional companies, including Olsten Kimberly QualityCare,
Inc., Coram Health Care Corp., Staff Builders, Inc. and Interim Personnel, Inc.
In addition, certain hospitals, clinics and physicians, who traditionally may
have been referral sources for the Company, have entered or may enter the market
with local programs.
The Company believes that the principal competitive factors in its industry
are quality of care, including responsiveness of services and quality of
professional personnel; breadth of therapies and nursing services offered;
successful referrals from referring government agencies, hospitals and health
maintenance organizations; general
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reputation with physicians, other referral sources and potential patients; and
price. The Company believes that its competitive strengths have been the
quality, responsiveness, flexibility and breadth of services and staff it
offers, and to some extent price competition, as well as its reputation with
physicians, referral sources and patients.
The United States health care industry generally faces a shortage of
qualified personnel. Accordingly, the Company experiences intense competition
from other companies in recruiting qualified health care personnel for its home
health care operations. The Company's success to date has depended, to a
significant degree, on its ability to recruit and retain qualified health care
personnel. Most of the registered and licensed nurses and health care
paraprofessionals who are employed by the Company are also registered with, and
may accept placements from time to time through, competitors of the Company. The
Company believes it is able to compete successfully for nursing and
paraprofessional personnel by aggressive recruitment through newspaper
advertisements, flexible work schedules and competitive compensation
arrangements. There can be no assurance, however, that the Company will be able
to continue to attract and retain qualified personnel. The inability to either
attract or retain such qualified personnel would have a material adverse effect
on the Company's business.
Insurance Coverage
The Company maintains a policy of insurance covering the acts and omissions
of its health care personnel. This policy, which is renewable by the carrier at
the beginning of each policy year, provides coverage of $3 million in the
aggregate or $1 million per occurrence for each policy year. The Company also
maintains umbrella insurance which provides an addition $5 million in coverage.
The Company believes that the insurance coverage which it maintains is customary
in the home health care and infusion therapy industry. However, there can be no
assurance that such insurance will be adequate to cover the Company's
liabilities or that the Company will be able to continue its present insurance
coverage on satisfactory terms, if at all. A successful claim against the
Company in excess of, or not covered by, the Company's insurance coverage could
have a material adverse effect on the Company's business and financial
condition. Claims against the Company, regardless of their merit or eventual
outcome could also have a material adverse effect on the Company's reputation
and business.
Employees
At September 30, 1996, the Company had 607 employees, of whom 46 are
salaried, including three executive officers, one director of operations, five
branch managers, five directors of nursing, one director of maternal/child
health, one director of patient services, one director of business development,
six accounting/clerical staff and 23 field staff supervisors. The remaining 561
employees are paid on an hourly basis and consist of professional and
paraprofessional employees. None of the Company's employees are compensated on
an independent contractor basis. The Company believes that its employee
relations are good. None of the Company's employees is represented by a labor
union.
Litigation
To the knowledge of the Company, there are no material legal proceedings
pending or threatened against the Company, other than legal proceedings pending
in the ordinary course of business which are fully covered by insurance.
Properties
The Company's principal place of business is located at 1667 Flatbush
Avenue, Brooklyn, New York 11210 and consists of approximately 2,000 square feet
on two of the three floors of a commercial building, which is owned by 1667
Flatbush Avenue, LLC, a New York limited liability company owned by the
Company's current stockholders. See "Certain Transactions." The lease is for a
period ending October 31, 2000 and is subject to a renewal option for five years
in favor of the Company. The rent is $3,000 a month and is subject to annual
increases, beginning November 1, 1996, equal to 5% of the total prior year's
monthly rent for the original term and all renewal terms of the lease. The
Company intends to use a portion of the proceeds of this offering to move to a
new and larger principal office facility, as well as to upgrade its existing
branch office facilities and its computer management systems. See "Use of
Proceeds."
31
<PAGE>
The table below sets forth certain information with respect to each of the
Company's existing branch office locations, all of which are leased from
non-affiliated lessors:
<TABLE>
<CAPTION>
Lease Terms
Approx. ----------------------------
Opening Square Expiration Annual
Location Date Footage Date Rental(1)
-------- ------- ------- ---------- ---------
<S> <C> <C> <C> <C>
Nassau County
Branch Office
175 Fulton Avenue
Hempstead, NY 11550 ........................ 9/93 1,600 10/31/98 $20,187
Westchester County
Branch Office
105 Stevens Avenue
Mt. Vernon, NY 10550 ....................... 1/93 1,600 12/31/96 $20,400
Rockland County
Branch Office
49 South Main Street
Spring Valley, NY 10977 .................... 10/94 1,500 9/30/98 $16,200
Orange County
Branch Office
45 Grand Street
Newburgh, NY 11250 ......................... 9/92 1,500 8/31/97 $12,000
Queens Recruitment and
Training Office
91-31 Queens Blvd
Elmhurst, NY 11373 ......................... 10/95 750 9/30/97 $17,400
</TABLE>
- --------
(1) The leases provide for additional rentals based upon increases in real
estate taxes and other cost escalations.
32
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- ------
Jerry Braun........... 39 President, Chief Executive Officer and Director
Jacob Rosenberg....... 39 Vice President, Chief Operating Officer,
Secretary and Director
Gilbert Barnett....... 51 Chief Financial Officer and Chief Accounting
Officer
Samson Soroka......... 40 Director
Hirsch Chitrik........ 68 Director
Sid Borenstein........ 42 Director
Jerry Braun has been the President, Chief Executive Officer and Chief
Operating Officer of the Company since its inception in 1983.
Jacob Rosenberg has been Secretary and a Director since the Company's
inception in 1983, and Vice President and Chief Operating Officer since February
1995.
Gilbert Barnett has been the Chief Accounting Officer and Chief Financial
Officer of the Company since April 1995. From 1989 to 1995, he was Director of
Finance for the Mt. Sinai Medical Center in New York, where he was responsible
for the Patient Accounting Department. From 1981 to 1988, Mr. Barnett was the
President of Grand Graham Medical Center, a shared health facility located in
Brooklyn, New York. In 1981, he was the treasurer of Accredited Care, Inc., a
licensed home care company in White Plains, New York. Mr. Barnett is a Certified
Public Accountant, a Fellow of the Health Care Financial Management Association
and a Certified Manager of Patient Accounts.
Samson Soroka has been a Director of the Company since its inception in
1983. From 1988 to February 1995, Mr. Soroka was employed by the Company as its
Chief Financial Officer. Since then, Mr. Soroka has been employed as an
independent consultant. Mr. Soroka is a graduate of Brooklyn College of the City
University of New York (BS, Accounting and Computer Science, 1979).
Hirsch Chitrik has been a Director of the Company since May 1995. For more
than the last five years, Mr. Chitrik has been the President of Citra Trading
Corporation, a privately-held company in New York engaged in the jewelry
business.
Sid Borenstein has been a Director of the Company since May 1995. For more
than the last five years, Mr. Borenstein, a Certified Public Accountant, has
been a General Partner in Sid Borenstein & Co., CPAs, in Brooklyn, New York.
There are no committees of the Board of Directors. Directors hold their
offices until the next annual meeting of the stockholders and thereafter until
their successors have been duly elected and qualified. Executive officers are
elected by the Board of Directors on an annual basis and serve at the direction
of the Board. All of the executive officers devote approximately 90% of their
time to the business affairs of the Company. See "Certain Transactions." The
Company intends to appoint a Compensation Committee after the completion of this
offering.
Employment Agreements
On March 26, 1996, the Company entered into employment agreements with
Jerry Braun and Jacob Rosenberg, each of which is for a term ending December 31,
1999. On August 27, 1996, the Company entered into an employment agreement with
Gilbert Barnett, its Chief Financial and Accounting Officer, with a term ending
July 30, 1999.
Mr. Braun's agreement provides that he will serve as President and Chief
Executive Officer in consideration of (i) initial annual compensation of
$175,000; (ii) reimbursement of authorized business expenses incurred in
connection with the conduct of the Company's business; (iii) participation in
the Company's 401(k) Plan and stock option plan; (iv) an automobile
reimbursement allowance of $500 per month toward automobile leasing cost and
reimbursement of automobile insurance cost; (v) an allowance of $3,500 per year
towards the cost of $500,000 of term life insurance, and disability insurance;
(vi) four weeks paid vacation; and (vii) annual increase in salary of 10% for
each year. He is required to devote a majority of his business time to the
Company's affairs and is permitted to devote a limited
33
<PAGE>
amount of his business time to the affairs of Heart to Heart, provided those
activities do not compete with the Company's business. See "Certain
Transactions."
Mr. Rosenberg's agreement has the same general terms and conditions as Mr.
Braun's, except that he will serve as Chief Operating Officer, and the annual
compensation is $140,000.
Mr. Barnett's agreement provides that he will serve as Chief Financial
Officer in consideration of (i) initial annual compensation of $80,000; (ii)
reimbursement of authorized business expenses incurred in connection with the
conduct of the Company's business; (iii) participation in the Company's 401(k)
Plan; (iv) a reimbursement allowance of $1,000 per year toward professional dues
and continuing professional education; and (v) up to three weeks paid vacation.
He is required to devote his entire business time to the Company's affairs.
Mr. Braun, Mr. Rosenberg and Mr. Barnett also participate, together with
all employees of the Company, in a bonus plan pursuant to which 10% of the
Company's annual pre-tax net income is contributed to the bonus pool which is
distributed to such persons and in such amounts as decided upon by the Company's
Compensation Committee.
Executive Compensation
Summary Compensation Table
The following table sets forth, for the year ended December 31, 1995, the
cash compensation paid by the Company, as well as certain other compensation
paid with respect to those years, to its President, Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer (the "Named Executives") in
all capacities in which they served.
<TABLE>
<CAPTION>
Annual Compensation
------------------- Other Annual
Name and Principal Position Year Salary Compensation
--------------------------- ---- ------ ----------
<S> <C> <C> <C>
Jerry Braun
President and Chief Executive Officer ......... 1995 $116,177 $16,699(1)
Jacob Rosenberg
Chief Operating Officer ....................... 1995 $100,096 $17,885(2)
Gilbert Barnett(3)
Chief Financial Officer ....................... 1995 $ 57,692 $ 851
</TABLE>
- ----------
(1) Includes $8,817 of medical insurance premiums paid on behalf of such
individual and $7,882 for automobile and automobile-related costs,
including insurance, incurred on behalf of such individual.
(2) Includes $8,817 of medical insurance premiums paid on behalf of such
individual and $9,068 for automobile and automobile-related costs,
including insurance, incurred on behalf of such individual.
(3) Mr. Barnett joined the Company in April 1995.
Directors Compensation
The Company currently reimburses each non-employee director for their
expenses in connection with attending meetings.
Savings and Stock Option Plans
401(k) Plan
The Company maintains an Internal Revenue Code Section 401(k) salary
deferral savings plan (the "Plan") for all of its eligible employees who have
been employed for at least one year and are at least 21 years old (effective
July 1, 1996, field staff employees at the Company's Orange County branch
office, in Newburgh, New York, ceased being eligible to participate in the
Plan). Subject to certain limitations, the Plan allows participants to
voluntarily contribute up to 15% of their pay on a pre-tax basis. Under the
Plan, the Company may make matching contributions on behalf of the pre-tax
contributions made by participants. For 1995 and for the first half of 1996, the
Company contributed 50% of each dollar contributed to the Plan by participants
up to a maximum of 6% of the participant's salary. All participants are fully
vested in their accounts in the Plan with respect to their salary deferral
contributions and are vested in Company matching contributions at the rate of
20% per year for two years through four years of service, with 100% vesting
after five years of service. However, participants who are first hired after
34
<PAGE>
December 31, 1994 will not be vested in the Company matching contributions until
the completion of five years service, when they become 100% vested. The Company
has agreeed with the Representative that no discretionary contributions to the
Plan may be made for officers or stockholders of the Company.
Stock Option Plan
In March 1996, the Company's Board of Directors and stockholders approved
and adopted the New York Health Care, Inc. Performance Incentive Plan (the
"Option Plan"). Under the terms of the Option Plan, options to purchase up to
262,500 shares of Common Stock may be granted to key employees of the Company.
Moreover, the Company's Board of Directors has approved a resolution which
proposes to provide for an increase in the number of shares of Common Stock
available for options under the Option Plan equal to an additional 262,500
shares for each of two additional years, subject to approval by the Company's
shareholders at the first annual meeting of shareholders which is held after the
completion of this offering. The Option Plan is to be administered by a
Compensation Committee to be appointed by the Board of Directors (the
"Committee"), which is authorized to grant incentive stock options and
non-qualified stock options to selected employees of the Company and to
determine the participants, the number of options to be granted and other terms
and provisions of each option.
The exercise price of any incentive stock option or nonqualified option
granted under the Option Plan may not be less than 100% of the fair market value
of the shares of Common Stock of the Company at the time of the grant. In the
case of incentive stock options granted to holders of more than 10% of the
voting power of the Company, the exercise price may not be less than 110% of the
fair market value.
Under the terms of the Option Plan, the aggregate fair market value
(determined at the time of grant) of shares issuable to any one recipient upon
exercise of incentive stock options exercisable for the first time during any
one calendar year may not exceed $100,000. Options granted under the Option Plan
become exercisable in whole or in part from time to time as determined by the
Committee, but in no event may a stock option granted in conjunction therewith
be exercisable prior to the expiration of six months from the date of grant,
unless the grantee dies or becomes disabled prior thereto. Stock options granted
under the Option Plan have a maximum term of 10 years from the date of grant,
except that with respect to incentive stock options granted to an employee who,
at the time of the grant, is a holder of more than 10% of the voting power of
the Company, the stock option shall expire not more than five years from the
date of the grant. The option price must be paid in full on the date of exercise
and is payable in cash or in shares of Common Stock having a fair market value
on the date the option is exercised equal to the option price.
If a grantee's employment by, or provision of services to, the Company
shall be terminated, the Committee may, in its discretion, permit the exercise
of stock options for a period not to exceed one year following such termination
of employment with respect to incentive stock options and for a period not to
extend beyond the expiration date with respect to non-qualified options, except
that no incentive stock option may be exercised after three months following the
grantee's termination of employment, unless it is due to death or permanent
disability, in which case they may be exercised for a period of up to one year
following such termination.
The Underwriting Agreement between the Company and the Representative
provides that for a period of three years from the effective date of this
Prospectus, the Company will not adopt, propose to adopt or otherwise permit to
exist any employee, officer, director or compensation plan or arrangement
permitting the grant, issue or sale of any shares of Common Stock or other
securities of the Company in an amount greater than 262,500 shares, other than
the proposed increase in the Option Plan described above. The Underwriting
Agreement also provides that, (i) for the three year period commencing on the
effective date of this Prospectus, the exercise price for any option granted
pursuant to the Option Plan or otherwise during such period cannot be less than
the greater of the fair market value or $4.00 per share of the Common Stock on
the date of grant and (ii) if the Company's shareholders approve an increase of
an additional 262,500 shares for each of two additional years, then any option
granted in the first three years following such an increase will have an
exercise price no lower than the greater of the fair market value or $4.00 per
share of the Common Stock upon the date of the option grant.
Other than a stock option which has been issued outside of the Option Plan
to Jerry Braun for 93,750 shares of the Company's Common Stock at an exercise
price of $3.00 per share, the Company has not issued any options under the
Option Plan, or otherwise, as of the date of this Prospectus. The Company does
not have any other existing stock option or other deferred compensation plans,
but may adopt such plans in the future. However, the Company has agreed with the
Representative not to adopt any other stock option or deferred compensation
plans during the three-year period commencing on the effective date of this
Prospectus without the written consent of the Representative.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding shares of the
Common Stock beneficially owned as of the date of this Prospectus by (i) each
person, known to the Company, who beneficially owns more than 5% of the Common
Stock, (ii) each of the Company's directors, (iii) each of the Named Executives
and (iv) all officers and directors as a group:
<TABLE>
<CAPTION>
Percentage(1)
Shares ----------------------
Name and Address of Beneficially Prior to After
Beneficial Owner Owned(1) Offering Offering
-------------- ----------- -------- --------
<S> <C> <C> <C>
Jerry Braun(2) ................................ 1,155,467 39.5% 27.68%
929 East 28th Street
Brooklyn, NY 11210
Jacob Rosenberg ............................... 530,860 18.75% 13.01%
932 East 29th Street
Brooklyn, NY 11210
Samson Soroka ................................. 530,860 18.75% 13.01%
1228 East 22nd Street
Brooklyn, NY 11210
Hirsch Chitrik ................................ 566,250 20.00% 13.87%
1401 President Street
Brooklyn, NY 11213
Sid Borenstein(3) ............................. 141,563 5.00% 3.47%
1246 East 10th Street
Brooklyn, NY 11230
All officers and directors
as a group (5 persons)(1)(2)................. 2,925,000 100.00% 70.01%
</TABLE>
(1) The shares of Common Stock owned by each person or by the group, and the
shares included in the total number of shares of Common Stock outstanding,
have been adjusted in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, to reflect the ownership of shares
issuable upon exercise of outstanding options, warrants or other common
stock equivalents which are exercisable within 60 days. As provided in such
Rule, such shares issuable to any holder are deemed outstanding for the
purpose of calculating such holder's beneficial ownership but not any other
holder's beneficial ownership.
(2) Includes 93,750 shares of Common Stock issuable upon the exercise of a
stock option granted to Mr. Braun at an exercise price of $3.00 per share.
See "Management" and "Certain Transactions."
(3) Mr. Borenstein is a subordinated lender to, and participates in the profits
of, RAS Securities Corp., the Representative. See "Underwriting."
36
<PAGE>
CERTAIN TRANSACTIONS
The Company operated as an S Corporation prior to this offering and has
paid out a substantial portion of its earnings to the current stockholders.
These distributions aggregated $100,230 and $840,302 for the years ended
December 31, 1994 and 1995, respectively, and $3,225,431 for the nine months
ended September 30, 1996. See "Former S Corporation Tax Treatment,"
"Capitalization" and Notes 1, 2 and 4 to the Financial Statements.
The Company's directors are the sole stockholders of a New Jersey
corporation named Heart to Heart Health Care Services, Inc. ("Heart to Heart"),
with offices located at 7 Glenwood Avenue, East Orange, New Jersey 07017. Heart
to Heart, which began its operations in 1995, engages in the home health care
business in northern New Jersey, but not in the State of New York, and had net
revenues of $288,948 in the year ended December 31, 1995. Since its inception,
Heart to Heart has utilized Company personnel for its administrative functions
regarding payroll, benefits management and data processing. The Company and
Heart to Heart have entered into a Service Agreement, pursuant to which the
Company will provide administrative services relating to payroll, benefits
management and data processing for a term of 18 months ending June 30, 1997 for
which the Company will be reimbursed for all expenses attributable to such
operations, presently totalling approximately $15,000 per year. The Company is
not a guarantor of any obligations of Heart to Heart, nor is it engaged in any
business or financing transactions with Heart to Heart, other than as described
herein.
On February 13, 1995, Samson Soroka resigned as Chief Financial Officer of
the Company. Mr. Soroka entered into a Settlement Agreement and General Release
with the Company on September 28, 1995 (the "Settlement Agreement"), pursuant to
which the Company agreed to pay his base salary of $85,000 per year through
August 13, 1995 and continue his medical insurance coverage through February 13,
1996. In addition, the Company agreed to advance to Mr. Soroka, without
interest, the sum of $25,000 against the cash distributions payable to the
Company's current stockholders and loaned to Mr. Soroka the sum of $125,000,
bearing interest at the same rate charged to the Company under its credit lines.
Mr. Soroka has since repaid his loan, together with accrued interest. Mr. Soroka
agreed to keep confidential all commercial, financial or technical information
concerning the Company which he learned during his employment. The Company and
Mr. Soroka also entered into mutual releases of all claims which they might have
had against each other.
On May 8, 1995, Jerry Braun, Jacob Rosenberg and Samson Soroka contributed
back to the Company an aggregate of 707,813 shares of Common Stock and the
Company issued 566,250 shares of its Common Stock to Hirsch Chitrik and 141,563
shares of Common Stock to Sid Borenstein in consideration for their having
obtained a bank line of credit for the Company of not less than $800,000 at an
interest rate no greater than 2% over the prime rate of Citibank N.A. The credit
line was obtained in 1988 pursuant to a March 31, 1988 agreement between Jerry
Braun, Jacob Rosenberg, Samson Soroka, Hirsch Chitrik, Sid Borenstein and the
Company, in which they subscribed to purchase shares of Common Stock, subject to
New York State Department of Health and Public Health Council approval (which
was granted on March 24, 1995), and which provided to Messrs. Chitrik and
Borenstein non-voting equity distributions of 20% and 5%, respectively.
On November 1, 1995, the Company transferred the land and building located
at 1667 Flatbush Avenue, Brooklyn, New York, which houses its principal offices,
to 1667 Flatbush. This transfer, which relieved the Company of a first mortgage
obligation aggregating $146,250, was a non-cash distribution to the current
stockholders of S Corporation earnings in the aggregate sum of $144,927. The
Company now leases its principal offices from 1667 Flatbush for a term of five
years ending October 31, 2000, which term is subject to a five-year renewal
option in favor of the Company. The rent is $3,000 per month and is subject to
annual increases equal to 5% of the prior year's monthly rent beginning November
1, 1996 for each year of the original and any renewal term. Management believes
that the terms of the lease were and are no less favorable to the Company than
could be obtained from unaffiliated third parties. See "Former S Corporation Tax
Treatment" and "Business -- Properties."
On March 26, 1996, the Company issued a stock option to its President and
Chief Executive Officer, Jerry Braun, for the purchase of 93,750 shares of the
Company's Common Stock at an exercise price of $3.00 per share during the period
ending March 31, 2001. See "Management -- Savings and Stock Option Plans."
On March 26, 1996, the Company entered into employment agreements with
Jerry Braun and Jacob Rosenberg. See "Management -- Employment Agreements."
On July 8, 1996, the Company entered into the Receivables Sale Agreement
with 1667 Flatbush pursuant to which 1667 Flatbush purchased $3,500,000 of the
Company's accounts receivable for a purchase price of $3,150,000.
37
<PAGE>
The purchase price was represented by a negotiable promissory note which
bore interest at the rate of 12% per annum and was payable $1,100,000 on August
1, 1996, $1,100,000 on September 1, 1996 and $950,000 at the earlier of October
1, 1996 or the date of this Prospectus. The note was collaterized by a lien on
the accounts receivable purchased from the Company and was personally guaranteed
by each of the members of 1667 Flatbush. The note was paid in full on September
30, 1996. As a result of the Company's sale of accounts receivable for less than
their face value, the Company recognized a net charge to its earnings during the
third quarter ended September 30, 1996 in the amount of $217,070. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 14 to financial
statements.
The transactions described above involve actual or potential conflicts of
interest between the Company and its officers or directors. In order to reduce
the potential for conflicts of interest between the Company and its officers and
directors, prior to entering into any transaction in which a potential material
conflict of interest might exist, the Company's policy has been and will
continue to be that the Company does not enter into transactions with officers,
directors or other affiliates unless the terms of the transaction are at least
as favorable to the Company as those which would have been obtainable from an
unaffiliated source. As of the date of this Prospectus, the Company has no plans
to enter into any additional transactions which involve actual or potential
conflicts of interest between the Company and its officers or directors and will
not enter into any such transactions in the future without first obtaining an
independent opinion with regard to the fairness to the Company of the terms and
conditions of any such transaction.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 12,500,000 shares of
Common Stock, par value $.01 per share and 2,000,000 shares of Preferred Stock,
par value $.01 per share. Prior to this offering, there were 2,831,250 shares of
Common Stock issued and outstanding held by five holders of record.
Common Stock
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors with the result that the
holders of more than 50% of the shares of Common Stock can elect all of the
directors. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of liabilities and
after provision has been made for each class of stock, if any, having preference
over the Common Stock, as such, having no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
Common Stock.
Preferred Stock
The Board of Directors of the Company is authorized to issue up to
2,000,000 shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including the dividend rights,
dividend rate, conversion rights, voting rights, terms of redemption (including
sinking fund provisions), redemption price or prices, liquidations preferences
and the number of shares constituting any series or the designations of such
series, without any further vote or action by the stockholders. It would be
possible for the Board of Directors to issue shares of such preferred stock in a
manner which would make acquisition of control of the Company, other than as
approved by the Board, exceedingly difficult.
The Company currently has no plans to issue any shares of Preferred Stock.
Redeemable Warrants
Two Warrants entitle the holder thereof, upon exercise, to purchase one
share of Common Stock at a price of $4.00 per share, subject to adjustment,
exercisable for a period of four years, commencing one year from the date of
this Prospectus.
The exercise price of the Warrants and the number and kind of shares of
Common Stock issuable upon the exercise of Warrants are subject to adjustment in
certain circumstances, including a stock split of, or stock dividend on, the
Common Stock, all as set forth in the Warrant Agreement relating to the issuance
of the Warrants. There
38
<PAGE>
will be no adjustment for the payment of cash dividends, if any, by the
Company on its Common Stock. Holders of the Warrants have noup of the Company,
the holders of the Warrants will not be entitled to voting power and are not
entitled to any dividends. In the event of anyparticipate in a distribution of
the Company's assets. dissolution or winding
In the event that the Company adopts a resolution to merge, consolidate, or
sell all or substantially all of its assets prior to the expiration of the
Warrants, each Warrant holder, upon the exercise of his Warrants, would be
entitled to receive the same treatment as other holders of any other shares of
Common Stock. In the event the Company adopts a resolution for the liquidation,
dissolution or winding-up of the Company's business, the Company will give
written notice of the adoption of such resolution to the registered holders of
the Warrants. Thereupon, all liquidation and dissolution rights under the
Warrants will terminate at the end of 30 days from the date of the notice to the
extent not exercised within those 30 days.
The Warrants are subject to redemption by the Company, at any time,
commencing 24 months following the date of this Prospectus, on 30 days prior
written notice, at a price of $.05 per Warrant if the average closing bid price
for the Common Stock equals or exceeds $6.00 per share for 20 consecutive
trading days ending on the tenth trading day prior to the date of the notice of
redemption.
The Warrants may be exercised only in pairs upon surrender of the Warrant
certificates on or prior to the expiration date (or earlier redemption date, if
applicable) of such Warrants at the offices of the warrant agent, with the form
of "Election to Purchase" on the reverse side of the Warrant certificate
completed and executed as indicated, accompanied by payment of the full exercise
price (in cash or by certified check payable to the order of the warrant agent,
as agent for the Company) for the number of Warrants being exercised.
No Warrants will be exercisable or redeemable unless, at the time of
exercise or redemption, the Company has filed a current Prospectus with the
Commission covering the shares of Common Stock to be issued or redeemed upon
exercise or redemption of such Warrants and such shares have been registered or
qualified or deemed to be exempt under the securities laws of the state of
residence of the holder of such Warrants. The Company will use its best efforts
to have all such shares so registered or qualified on or before the exercise or
redemption date of the Warrants and to maintain a current Prospectus relating
thereto until the expiration of the Warrants, subject to the terms of the
Warrant Agreement. While it is the Company's intention to do so, there is no
assurance that it will be able to do so.
Transfer Agent and Warrant Agent
Continental Stock Transfer & Trust Company, New York, New York, is the
transfer agent and registrar for the shares of Common Stock and the warrant
agent for the Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 2,831,250 shares of Common
Stock outstanding that are "restricted securities" as that term is defined in
Rule 144 promulgated under the Act. In general, under Rule 144, and providing
the Company is current in all reports which are required to be filed by the
Securities Exchange Act of 1934, a person (or persons whose shares are
aggregated) who has satisfied a two-year holding period may, under certain
circumstances, sell within any three-month period that number of shares which
does not exceed the greater of one percent of the then outstanding shares or the
average weekly trading volume during the four calendar weeks prior to such sale.
Rule 144 also permits, under certain circumstances, the sale of shares without
any quantity limitation by a person who has satisfied a three-year holding
period and who is not, and has not been for the preceding three months, an
affiliate of the Company. Under the provisions of Rule 144, 2,123,437 shares of
such restricted securities may be sold immediately and 707,813 shares may be
sold beginning in May, 1997. The Warrants being offered by the Company entitle
the holders of such Warrants to purchase up to an aggregate of 1,250,000 shares
of Common Stock at any time during the period beginning one year from the date
of this Prospectus and expiring five years from the date of this Prospectus.
Sales of either the Warrants or underlying shares of Common Stock, or even the
existence of the Warrants, may depress the price of the Common Stock or the
Warrants in any market which may develop for such securities. Holders of 100% of
the Common Stock (including shares issuable in connection with pre-offering
transactions and upon exercise of outstanding options) have agreed not to
directly or indirectly sell any shares of Common Stock or any other securities
of the Company owned by them for a period of two years from the date of this
Prospectus without the prior written consent of the Representative.
39
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, which is filed as an exhibit to the Registration Statement, the
Underwriters have agreed to purchase, and the Company has agreed to sell,
1,250,000 shares of Common Stock and 2,500,000 Warrants as follows:
Name Shares Warrants
---- --------- ---------
RAS Securities Corp ..........
--------- ---------
Total ................ 1,250,000 2,500,000
========= =========
The Underwriting Agreement provides that the Underwriters will be obligated
to purchase all the Securities offered hereby on a "firm commitment" basis, if
any are purchased. The Company has been advised by the Underwriters that they
propose to offer the Shares and the Warrants to the public initially at the
offering prices set forth on the cover page of this Prospectus; that the
Underwriters may allow to selected dealers a concession of $.** per Share and
$.** per Warrant; and that such dealers may reallow a concession of $.** per
Share and $.** per Warrant to certain other dealers.
The Company has granted to the Representative an over-allotment option to
purchase up to 187,500 shares of Common Stock and/or 375,000 Warrants during the
30 day period commencing with the date of this Prospectus, solely to cover
over-allotments in the sale of the Shares and the Warrants. The Company has also
agreed to sell to the Representative for nominal consideration the
Representative's Warrants to purchase an aggregate of 125,000 shares of Common
Stock and/or 250,000 Warrants. The Representative's Warrants are exercisable at
a price equal to 120% of the initial offering price, for a period of four years
commencing one year from the date of this Prospectus. The Representative's
Warrants grant to the holder thereof certain "piggyback" registration rights for
a period of seven years from the date of this Prospectus and demand registration
rights for a period of five years from the date of this Prospectus with respect
to the registration under the Securities Act of the securities issuable upon
exercise of the Representative's Warrants.
During the term of the Representative's Warrants, the holders are given the
opportunity to profit from a rise in the market price of the Common Stock with a
resulting dilution in the interest of other stockholders. Moreover, the holders
may exercise the Representative's Warrants at a time when the Company would in
all likelihood be able to obtain equity capital on terms more favorable than
those provided in the Representative's Warrants.
In accordance with the Underwriting Agreement, the Representative has been
granted the option of designating an individual to serve on the Company's Board
of Directors for a period of three years after completion of this offering. The
Representative has not advised the Company whether it will exercise such option
or, if so, who it will designate.
The Underwriting Agreement provides that the Company will pay a
nonaccountable expense allowance of 3% of the gross proceeds of this offering to
the Underwriters, $50,000 of which has been paid as of the date of this
Prospectus. The Company also has agreed to pay all expenses in connection with
qualifying the Shares and the Warrants offered hereby for sale under the laws of
such states as the Underwriters may designate, including fees and expenses of
counsel retained for such purposes, certain costs of investigatory searches of
the Company's executive officers and other expenses in connection with the
Offering.
The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
All of the Company's other stockholders, officers and directors have agreed
not to sell their shares without the consent of the Representative for a period
of 24 months. The Underwriting Agreement provides that, other than the issuance
of options pursuant to the Option Plan, the Company will not offer any shares of
Common Stock, options
40
<PAGE>
to purchase Common Stock, Warrants or any other equity or debt security within
three years after the date of this Prospectus without the consent of the
Representative.
The Underwriting Agreement provides that the Company will neither solicit
the exercise of the Warrants nor authorize any other dealer to engage in such
solicitation without the consent of the Representative. Upon the exercise of the
Warrants, the Company has agreed to pay to the Representative a commission equal
to 5% of the aggregate exercise price. The commission will be payable only if
(i) the Warrant is exercised at least 12 months after the date of this
Prospectus; (ii) the market price of the Common Stock on the date that the
Warrant is exercised is greater than the exercise price of the Warrants; (iii)
the exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc.; (iv) the Warrant is not held in a
discretionary account; (v) disclosure of the compensation arrangements is made
at the time of the exercise of the Warrant; (vi) the holder of the Warrant has
stated in writing that the exercise was solicited and designated in writing the
soliciting broker-dealer; and (vii) solicitation of exercise of the Warrant was
not in violation of Rule l0b-6 promulgated under the Exchange Act. However, no
fees will be payable to the Representative in connection with Warrants
voluntarily exercised without solicitation by the Representative.
The Underwriting Agreement provides that, on the effective date of this
Prospectus, the Company shall enter into a non-exclusive financial consulting
agreeement with the Representative providing that during the five-year period
after the date of this Prospectus, in the event the representative originates a
financing or a merger, acquisition or transaction to which the Company is a
party, the Representative will be entitled to receive a finder's fee in
consideration for origination of such a transaction. The fee is based upon a
percentage of the consideration paid in the transaction ranging from 7% of the
first $1,000,000 to 2 1/2% of any consideration in excess of $9,000,000. There
are no current plans, proposals, arrangements or understandings with the
Representative with respect to any financing, merger, acquisition or other
transaction.
Prior to this offering, there has been no public market for any of the
Company's securities. Accordingly, the initial public offering prices of the
Securities was determined by negotiation between the Company and the
Representative. Factors considered in determining such prices and terms, in
addition to prevailing market conditions, included the history of and the
prospects of the industry in which the Company intends to compete, an assessment
of the Company's management, the prospects of the Company, its capital structure
and such other factors as were deemed relevant.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act. To
the extent that the Underwriting Agreement may purport to provide exculpation
from possible liabilities arising under the federal securities laws, it is the
opinion of the Commission that such indemnification is contrary to public policy
and unenforceable.
In December 1994, Sid Borenstein, a director of the Company, made a
subordinated loan to the Representative in the principal amount of $490,000, due
in December 1996. In connection with such loan, Mr. Borenstein received the
right to participate in certain profits of the Representative.
LEGAL MATTERS
The validity of the issuance of the Securities will be passed upon for the
Company by Scheichet & Davis, P.C., New York, New York. Bachner, Tally, Polevoy
& Misher LLP, New York, New York has acted as counsel for the Underwriters in
connection with this offering. The statements under the captions "Risk Factors
- -- State and Federal Regulation," "Business -- Reimbursement" and "Business --
Government Regulation" and other references in this Prospectus to health care
regulations and third party reimbursement have been reviewed for the Company by
Halpern & Pasternack, P.C., Garden City, New York.
EXPERTS
The financial statements of the Company as of December 31, 1994 and
December 31, 1995 included in this Prospectus have been audited by M.R. Weiser &
Co. LLP, independent certified public accountants. Their report appears
elsewhere in this Prospectus and is included in reliance upon the authority of
that firm as experts in auditing and accounting.
41
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C., a Registration Statement on Form SB-2 under
the Securities Act with respect to the Securities. This Prospectus omits certain
information contained in said Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Securities, reference is made to the Registration Statement,
including the exhibits thereto. Statements contained herein concerning the
contents of any contract or any other document are not necessarily complete, and
in each instance, reference is made to such contract or other document filed
with the Commission as an exhibit to the Registration Statement, or otherwise,
each such statement being qualified in all respects by such reference. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and at the Northeast Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048. Copies
of such materials can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
42
<PAGE>
NEW YORK HEALTH CARE, INC.
------------
INDEX TO FINANCIAL STATEMENTS
NEW YORK HEALTH CARE, INC.:
Independent Auditors' Report ........................................... F-1
Balance Sheets at December 31, 1995 and September 30, 1996 ............. F-2
Statements of Income for the Years Ended December 31, 1994 and 1995,
and for the Nine Months Ended September 30, 1995 and 1996 ............ F-3
Statements of Shareholders' Equity for the Years Ended
December 31, 1994 and 1995, and for the Nine Months Ended
September 30, 1996 ................................................... F-4
Statements of Cash Flows for the Years Ended
December 31, 1994 and 1995, and for the Nine Months Ended
September 30, 1995 and 1996 ...................................... F-5
Notes to Financial Statements.......................................F-6 - F-12
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
New York Health Care, Inc.
We have audited the accompanying balance sheet of New York Health Care,
Inc. (the "Corporation") as of December 31, 1995, and the related statements of
income, shareholders' equity and cash flows for the years ended December 31,
1994 and 1995. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New York Health Care, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the years ended December 31, 1994 and 1995 in conformity with generally
accepted accounting principles.
M.R. WEISER & CO. LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, NY
January 26, 1996, except for the
first paragraph of Note 10, which
is as of October 17, 1996
F-1
<PAGE>
NEW YORK HEALTH CARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
--------- ---------
(Unaudited)
A S S E T S
Current assets:
<S> <C> <C>
Cash (Notes 2 and 8) ......................................................... $ 177,688 $ 159,252
Accounts receivable, net of allowance for uncollectible
amounts of $44,000 and $14,300 in 1995 and 1996,
respectively (Notes 4, 8 and 14) ........................................... 4,089,198 2,050,272
Unbilled services (Note 2) ................................................... 109,314 205,433
Advances to shareholders ..................................................... 145,000 --
Prepaid expenses ............................................................. 46,867 115,038
---------- ----------
Total current assets ..................................................... 4,568,067 2,529,995
Property and equipment, net (Notes 2 and 3) .................................... 96,431 92,376
Note receivable-- shareholder (Note 9) ......................................... 125,000 --
Acquisition costs, net (Note 2) ................................................ 30,757 20,311
Deferred registration costs, net (Note 2) ...................................... -- 190,274
Deposits ....................................................................... 19,819 19,884
---------- ----------
Total assets ............................................................. $4,840,074 $2,852,840
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable-- bank (Note 4) ................................................. $1,225,000 $2,000,000
Accrued payroll .............................................................. 288,023 290,419
Deferred income taxes (Note 2) ............................................... 184,000 106,000
Due to affiliates ............................................................ -- 32,657
Accounts payable and accrued expenses ........................................ 59,138 42,810
Income taxes payable (Note 2) ................................................ 29,737 132,700
Current maturities of long-term debt (Note 6) ................................ 6,980 6,315
---------- ----------
Total current liabilities ................................................ 1,792,878 2,610,901
---------- ----------
Long-term debt, less current maturities (Note 6) ............................... 6,502 1,784
---------- ----------
Commitments, contingencies and other comments (Note 8)
Shareholders' equity (Notes 7 and 10):
Preferred stock $.01 par value, 2,000,000 shares
authorized; no shares issued or outstanding
Common stock, $.01 par value, 12,500,000 shares
authorized; 2,831,250 shares issued and outstanding ........................ 28,313 28,313
Additional paid-in capital ................................................... 1,687 1,687
Retained earnings ............................................................ 3,010,694 210,155
---------- ----------
Total shareholders' equity ................................................. 3,040,694 240,155
---------- ----------
Total liabilities and shareholders' equity ................................. $4,840,074 $2,852,840
========== ==========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
NEW YORK HEALTH CARE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For The
For the Years Ended Nine Months Ended
December 31, September 30,
---------------------------- ---------------------------
1994 1995 1995 1996
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net patient service revenue (Note 2) ............. $8,981,301 $11,809,728 $8,581,750 $8,999,482
---------- ----------- ---------- ----------
Expenses:
Professional care of patients .................. 6,301,138 8,127,447 5,847,527 6,167,154
General and administrative ..................... 1,719,220 2,358,487 1,736,361 1,957,292
Bad debts expense .............................. 50,000 -- -- 69,764
Depreciation ................................... 23,940 32,455 21,599 20,658
---------- ----------- ---------- ----------
Total operating expenses ................... 8,094,298 10,518,389 7,605,487 8,214,868
---------- ----------- ---------- ----------
Income from operations ........................... 887,003 1,291,339 976,263 784,614
---------- ----------- ---------- ----------
Nonoperating income (expenses):
Interest income ................................ -- -- -- 7,479
Other income ................................... 5,940 -- -- 11,250
Loss on sale of accounts receivable (Note 14)... -- -- -- (217,070)
Interest expense ............................... (84,931) (82,328) (67,590) (106,681)
---------- ----------- ---------- ----------
Nonoperating expenses, net ..................... (78,991) (82,328) (67,590) (305,022)
---------- ----------- ---------- ----------
Income before provision for income taxes ......... 808,012 1,209,011 908,673 479,592
---------- ----------- ---------- ----------
Provision (credit) for income taxes (Note 2):
Current ........................................ 666 35,000 62,000 132,700
Deferred ....................................... 36,000 46,000 (2,000) (78,000)
---------- ----------- ---------- ----------
36,666 81,000 60,000 54,700
---------- ----------- ---------- ----------
Net income ....................................... $ 771,346 $ 1,128,011 $ 848,673 $ 424,892
========== =========== ========== ==========
Pro forma (unaudited) (See Note 2):
Historical income before provision
for income taxes ............................. $ 808,012 $ 1,209,011 $ 908,673 $ 479,592
Pro forma provision for income taxes ........... 353,000 520,000 391,000 206,000
--------- ----------- --------- ---------
Pro forma net income ........................... $ 455,012 $ 689,011 $ 517,673 $ 273,592
========= =========== ========= =========
Pro forma net income per common share
and common share equivalents ................. $ .19 $ .07
=========== =========
Pro forma weighted average number of
common shares and common share equivalents.... 3,683,753 3,683,753
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
NEW YORK HEALTH CARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended December 31, 1994 and 1995 And For
The Nine Months Ended September 30, 1996 (Unaudited) (a)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-In Retained
Shares Amount Capital Earnings Total
--------- ------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 ............ 2,831,250 $28,313 $1,687 $2,051,599 $2,081,599
Net income ............................ 771,346 771,346
Distributions ($.04 per share)......... (100,230) (100,230)
--------- ------- ------ ---------- ----------
Balance at December 31, 1994 .......... 2,831,250 28,313 1,687 2,722,715 2,752,715
Net income ............................ 1,128,011 1,128,011
Distributions ($.30 per share)......... (840,032) (840,032)
--------- ------- ------ ---------- ----------
Balance at December 31, 1995 .......... 2,831,250 28,313 1,687 3,010,694 3,040,694
Net income (unaudited) ................ 424,892 424,892
Distributions ($1.14 per share)
(unaudited)......................... (3,225,431) (3,225,431)
--------- ------- ------ ---------- ----------
Balance at September 30, 1996
(unaudited)......................... 2,831,250 $28,313 $1,687 $ 210,155 $ 240,155
========= ======= ====== ========== ==========
</TABLE>
- --------
(a) Retroactive effect has been given to the March 26, 1996 and October 17,
1996 recapitalizations referred to in Note 10.
See accompanying notes to financial statements.
F-4
<PAGE>
NEW YORK HEALTH CARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The
For the Years Ended Nine Months Ended
December 31, September 30,
---------------------------- -----------------------------
1994 1995 1995 1996
----------- ----------- ----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................... $ 771,346 $ 1,128,011 $ 848,673 $ 424,892
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization ........................ 42,827 59,403 45,406 31,104
Bad debts expense .................................... 50,000 -- -- 78,834
Deferred tax expense (credit) ........................ 36,000 46,000 (2,000) (78,000)
Loss on sale of accounts receivable .................. -- -- -- 217,070
Changes in operating
assets and liabilities:
(Increase) decrease in accounts
receivable and unbilled receivables .............. (1,033,667) (453,893) 323,687 (1,503,094)
(Increase) decrease in due
from affiliate ................................... (68,149) 68,149 68,149 --
(Increase) decrease in due
from shareholders ................................ -- (145,000) -- 145,000
(Increase) decrease in
prepaid expenses ................................. (43,308) 7,159 41,332 (68,171)
Increase in deferred charges ....................... (21,514) -- -- --
(Increase) decrease in deposits .................... 28,499 (3,600) (2,900) (65)
Decrease in sundry assets .......................... 5,460 2,000 2,000 --
Increase (decrease) in accounts
payable and accrued expenses ..................... 50,009 (135,563) (5,924) (16,328)
Increase in accrued payroll ........................ 72,333 95,374 32,325 2,393
Increase in due to affiliates ...................... -- -- -- 32,657
Increase in income taxes payable ................... -- 29,737 62,000 102,963
----------- ----------- ----------- -----------
Net cash provided by
(used in) operating activities ................... (110,164) 697,777 1,412,748 (630,745)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets .............................. (327,916) (27,416) (26,468) (16,603)
Proceeds from sale of investment ......................... 18,112 -- -- --
Proceeds from sale of accounts receivable ................ -- -- -- 3,150,000
(Increase) decrease in note
receivable - shareholder ............................... -- (125,000) (125,000) 125,000
----------- ----------- ----------- -----------
Net cash provided by(used in)
investing activities ............................. (309,804) (152,416) (151,468) 3,258,397
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under
note payable ........................................... 350,000 325,000 (400,000) 775,000
Increase in deferred registration costs................... -- -- -- (190,274)
Borrowing of long-term debt .............................. 176,498 -- -- --
Repayment of long-term debt .............................. (32,210) (18,887) (14,100) (5,383)
Distributions ............................................ (100,230) (695,105) (655,122) (3,225,431)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities ............................... 394,058 (388,992) (1,069,222) (2,646,088)
----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents ..................................... (25,910) 156,369 192,058 (18,436)
Cash and cash equivalents at
beginning of period ...................................... 47,229 21,319 21,319 177,688
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period ................. $ 21,319 $ 177,688 $ 213,377 $ 159,252
=========== =========== =========== ===========
</TABLE>
(See Note 13)
See accompanying notes to financial statements
F-5
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of September 30, 1996
and subsequent thereto and for the nine months ended September
30, 1995 and 1996 are unaudited)
1. THE COMPANY:
New York Health Care, Inc. (the "Corporation") was incorporated in February
1983 under the laws of the State of New York and has elected "S" corporation
status under provisions of the Internal Revenue Service. The Corporation was
formed to provide the services of registered nurses and nurses aides to
hospitals, nursing homes and other healthcare providers within the New York
metropolitan area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information (Unaudited):
The financial statements and accompanying financial information as of
September 30, 1996, and for the nine months ended September 30, 1995 and 1996,
are unaudited but include all adjustments (consisting solely of normal recurring
accruals) which the Corporation considers necessary for a fair presentation of
the financial position at September 30, 1996, and the operating results and cash
flows for the nine month periods ended September 30, 1995 and 1996. Results for
interim periods are not necessarily indicative of results for the entire year.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition:
The Corporation recognizes net patient service revenue based upon the date
services are rendered. Net patient service revenue is reported at the estimated
net realizable amounts from patients, third-party payers and others. Unbilled
services represent amounts due for services rendered which were not billed at
the end of each period.
Property, Plant and Equipment:
Property, plant and equipment is carried at cost and is being depreciated
under the straight-line method over the following estimated useful lives of the
assets or the life of the lease, whichever is shorter.
Machinery and equipment............................... 5 years
Furniture and fixtures................................ 7 years
Transportation equipment ............................. 5 years
Acquisition Costs:
On March 17, 1988, the Corporation purchased the customer lists, employee
lists and other intangible assets of National Medical Home Care at a cost of
$139,273. This cost is being amortized using the straight-line method over a
period of ten years. At December 31, 1995 and September 30, 1996, the
accumulated amortization was $108,516 and $118,962, respectively.
Deferred Registration Costs:
Costs relating to the Corporation's efforts to obtain additional financing
through a proposed public offering have been deferred and will be offset against
the proceeds of a successful offering or, if the offering is unsuccessful,
charged to operations.
Income Taxes:
The accompanying historical financial statements exclude a provision for
Federal income taxes because the Corporation elected to be treated as an S
corporation under the applicable provisions of the Internal Revenue Code.
Accordingly, the operations of the Corporation are included in the individual
income tax returns of the shareholders.
F-6
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of September 30, 1996
and subsequent thereto and for the nine months ended September
30, 1995 and 1996 are unaudited)
The Corporation uses the asset and liability method to calculate deferred
tax assets and liabilities. Deferred state and city taxes are recognized based
on the differences between financial reporting and income tax bases of assets
and liabilities using enacted income tax rates. Deferred state and city income
taxes arise from the use of the cash basis of accounting for income tax
purposes.
Pro forma Information (Unaudited):
a. Pro forma Net Income Per Common Share and Common Share Equivalents:
Pro forma net income per common share and common share equivalents has been
computed based upon the weighted average number of shares and common share
equivalents outstanding during each period. Common share equivalents recognize
the potential dilutive effects of the exercise of outstanding options and
warrants to acquire common stock. The Corporation has used the anticipated
initial public offering price of $4.00 per common share for all periods
presented for purposes of computing the potential dilutive effects of common
share equivalents. The issuance of a stock option had the effect of increasing
the weighted average shares outstanding for all periods by 23,437 shares
calculated by using the treasury stock method.
Pursuant to the rules of the Securities and Exchange Commission, dividends
declared in the latest twelve month period would be deemed to be in
contemplation of the offering with the intention of repayment out of offering
proceeds to the extent that the dividend exceeded earnings during the previous
twelve months. The shares whose proceeds would be necessary to pay the
S-Corporation distribution paid during the twelve month period ended September
30, 1996 of $3,265,414 has the pro forma effect of increasing the weighted
average shares outstanding for all periods by 829,066 shares.
b. Pro Forma Income Statement Information:
The pro forma statement of income information presents the pro forma
effects on the historical financial information of the Corporation's termination
of its S corporation status upon consummation of the planned initial public
offering. The unaudited proforma adjustment included in the statements of income
gives effect to a charge in lieu of income taxes that would have been included
in the provision for income taxes had the Corporation been taxed as a C
Corporation.
Cash Equivalents:
For purposes of the statement of cash flows, the Corporation considers all
highly liquid investments with maturities of three months or less when purchased
to be cash equivalents.
Stock Based Compensation:
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
measurement and recognition provisions for non-employee transactions no later
than after December 15, 1995. The new standard defines a fair value method of
accounting for the issuance of stock options and other equity instruments. Under
the fair value method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the service period, which is
usually the vesting period. Pursuant to SFAS No. 123, the Corporation is not
required to adopt the fair value method of accounting for employee stock-based
transactions. The Corporation is permitted to continue to account for such
transactions under Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees", but is required to disclose in a
note to the financial statements pro forma net income, and per share amounts as
if the corporation had applied the new method of accounting. In 1996, the
Corporation adopted the disclosure provisions of SFAS No. 123. However, due to
the minimal impact, no disclosures were required.
F-7
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of September 30, 1996
and subsequent thereto and for the nine months ended September
30, 1995 and 1996 are unaudited)
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of:
The Company has adopted Statement of Financial Accounting Standards ("FAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," in the first quarter of 1996. FAS No. 121 establishes
new accounting standards for measuring the impairment of long-lived assets. The
adoption of this new standard does not have a significant effect on the
Corporation's financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
December 31, September 30,
1995 1996
--------- ---------
(Unaudited)
Machinery and equipment ......................... $150,058 $166,661
Furniture and fixtures .......................... 47,215 47,215
Transportation equipment ........................ 5,000 5,000
-------- --------
202,273 218,876
Less accumulated depreciation and amortization .. 105,842 126,500
-------- --------
$ 96,431 $ 92,376
======== ========
4. NOTE PAYABLE -- BANK:
The Corporation had arranged for a $1,300,000 line of credit with a bank
during 1994. In October 1995, the available line of credit was increased to
$2,000,000. The line of credit is collateralized by the Corporation's accounts
receivable and is guaranteed by certain shareholders. Interest is payable
monthly at 1.5% above the prime rate published by Chemical Bank. The amount
outstanding at December 31, 1995 and September 30, 1996 is $1,225,000 and
$2,000,000, respectively. On May 9, 1996, the Corporation entered into a
promissory note with its bank which increased the line of credit to $3,500,000
and adjusted the interest payable to .75% above the market prime as posted in
the Wall Street Journal (9.00% at September 30, 1996). The line of credit is
renewable in May 1997.
5. THIRD-PARTY RATE ADJUSTMENTS AND REVENUE:
Approximately 26% and 27% of net patient service revenue was derived under
New York State third-party reimbursement programs during the years ended
December 31, 1994 and 1995, respectively, and approximately 28% and 24% of net
patient service revenue was derived under New York State third-party
reimbursement programs during the nine months ended September 30, 1995 and 1996,
respectively. These revenues are based, in part, on cost reimbursement
principles and are subject to audit and retroactive adjustment by the respective
third-party fiscal intermediaries. Provision for estimated amounts due to/from
the Corporation has been made in the financial statements. Differences between
estimated revised rates and subsequent revisions will be reflected in the
statement of income in the year revisions are calculated.
6. LONG-TERM DEBT:
Long-term debt consists of the following:
December 31, September 30,
1995 1996
-------- --------
(Unaudited)
Capital leases collateralized by various machinery
and equipment are payable through April 1998 ..... $ 13,482 $ 8,099
Less current maturities ............................ (6,980) (6,315)
-------- --------
$ 6,502 $ 1,784
======== ========
F-8
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of September 30, 1996
and subsequent thereto and for the nine months ended September
30, 1995 and 1996 are unaudited)
7. PERFORMANCE INCENTIVE PLAN AND 401(k) PLAN:
Performance Incentive Plan:
On March 26, 1996, the Corporation's Board of Directors adopted the
Performance Incentive Plan (the "Option Plan"). Under the terms of the Option
Plan, 262,500 shares of common stock may be granted. The Option Plan will be
administered by a Committee appointed by the Board of Directors. The Committee
will determine which key employee, officer or director on the regular payroll of
the Company, shall receive stock options. Granted options are exercisable in
three equal annual installments, commencing six months after the date of grant,
and expire ten years after the date of grant. The exercise price of any
incentive stock option or nonqualified option granted under the Option Plan may
not be less than 100% of the fair market value of the shares of common stock of
the Company at the time of the grant. No options have been granted under the
Option Plan.
401 (k) Plan:
The Corporation maintains an Internal Revenue Code Section 401 (k) salary
deferred savings plan (the "Plan") for all of its employees who have been
employed for at least 1 year and are at least 21 years old. Subject to certain
limitations, the Plan allows participants to voluntarily contribute up to 15% of
their pay on a pre-tax basis. The Corporation currently contributes 50% of each
dollar contributed to the Plan by participants up to a maximum of 6% of the
participants' salary. The Plan also provides for certain discretionary
contributions by the Corporation as determined by the Board of Directors. The
Corporation's contributions amounted to $21,200 and $41,900 for the years ended
December 31, 1994 and 1995 and $27,000 and $24,500 for the nine months ended
September 30, 1995 and 1996, respectively.
8. COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS:
Lease Commitments:
The Corporation leases office space under noncancellable operating leases
in the New York metropolitan area that expire between December 1996 and November
2000.
At December 31, 1995 (substantially the same at September 30, 1996), future
minimum lease payments due under operating and capital leases approximate:
Operating Capital
Leases Leases
-------- --------
1997 ............................................... $ 93,000 $ 8,204
1998 ............................................... 75,000 2,767
1999 ............................................... 69,000 --
2000 ............................................... 42,000 --
2001 ............................................... 38,000 --
-------- --------
Total minimum future payments ...................... $317,000 10,971
========
Less amounts representing interest ................. 2,872
--------
Present value of net minimum lease payments ........ $ 8,099
========
F-9
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of September 30, 1996
and subsequent thereto and for the nine months ended September
30, 1995 and 1996 are unaudited)
Rental expense charged to operations was approximately $66,000 and $86,000
for the years ended December 31, 1994 and 1995 and $63,000 and $95,453 for the
nine months ended September 30, 1995 and 1996, respectively.
Employment Agreements:
On March 26, 1996 and August 27, 1996, the Corporation entered into
employment agreements with three officers of the Corporation, with terms
expiring in 1999. The agreements call for aggregate annual compensation of
approximately $395,000, and provide for certain additional benefits. Aggregate
compensation paid to these three officers amounted to $274,000 during the year
ended December 31, 1995.
Concentrations of Credit Risk:
Financial instruments which potentially subject the Corporation to
concentrations of credit risk consist primarily of temporary cash investments
and commercial accounts receivable. The Corporation has cash investment policies
that restrict placement of these investments to financial institutions evaluated
as highly creditworthy. The Corporation does not require collateral on
commercial accounts receivable as the customer base consists of large,
well-established institutions. As of December 31, 1995, accounts receivable
include $1,326,000 or 32% from three hospitals. No concentration of credit risk
existed at September 30, 1996 (see Note 14).
Major Customers:
One major customer accounted for approximately 15.4% and 12.5% of net
patient service revenue for the years ended December 31, 1994 and 1995,
respectively.
One major customer accounted for approximately 12.8% and 10.0% of net
patient service revenue for the nine months ended September 30, 1995 and 1996,
respectively.
Business Risks:
Certain factors relating to the industry in which the Corporation operates
and the Corporation's business should be carefully considered. The Company's
primary business, offering home health care services, is heavily regulated at
both the federal and state levels. While the Corporation is unable to predict
what regulatory changes may occur or the impact on the Corporation of any
particular change, the Corporation's operations and financial results could be
negatively affected.
Further, the Corporation operates in a highly competitive industry which
may limit the Corporation's ability to price its services at levels that the
Corporation believes appropriate. These competitive factors may adversely affect
the Corporation's financial results.
Reference is made to "Risk Factors" elsewhere in this registration
statement.
9. RELATED PARTY TRANSACTIONS:
In September 1995, the Corporation entered into a loan agreement with a
shareholder wherein the Corporation lent the shareholder $125,000. The note was
due at the earlier of (i) 30 days after notice of the filing of a registration
statement, or (ii) September 28, 1997. Interest was payable monthly at the rate
charged by the Corporation's lender. (See Note 4). The shareholder's stock
certificates were being held as collateral for the note. The note was repaid on
August 1, 1996.
In January 1996, the Corporation entered into a Service Agreement with a
company affiliated through common ownership. The Corporation has agreed to
provide administrative services relating to payroll, benefits management and
data processing to the company through June 30, 1997. The Corporation will be
reimbursed for all expenses attributable to such operations, presently totaling
$15,000 per year.
F-10
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of September 30, 1996
and subsequent thereto and for the nine months ended September
30, 1995 and 1996 are unaudited)
On November 1, 1995, the Corporation transferred the land and building
which it had acquired on April 18, 1994 to a company related through common
ownership. As a result of the transaction, the Corporation was relieved of its
mortgage obligation of $146,250 and the shareholders received a non-cash
distribution in 1995 of $144,927 which represented the net book value of the
land and building. No gain or loss was recognized upon the transfer. See Note 14
regarding the sale of accounts receivable.
10. SHAREHOLDERS' EQUITY:
Common Stock and Recapitalization:
As effected on March 26, 1996, the shareholders and Board of Directors
authorized an increase in the number of authorized shares of common stock from
200 to 10,000,000, an increase in par value to $.01 per share, a stock split of
56,625 for 1 of the Corporation's common stock outstanding, and a stock split of
48,343.75 for 1 of the Corporation's unissued common stock. On October 17, 1996
the shareholders and Board of Directors effected a stock split of 1.25 for 1 of
the Corporation's common stock and an increase in the number of authorized
shares of common stock from 10,000,000 to 12,500,000. As a result, all historic
share amounts and per share amounts in the accompanying financial statements and
notes have been adjusted to reflect the stock splits and increase in par value.
Preferred Stock:
On March 26, 1996, the shareholders and Board of Directors approved the
authorization of a total of 2,000,000 shares of preferred stock which may be
issued in one or more series with rights and preferences to be determined by the
Board of Directors.
Options:
On March 26, 1996, the Corporation issued an option to purchase 93,750
shares of common stock to the President of the Corporation at an exercise price
of $3.00 per share. The option may be exercised at any time through March 26,
2006.
Dividend Policy:
The Corporation has operated as an S Corporation prior to the proposed
public offering and has paid out a substantial portion of its earnings to its
current shareholders as S Corporation distributions. The Board of Directors
intends to retain and reinvest any future earnings into the development of the
business. Any future payment of dividends will be subject to the discretion of
the Board of Directors.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The amounts included in the balance sheets at December 31, 1995 and
September 30, 1996 for cash, accounts receivable, unbilled services, advances to
shareholders, note payable -- bank, accrued payroll, accounts payable and
accrued expenses, and current maturities of long-term debt approximate fair
value because of the short-term nature of these instruments. The carrying value
of long-term debt approximates the estimated fair value because the long-term
debt is at interest rates comparable to notes currently available to the Company
for debt with similar terms and remaining maturities.
12. OTHER MATTERS:
Proposed Public Offering:
On March 6, 1996, the Corporation signed a letter of intent with an
investment banker for a proposed public offering of the Corporation's common
stock and warrants. The letter, as modified, specifies that the investment
banker will underwrite, on a firm commitment basis, 1,250,000 shares of common
stock anticipated to be offered at
F-11
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of September 30, 1996
and subsequent thereto and for the nine months ended September
30, 1995 and 1996 are unaudited)
4.00 per share and 2,500,000 of redeemable warrants at $.10 per redeemable
warrant. Two redeemable warrants entitle the holder to purchase one share of
common stock at any time during a period of four years commencing one year after
the effective date of the Prospectus at an exercise price of $4.00 per share
subject to adjustment. The redeemable warrants will include an option, whereby,
under certain conditions, the Corporation can redeem the warrants.
13. SUPPLEMENTAL CASH FLOW DISCLOSURES:
<TABLE>
<CAPTION>
For the Years Ended Nine Months Ended
December 31, September 30,
---------------------------- ---------------------------
1994 1995 1995 1996
-------- --------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest ........................ $ 76,607 $ 93,439 $ 78,701 $112,654
======== ========= ======== ========
Income taxes .................... $ 12,379 -- -- $ 12,262
======== ========= ======== ========
</TABLE>
Supplemental disclosure of non-cash investing
and financing activities:
Transfer of ownership of building to a separate corporation:
Decrease in fixed assets ........................... $291,177
Decrease in long-term debt ......................... 146,250
--------
Non-cash distribution to shareholders .............. $144,927
========
14. SALE OF ACCOUNTS RECEIVABLE:
On July 8, 1996, the Corporation entered into an agreement with 1667
Flatbush LLC ("1667 Flatbush") a limited liability company owned by the
Corporation's officers and directors, whereby 1667 Flatbush purchased $3,500,000
of the Corporation's accounts receivable for a purchase price of $3,150,000. As
a result of the Corporation's sale of accounts receivable for less than their
face value, the Corporation recognized a net charge to its earnings during the
third quarter ended September 30, 1996 in the amount of $217,070. The purchase
price was represented by a negotiable promissory note which bore interest at the
rate of 12% per annum, and was payable $1,100,000 on August 1, 1996, $1,100,000
on September 1, 1996, and $950,000 at the earlier of October 1, 1996 or the
effective date of the initial public offering. The note was collateralized by a
lien on the accounts receivable purchased from the Corporation, and was
personally guaranteed by each of the members of 1667 Flatbush. The note was paid
in full at September 30, 1996.
F-12
<PAGE>
================================================================================
No dealer, sales representative or other individual has been authorized to give
any information or to make any representation not contained in this Prospectus
in connection with this offering other than those contained in this Prospectus
and if given or made, such information or representation must not be relied upon
as having been authorized by the Company or the Underwriter. This Prospectus
does not constitute an offer to sell or solicitation of an offer to buy the
Common Stock by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create an implication that the
information contained herein is correct as of any time subsequent to its date.
-----------------------
TABLE OF CONTENTS
Page
Prospectus Summary ...................................................... 3
Risk Factors ............................................................ 6
Use of Proceeds ......................................................... 12
Dilution ................................................................ 13
Dividend Policy ......................................................... 14
Former S Corporation Tax Treatment ...................................... 14
Capitalization .......................................................... 15
Selected Financial Data ................................................. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ....................................................... 18
Business ................................................................ 21
Management .............................................................. 33
Principal Stockholders .................................................. 36
Certain Transactions .................................................... 37
Description of Securities ............................................... 38
Shares Eligible for Future Sale ......................................... 39
Underwriting ............................................................ 40
Legal Matters ........................................................... 41
Experts ................................................................. 41
Additional Information .................................................. 42
Index to Financial Statements ........................................... 43
Financial Statements .................................................... F-1
Until _____, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as Underwriter and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
1,250,000 Shares of
Common Stock
and
2,500,000 Warrants
NEW YORK HEALTH CARE, INC.
----------------------
P R O S P E C T U S
----------------------
RAS SECURITIES CORP.
______________, 1996
================================================================================
<PAGE>
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers
Article Third of the Certificate of Incorporation of New York Health Care,
Inc. (the "Registrant") provides with respect to the indemnification of
directors and officers, among other things, that (a) the Registrant may, to the
fullest extent permitted by Sections 721 through 726 of the New York Business
Corporation Law, as amended, indemnify all persons whom it may indemnify
pursuant thereto, (b) a director of the Registrant shall not be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for certain transactions or
events as set forth in such Article Third, (c) each person who was or is made a
party, or is threatened to be made a party, to or is involved in any action,
suit or proceeding, by reason of the fact that he or she is or was a director or
officer of the Registrant, shall be indemnified and held harmless by the
Registrant to the fullest extent authorized by the New York Business Corporation
Law, against all expense, liability and loss reasonably incurred or suffered by
such person in connection therewith and (d) the right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in such Article Third shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders and disinterested directors or otherwise.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth various expenses, other than the
Underwriters' fees and commissions, which will be incurred in connection with
the public offering to which this Registration Statement relates. Other than the
SEC registration fee and the NASD and Nasdaq filing fees, amounts set forth
below are estimates:
SEC registration fee ....................................... $ 4,354
NASD Filing Fee ............................................ 1,980
Nasdaq Filing Fee .......................................... 10,000
Boston Stock Exchange Filing Fee ........................... 250
Printing and engraving expenses ............................ 65,000
Legal fees and expenses .................................... 110,000
Blue Sky fees and expenses ................................. 30,000
Accounting fees and expenses ............................... 50,000
Transfer Agent fees ........................................ 3,000
Miscellaneous expenses ..................................... 40,416
--------
$315,000
========
Item 26. Recent Sales of Unregistered Securities
Securities which were issued or sold by the Registrant within the past
three years and which were not registered under the Securities Act of 1933, as
amended (the "Act"), are as follows:
1. On May 8, 1995, the Company issued 566,250 shares of its Common Stock to
Hirsch Chitrik and 141,563 shares of Common Stock to Sid Borenstein.
2. On March 26, 1996, the Company issued a stock option to its President
and Chief Executive Officer, Jerry Braun, for the purchase of 93,750 shares of
Common Stock at an exercise price of $3.00 per share during the period ending
March 31, 1999.
Exemption from registration under the Act is claimed for the sales of
Common Stock referred to above in reliance upon the exemption afforded by
Section 4(2) of the Act for transactions not involving a public offering. Each
certificate evidencing such shares of Common Stock bears an appropriate
restrictive legend, and "stop transfer" orders are maintained on the Company's
stock transfer records against each holder named above. None of these sales
involved participation by an underwriter or a broker-dealer.
II-1
<PAGE>
Item 27. Exhibits
The following is a list of the Exhibits which comprise a part of the
Registration Statement:
Exhibit
Number Description of Exhibit
------ ----------------------
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company.
3.2 Restated Certificate of Incorporation of the Company.
3.3 Certificate of Correction of Restated Certificate of
Incorporation of New York Health Care, Inc.
3.4 Amendment to the Certificate of Incorporation filed October 17,
1996.*
3.5 By-laws of the Company.
4.1 Form of certificate evidencing shares of Common Stock.
4.2 Representative's Warrant Agreement and Form of Representative's
Warrant.*
4.3 Form of Warrant Agreement between the Company and the Warrant
Agent, including Form of Warrant.*
5 Opinion of Scheichet & Davis, P.C. on legality of securities
being registered.*
10.1 Purchase and Sale Agreement by and between the Company National
Medical Homecare, Inc., Jerry Braun and Sam Soroka dated
March 18, 1988.
10.2 Lease for 105 Stevens Avenue, White Plains, New York by and
between the Company and Vincent Rippa as receiver dated
October 30, 1992.
10.3 Lease for 175 Fulton Avenue, Suite 301A, Hempstead, New York
by and between and the Company and Hempstead Associates
Limited Partnership dated July 22, 1993.
10.4 Deed for 1667 Flatbush Avenue, Brooklyn, New York from Tiara
Realty Co. to the Company dated April 22, 1994.
10.5 Agreement between Jerry Braun, Jacob Rosenberg, Samson Soroka,
Hirsch Chitrik, Sid Borenstein and the Company dated March 31,
1988.
10.6 Lease for 49 South Main Street, Spring Valley, New York by
and between the Company and Joffe Management dated
November 1, 1994.
10.7 Agreement for Provisions of Home Health Aide and Personal
Care Worker Services by and between the Company and
Kingsbridge Heights Health Facilities Long Term Home Health
Care Program dated November 2, 1994.
10.8 State of New York Department of Health Office of Health
Systems Management Home Care Service Agency License for the
Company doing business in Rockland, Westchester and Bronx
Counties dated May 8, 1995.
10.9 State of New York Department of Health Office of Health
Systems Management Home Care Service Agency License for the
Company doing business in Dutchess, Orange, Putnam,
Sullivan and Ulster Counties dated May 8, 1995.
10.10 State of New York Department of Health Office of Health
Systems Management Home Care Service Agency License for the
Company doing business in Nassau, Suffolk and Queens
Counties dated May 8, 1995.
10.11 State of New York Department of Health Office of Health
Systems Management Home Care Service Agency License for the
Company doing business in Orange and Rockland Counties dated
July 1, 1995.
10.12 Lease Renewal for 45 Grand Street, Newburgh, New York, by
and between the Company and Educational and Charitable
Foundation of Eastern Orange County , Inc. dated July 12, 1995.
10.13 Lease for 91 - 31 Queens Boulevard, Elmhurst, New York by and
between the Company and Expressway Realty Company dated
September 15, 1995.
10.14 Settlement Agreement and General Release by and between the
Company and Samson Soroka dated September 28, 1995.
10.15 Personal Care Aide Agreement by and between the Company and
Nassau County Department of Social Services dated October 18,
1995.
10.16 Lease for 1667 Flatbush Avenue, Brooklyn, New York by and
between the Company and 1667 Flatbush Avenue LLC dated November
1, 1995.
II-2
<PAGE>
Number Description of Exhibit
------ ----------------------
10.17 State of New York Department of Health Office of Health
Systems Management Home Care Service Agency License for the
Company doing business in Bronx, Kings, New York, Queens and
Richmond Counties dated December 29, 1995.
10.18 Home Health Agency Agreement by and between the Company and
the Center for Nursing and Rehabliltation dated January 1,
1996.
10.19 Homemaker and Personal Care Agreements by and between the
Company and the County of Rockland Department of Social
Services dated January 1, 1996.
10.20 Home Health Aide/Personal Care Worker Services Agreement by
and between the Company and Beth Abraham Hospital dated January
12, 1996.
10.21 Homemaker Services Agreement by and between the Company and
the Orange County Department of Social Services dated
February 16, 1996.
10.22 Personal Care Service Agreement by and between the Company
and the Orange County Department of Social Services dated
February 16, 1996.
10.23 Certified Home Health Agency Agreement by and between the
Company and New York Methodist Hospital dated February 28, 1996.
10.24 Employment Agreement by and between the Company and Jacob
Rosenberg dated March 26, 1996.
10.25 Employment Agreement by and between the Company and Jerry Braun
dated March 26, 1996.
10.26 Stock Option Agreement by and between the Company and Jerry Braun
dated March 26, 1996.*
10.27 Home Health Agency Agreement by and between the Company and
the Mount Sinai Hospital Home Health Agency dated April 1,
1996.
10.28 Absolute, Unconditional, Irrevocable and Limited Continuing
Guaranty of Payment by and between Jacob Rosenberg and
United Mizrahi Bank and Trust Company dated May 9, 1996.
10.29 Absolute, Unconditional, Irrevocable and Limited Continuing
Guaranty of Payment by and between Jerry Braun and United
Mizrahi Bank and Trust Company dated May 9, 1996.
10.30 Continuing General Security Agreement by and between the
Company and United Mizrahi Bank and Trust Company dated May 9,
1996.
10.31 Agreement for the Purchase of Accounts Receivable between the
Company and 1667 Flatbush Avenue LLC dated July 8, 1996.
10.32 401(k) Plan for the Company.
10.33 Performance Incentive Plan for the Company.
10.34 Services Agreement between the Company and Heart to Heart Health
Care Services, Inc., dated January 1, 1996.
10.35 Employment Agreement by and between the Company and Gilbert
Barnett dated August 27, 1996.*
11 Computation of Earnings Per Common Share of the Company.
23.1 Consent of Scheichet & Davis, P.C. (included in Exhibit 5).*
23.2 Consent of Halpern & Pasternack, P.C.*
23.3 Consent of M.R. Weiser & Co. LLP.*
24 p Power of Attorney (included on page II-5).
- ----------
* Filed with this Amendment.
(b) Financial Statement Schedules.
(none).
II-3
<PAGE>
Item 28. Undertakings
The Registrant hereby undertakes:
(1) That for the purpose of determining any liability under the Act,
treat the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act as part of this Registration Statement as of
the time the Commission declared it effective.
(2) That for the purpose of determining any liability under the Act,
treat each post-effective amendment that contains a form of Prospectus as a
new registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any Prospectus required by Section 10(a)(3) of the
Act;
(b) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(c) To include any additional or changed material information or
the plan of distribution.
(4) That, for the purpose of determining any liability under the Act,
treat each post-effective amendment as a new Registration Statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(5) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(6) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against the
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant will provide to the Underwriter at the closing specified in
the underwriting agreement, certificates in such denominations and registered in
such names as required by the Representative to permit prompt delivery to each
Purchaser.
II-4
<PAGE>
POWER OF ATTORNEY
We the undersigned officers and directors of New York Health Care, Inc.
(the "Company"), do hereby constitute and appoint each of Jerry Braun and Jacob
Rosenberg as our true and lawful attorneys and agents to sign a Registration
Statement on Form SB-2 to be filed with the Securities and Exchange Commission
("SEC") and to do any and all acts and things and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents may deem necessary or advisable to enable the Company
to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the SEC in connection with such Registration
Statement including, specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated below,
any and all amendments (including post-effective amendments) hereto; and we do
hereby ratify and confirm all that the said attorneys and agents shall do or
cause to be done by virtue of this Power of Attorney.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 6th
day of November, 1996.
NEW YORK HEALTH CARE, INC.
By: /s/ JACOB ROSENBERG
------------------------------
Jacob Rosenberg
Vice President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------- ----- ----
<S> <C> <C>
* President, Chief Executive Officer, November 6, 1996
- -------------------------------- and Director
Jerry Braun
* Vice President, Chief Operating November 6, 1996
- -------------------------------- Officer, Secretary and Director
Jacob Rosenberg
* Chief Financial Officer and November 6, 1996
- -------------------------------- Chief Accounting Officer
Gilbert Barnett
* Director November 6, 1996
- --------------------------------
Samson Soroka
* Director November 6, 1996
- --------------------------------
Hirsch Chitrik
* Director November 6, 1996
- --------------------------------
Sid Borenstein
</TABLE>
- ----------
* Jacob Rosenberg, pursuant to a Power of Attorney (executed by each of the
officers and directors listed above and indicated as signing above, which
was filed with the Securities and Exchange Commission), by signing his name
hereto does hereby sign and execute this amendment to the Registration
Statement on behalf of each of the persons referenced above.
/s/ JACOB ROSENBERG
--------------------------------------
Jacob Rosenberg
November 6, 1996
II-5
1,250,000 Units
NEW YORK HEALTH CARE, INC.
UNDERWRITING AGREEMENT
, 1996
RAS Securities Corp.
As Representative of the
Several Underwriters listed on Schedule A hereto
2 Broadway
New York, New York 10004
Ladies and Gentlemen:
New York Health Care, Inc., a New York corporation (the "Company") confirms
its agreement with RAS Securities Corp. ("RAS") and each of the underwriters
named in Schedule A hereto (collectively, the "Underwriters," which term shall
also include any underwriter substituted as hereinafter provided in Section 11),
for whom RAS is acting as representative (in such capacity, RAS shall
hereinafter be referred to as "you" or the "Representative"), with respect to
the sale by the Company and the purchase by the Underwriters, acting severally
and not jointly, of the respective numbers of units set forth in said Schedule
A, each unit consisting of one share ("Shares") of the Company's common stock,
$.01 par value per share ("Common Stock"), and two warrants to acquire one
additional share of Common Stock ("Public Warrant"). The shares of Common Stock
and Public Warrants comprising the units will be immediately separable and
tradeable upon issuance and will not trade as units. The Public Warrants are
exercisable, in pairs only, from _________ , 1997 until _________ , 2001, at an
initial exercise price of $4.00 for one share of Common Stock, subject to prior
redemption by the Company as more fully described in the Registration Statement
and Prospectus referred to below. Such 1,250,000 units are hereinafter referred
to as the "Firm Units." Upon your request, as provided in Section 2(b) of this
Agreement, the Company shall also issue and sell to you up to an additional
187,500 Shares and/or 375,000 Public Warrants for the purpose of covering
over-allotments, if any, in the sale of the Firm Units. Such 187,500 Shares
and/or 375,000 Public Warrants are hereinafter referred to as the "Option
Securities." The Firm Units and the Options Securities are hereinafter
collectively referred to as the "Units." The Company also proposes to issue and
sell to you warrants (the "Representative's Warrants") pursuant to the
Representative's Warrant Agreement dated _________ , 1996 between the
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Representative and the Company (the "Representative's Warrant Agreement") for
the purchase of an additional 125,000 Shares and/or 250,000 Public Warrants. The
Shares and/or Public Warrants issuable upon exercise of the Representative's
Warrants are hereinafter referred to as the "Representative's Securities." The
shares of Common Stock issuable upon exercise of the Public Warrants (including
the Public Warrants issuable upon exercise of the Representative's Warrants) are
hereinafter sometimes referred to as the "Warrant Shares." The Units, the
Shares, the Public Warrants, the Representative's Warrants, the Representative's
Securities and the Warrant Shares are more fully described in the Registration
Statement and the Prospectus referred to below.
1. Representations and Warranties. (a) The Company represents and
warrants to, and agrees with, each of the Underwriters as of the date hereof,
and as of the Closing Date (hereinafter defined) and the Option Closing Date
(hereinafter defined), if any, as follows:
(i) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333- 08155), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Shares, the Public Warrants, the Representative's Securities and the
Warrant Shares under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the Rules and
Regulations of the Commission thereunder. The Company will promptly file a
further amendment to said registration statement in the form heretofore
delivered to the Underwriters and will not file any other amendment thereto to
which the Underwriters shall have objected in writing after having been
furnished with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time the
registration statement becomes effective (including the prospectus, financial
statements, schedules, exhibits and all other documents or information
incorporated by reference therein) and all information deemed to be a part
thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the rules
and regulations) is hereinafter called the "Registration Statement", and the
form of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the rules and regulations is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable.
(ii) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Acts and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein and necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and
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<PAGE>
warranty does not apply to statements made in reliance upon and in conformity
with written information furnished to the Company with respect to the
Underwriters by or on behalf of the Underwriters expressly for use in such
Preliminary Prospectus, Registration Statement or Prospectus or any amendment or
supplement thereto. It is understood that the statements set forth in the
Prospectus on page 2 with respect to stabilization, under the heading
"Underwriting" and the identity of counsel to the Underwriters under the heading
"Legal Matters" constitute the only information furnished in writing by or on
behalf of the several Underwriters for inclusion in the Registration Statement
and Prospectus, as the case may be.
(iii) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (hereinafter defined) and each
Option Closing Date (hereinafter defined), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, contains or will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided, however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of any
Underwriter (as set forth in paragraph 1(a)(ii) hereof) expressly for use in the
Preliminary Prospectus, Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
(iv) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its incorporation.
The Company does not own an equity interest in any corporation, partnership,
trust, joint venture or other business entity. The Company is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations require such qualification or licensing except where the failure(s)
to be so qualified, licensed and in good standing, individually or in the
aggregate, would not materially and adversely affect the condition, financial or
otherwise, or the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company. The
Company has all requisite power and authority (corporate and other), and has
obtained any and all authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), necessary to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations and the Company has not received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business
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affairs, position prospects, value, operations, properties, business, or results
of operations of the Company. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on the Company's business as currently conducted and as contemplated
are correct in all material respects and do not omit to state a material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which they were made.
(v) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and will have the adjusted
capitalization set forth therein on the Closing Date (hereinafter defined) and
the Option Closing Date (hereinafter defined), if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement
and as described in the Prospectus. The Common Stock, the Shares, the Public
Warrants, the Representative's Warrants, the Representative's Securities and the
Warrant Shares (collectively, hereinafter sometimes referred to as the
"Securities") and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all respects, to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable and the holders thereof
have no rights of rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company. The
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any liability solely
as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly taken;
and the certificates representing the Securities are in due and proper form.
Upon the issuance and delivery pursuant to the terms hereof of the Securities to
be sold by the Company hereunder, the Underwriters or the Representative, as the
case may be, will acquire good and marketable title to such Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any kind whatsoever.
(vi) The financial statements of the Company together with the related
notes and schedules (if any) thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
position, income, changes in cash flow, changes in stockholders' equity and the
results of operations of the Company at the respective dates and for the
respective periods to which they apply and the pro forma financial information
included in the Registration Statement, each Preliminary Prospectus and the
Prospectus presents fairly on a basis consistent with that of the audited
financial statements included therein, the Company's pro forma net income or
loss per share, as the case may be, pro forma net tangible book value, and the
pro forma capitalization and such financial statements have been prepared in
conformity with generally
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accepted accounting principles and the Rules and Regulations, consistently
applied throughout the periods involved. There has been no material adverse
change or development involving a material change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operation of the Company whether
or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus,
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company conforms in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus.
(vii) The Company (A) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (B) has established adequate reserves
for such taxes which are not due and payable, and (C) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(viii) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (A) the issuance by the
Company of the Securities, (B) the purchase by the Underwriters of the Units,
the Shares, the Public Warrants and the Warrant Shares and the purchase by the
Representative of the Representative's Warrants from the Company, (C) the
consummation by the Company of any of its obligations under this Agreement, or
(D) resales of the Securities in connection with the distribution contemplated
hereby.
(ix) The Company maintains insurance policies, including, but not
limited to, general liability, product liability and property insurance, which
insures the Company and its employees, against such losses and risks generally
insured against by comparable businesses. The Company (A) has not failed to give
notice or present any insurance claim with respect to any matter, including but
not limited to the Company's business, property or employees, under the
insurance policy or surety bond in a due and timely manner, (B) does not have
any disputes or claims against any underwriter of such insurance policies or
surety bonds or has not failed to pay any premiums due and payable thereunder,
or (C) has not failed to comply with all conditions contained in such insurance
policies and surety bonds. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the company.
(x) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of the Company
which (A) questions the validity of the capital stock of the Company or this
Agreement, the Representative's Warrant Agreement, the Warrant Agreement (as
defined in Section 1(xxxiii) below) or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement, the Representative's
Warrant Agreement, or the Warrant Agreement, (B) is required to
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<PAGE>
be disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (C) if adversely determined, might
materially and adversely affect the condition, financial or otherwise, or the
business affairs or business prospects, earnings, liabilities, prospects,
stockholders' equity, value, properties, business or assets of the Company.
(xi) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement,
the Representative's Warrant Agreement and the Warrant Agreement and to
consummate the transactions provided for herein and therein; and each of this
Agreement, the Representative's Warrant Agreement and the Warrant Agreement have
been duly and properly authorized, executed and delivered by the Company. This
Agreement, the Representative's Warrant Agreement and the Warrant Agreement each
constitute a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, and neither the Company's
issue and sale of the Securities or execution or delivery of this Agreement, the
Representative's Warrant Agreement and the Warrant Agreement or its performance
hereunder and thereunder, its consummation of the transactions contemplated
herein and therein, or the conduct of its business as described in the
Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of, (A) the
certificate of incorporation or by-laws of the Company, (B) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
the which is properties or assets (tangible or intangible) is or may be subject,
or any indebtedness, or (C) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties, in each case except for conflicts, breaches,
violations, defaults, creations or impositions which do not and would not have a
material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs, position, shareholder's equity, value, operation,
properties, business or results of operations of the Company.
(xii) Other than as set forth in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory body,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, the issuance of the Representative's Warrants, the execution,
delivery or performance of this Agreement, the Representative's Warrant
Agreement and the Warrant Agreement, and the transactions contemplated hereby
and thereby, including, without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, except such as have been or may be obtained under
the Act or may be
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required under state securities or Blue Sky laws in connection with the
Underwriters' purchase and distribution of the Securities and the
Representative's purchase of the Representative's Warrants to be sold by the
Company hereunder and thereunder.
(xiii) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents and
statutes and regulations are accurate and fairly present the information
required to be shown with respect thereto by Form SB-2, and there are no
contracts or other documents which are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required, and the exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies.
(xiv) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(A) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (B) entered into any transaction other than in
the ordinary course of business, or (C) declared or paid any dividend or made
any other distribution on or in respect of its capital stock of any class, and
there has not been any change in the capital stock, or any change in the debt
(long or short term) or liabilities or material change in or affecting the
business affairs or prospects, management, stockholders' equity, properties,
business, financial operations or assets of the Company.
(xv) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
the property or assets (tangible or intangible) of the Company is subject or
affected, which default would have a material adverse effect on the condition,
financial or otherwise, earnings, business affairs, position, shareholder's
equity, value, operation, properties, business or results of operations of the
Company.
(xvi) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance in all
material respects with all federal, state, local, and foreign laws and
regulations respecting employment and employment practices, terms and conditions
of employment and wages and hours. There are no pending investigations involving
the Company, by the U.S. Department of Labor, or any other governmental agency
responsible for the enforcement of such federal, state, local, or foreign laws
and regulations. There is no unfair labor
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practice charge or complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company, or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists, or, to the knowledge of the Company is
imminent.
(xvii) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has never completely or partially withdrawn from a "multiemployer
plan."
(xviii) Neither the Company nor any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations) of
any of the foregoing has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in, under the Exchange Act, or otherwise, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities or otherwise.
(xix) None of the patents, patent applications, trademarks, service
marks, trade names and copyrights, and licenses and rights to the foregoing
presently owned or held by the Company are in dispute or are in any conflict
with the right of any other person or entity. The Company (A) owns or has the
license or other right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing and (B) except as set forth in the Prospectus,
is not obligated or under any liability whatsoever to make any payments by way
of royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service mark, tradename, copyright, know-how,
technology or other
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intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(xx) The Company has not received any notice of infringement of or
conflict with asserted rights of others with respect to any trademark, service
mark, trade name or copyright or other intangible asset used or held for use by
it in connection with the conduct of its businesses which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the condition, financial or otherwise, or the
business affairs, position, properties, stockholder's equity, financial
operations or assets of the Company.
(xxi) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus, to be owned or leased by it free and clear of all liens,
charges, claims, encumbrances, pledges, security interest, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(xxii) M. R. Weiser & Co. LLP., Certified Public Accountants, whose
report is filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Act and the Rules
and Regulations.
(xxiii) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of its officers, directors or any
person or entity deemed to be an affiliate of the Company and any stockholders
of the Company has agreed not to, directly or indirectly, sell of any shares of
Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein for a period of not
less than 24 months following the effective date of the Registration Statement
without the prior written consent of the Representative and that any Common
Stock which has been issued and is outstanding on the effective date of the
Registration Statement and is to be sold or otherwise disposed of pursuant to
such Rule 144 with the consent of the Representative shall only be sold or
otherwise disposed of through the Representative. The Company will cause the
Transfer Agent, as defined below, to mark an appropriate legend on the face of
stock certificates representing all of such securities and to place "stop
transfer" orders on the Company's stock ledgers.
(xxiv) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD") and the Company is aware that the Representative and each of the
Underwriter's shall compensate any of their respective personnel who may have
acted in such capacities as they shall determine in their sole discretion.
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(xxv) The Shares, the Common Stock and the Public Warrants have been
approved for quotation on the Nasdaq SmallCap Market and, upon notice of
issuance, listing on the Boston Stock Exchange ("BSE").
(xxvi) Neither the Company, nor any of its officers, employees, agents
or any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (A) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (B) if
not given in the past, might have had a materially adverse effect on the assets,
business, operations or prospects of the Company, or (C) if not continued in the
future, might adversely affect the assets, business, operations or prospects of
the Company. The Company's internal accounting controls are sufficient to cause
the Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
(xxvii) Except as set forth in the Prospectus, no officer, director,
or stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(A) an interest in any person or entity which (1) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (2) purchases from or sells or furnishes to the Company any
goods or services, or (B) a beneficiary interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected. Except as
set forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, Principal Security Holder (as such term is
defined in the Prospectus) of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to Bachner, Tally, Polevoy & Misher LLP ("
Underwriters' Counsel") shall be deemed a representation and warranty by the
Company to the Underwriters as to the matters covered thereby.
(xxix) The minute books of the Company have been made available to the
Underwriters and contain a complete summary of all meetings and actions of the
directors and stockholders of the Company, since the time of its incorporation
and reflects all transactions referred to in such minutes accurately in all
material respects.
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(xxx) Except and to the extent described in the Prospectus, no holders
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(xxxi) The Company has as of the effective date of the Registration
Statement (A) entered into employment agreements with Jerry Braun and Jacob
Rosenberg providing for annual salaries of $175,000 and $140,000 respectively,
each on terms and conditions satisfactory to the Representative, and (B)
purchased "key-man" insurance on the lives of Jerry Braun and Jacob Rosenberg
which name the Company as the sole beneficiary on terms and conditions
satisfactory to the Representative.
(xxxii) The Company has entered into a warrant agreement with respect
to the Public Warrants, substantially in the form filed as Exhibit 4.3 to the
Registration Statement ("Warrant Agreement") with Continental Stock Transfer and
Trust Company in form and substance satisfactory to the Representative.
(xxxiii) Immediately prior to the effective date of the Registration
Statement there shall be no more than an aggregate of 2,831,250 shares of Common
Stock issued and outstanding (including any and all (A) securities with
equivalent rights as the Common Stock, (B) Common Stock or such equivalent
securities, issuable upon the exercise of options, warrants and other contract
rights, and (C) securities convertible directly or indirectly into Common Stock
or such equivalent securities, and excluding the Representative's Warrants).
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$3.78 per Unit, that number of Firm Units set forth in Schedule A opposite the
name of such Underwriter, subject to such adjustment as the Representative in
its sole discretion shall make to eliminate any sales or purchases of fractional
shares, plus any additional number of Firm Units which such Underwriter may
become obligated to purchase pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 187,500 Shares at a price of $3.60 per Share and/or 375,000 Public
Warrants at a price of $.09 per Public Warrant. The option granted hereby will
expire 30 days after the date the Registration Statement becomes effective and
may be exercised in whole or in part from time to time upon notice by the
Representative to the Company setting forth the number of Option Securities as
to which the
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several Underwriters are then exercising the option and the time and date of
payment and delivery for any such Option Securities. Any such time and date of
delivery (an "Option Closing Date") shall be determined by the Representative,
but shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Date (hereinafter defined), unless
otherwise agreed upon by the Representative and the Company. Nothing herein
contained shall obligate the Underwriters to make any over-allotments. No Option
Securities shall be delivered unless the Firm Units shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
evidencing the Firm Units shall be made at the offices of RAS Securities Corp.
at 2 Broadway, New York, New York 10004, or at such other place as shall be
agreed upon by the Representative and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on , 1996 or at such other time
and date as shall be agreed upon by the Representative and the Company, but no
less than three (3) nor more than ten (10) full business days after the
effective date of the Registration Statement (such time and date of payment and
delivery being herein called "Closing Date"). In addition, in the event that any
or all of the Option Securities are purchased by the Underwriters, payment of
the purchase price for, and delivery of certificates for, such Option Securities
shall be made at the above mentioned office of the Representative or at such
other place as shall be agreed upon by the Representative and the Company on
each Option Closing Date as specified in the notice from the Representative to
the Company. Delivery of the certificates for the Firm Units and the Option
Securities if any, shall be made to the Underwriters against payment by the
Underwriters, severally and not jointly, of the purchase price for the Firm
Units and the Option Securities if any, to the order of the Company by New York
Clearing House Funds. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly, shall purchase that proportion
of the total number of Option Securities then being purchased which the number
of Firm Units set forth in Schedule A hereto opposite the name of such
Underwriter bears to the total number of Firm Units, subject in each case to
such adjustments as the Representative in its discretion shall make to eliminate
any sales or purchases of fractional shares. Certificates for the Firm Units and
the Option Securities if any, shall be in definitive, fully registered form,
shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Underwriters may request in writing at least two
(2) business days prior to Closing Date or the relevant Option Closing Date, as
the case may be. The certificates for the Firm Units and the Option Securities
if any, shall be made available to the Representative at such office or such
other place as the Representative may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing Date
or the relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative the Representative's Warrants at a purchase price of $.0001 per
warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of 125,000 Shares and/or 250,000 Public Warrants. The Representative's
Warrants shall be exercisable for a period of four (4) years commencing one (1)
year from the Closing Date at a price of $4.80 per Share and $.12 per Public
Warrant. The Representative's Warrant Agreement and form of Warrant Certificates
with respect to each of the
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(i) Representative's Warrants to purchase Shares and (ii) Representative's
Warrants to purchase Public Warrants, shall be substantially in the form filed
as Exhibit 4.2 to the Registration Statement. Payment for the Representative's
Warrants shall be made on the Closing Date.
3. Public Offering of the Units. As soon after the Registration Statement
becomes effective as the Representative deems advisable, the Underwriters shall
make a public offering of the Firm Units and such of the Option Securities as
they may determine (other than to residents of or in any jurisdiction in which
qualification of the Shares and Public Warrants are required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Representative may from time to time increase or decrease the public
offering price after distribution of the Units has been completed to such extent
as the Representative, in its sole discretion deems advisable. The Underwriters
may enter into one or more agreements as the Underwriters, in each of their sole
discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering. Investors in the public
offering will be required to purchase one Share and two Public Warrants together
or multiples thereof. Such units of Securities will however be immediately
separable and tradeable upon issuance and will not be registered or listed on
any exchange for trading as units.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable (such Registration Statement to be in form and substance
satisfactory to the Representative and Underwriters' Counsel) and will not at
any time, whether before or after the effective date of the Registration
Statement, file any amendment to the Registration Statement or supplement to the
Prospectus or file any document under the Act or Exchange Act before termination
of the offering of the Units by the Underwriters of which the Representative
shall not previously have been advised and furnished with a copy, or to which
the Representative shall have objected or which is not in compliance with the
Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representative and confirm by notice in writing, (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission; and (v)
of
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<PAGE>
any request by the Commission for any amendment to the Registration Statement or
any amendment or supplement to the Prospectus or for additional information. If
the Commission or any state securities commission authority shall enter a stop
order or suspend such qualification at any time, the Company will make every
effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative and Underwriters' Counsel) or transmit the
Prospectus by a means reasonably calculated to result in filing with the
Commission pursuant to Rule 424 (b)(1) (or, if applicable and if consented to by
the Representative, pursuant to Rule 424 (b)(47) not later than the Commission's
close of business on the earlier of (i) the second business day following the
execution and delivery of this Agreement and (ii) the fifth business day after
the effective date of the Registration Statement.
(d) The Company will give the Representative notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representative or Underwriters' Counsel, shall reasonably object.
(e) The Company shall take all action, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Units for offering and sale under the securities laws
of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification. It is agreed that
Underwriters' Counsel (or its designees) shall perform all such required Blue
Sky legal services.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be
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<PAGE>
delivered under the Act, any event shall have occurred as a result of which, in
the reasonable opinion of counsel for the Company or Underwriters' Counsel, the
Prospectus, as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act and the Rules and Regulations, the
Company will notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12- month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representative, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(h) During a period of seven years after the date hereof, the Company
will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the form
furnished to the Company's stockholders and certified by the Company's principal
financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports (financial
or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
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<PAGE>
(v) every press release and every material news item or article of
interest to the financial community in respect of the Company or its affairs
which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the Representative
may reasonably request.
During such seven-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a Transfer Agent, counsel, accounting firm,
financial printer and, if necessary under the jurisdiction of incorporation of
the Company, a Registrar (which may be the same entity as the Transfer Agent)
for its Units, Common Stock and Public Warrants all of whom shall be reasonably
acceptable to the Representative. Such Transfer Agent shall, for a period of
five years following the Closing Date, deliver to the Representative the monthly
securities position of the Company's stockholders of record.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement any
pre-effective or post-effective amendments thereto (two of which copies will be
signed and will include all financial statements and exhibits), the Prospectus,
and all amendments and supplements thereto, including any Prospectus prepared
after the effective date of the Registration Statement, in each case as soon as
available and in such quantities as the Representative may reasonably request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representative with true copies of duly executed,
legally binding and enforceable agreements pursuant to which for a period of not
less than 24 months after the effective date of the Registration Statement, each
holder of securities issued by the Company and outstanding at the effective date
of the Registration Statement (including securities convertible into Common
Stock of the Company) agrees that it or he or she will not, directly or
indirectly, issue, offer to sell, sell, grant an option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of any of such
securities (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein without the prior
written consent of the Representative (collectively, the "Lock-up Agreements").
The Lock-up Agreements shall also provide that any such securities that may be
sold pursuant to Rule 144 (with the Representative's consent) shall be executed
through the Representative. The commission for any such open market transactions
shall not exceed 5% and the sales price shall be reasonably related to the
market. During the three year period commencing with the effective date of the
Registration Statement, the Company shall not issue any securities under
Regulation S and not, without the prior written consent of the Representative,
sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or
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<PAGE>
indirectly, any debt security of the Company or any shares of Common Stock or
any issue of preferred stock of the Company, or any options, rights or warrants
with respect to any shares of Common Stock or any issue of preferred stock of
the Company, (other than upon exercise of (i) the Representative's Warrants (ii)
options granted to Jerry Braun to purchase up to 75,000 shares of Common Stock
at $3.00 per share (iii) options granted pursuant to an incentive stock option
plan of the Company in effect prior to the filing of the initial Registration
Statement, such plan to provide that the Board of Directors of the Company shall
have the power to grant, at its discretion, options to eligible individuals, to
purchase up to an aggregate amount of 262,500 shares of Common Stock at an
exercise price per share equal to the market price of a share of Common Stock at
the close of business on the date of any such option grant; provided that, for a
period of three (3) years commencing on the effective date of the Registration
Statement, the exercise price of options granted must be not less than the
greater of the fair market value per share of Common Stock on the date of grant
or $4.00 per share, such plan to otherwise be on terms and conditions
satisfactory to the Representative and (iv) options granted pursuant to any
further qualified option plan of the Company, approved by the Company's
shareholders pursuant to a proxy after the Closing Date, which in any event
shall not provide for options to purchase more than 262,500 shares of Common
Stock per year, shall provide that, for a period of three (3) years commencing
on the date of such an increase, the exercise price of options granted must be
not less than the greater of the fair market value per share of Common Stock on
the date of grant or $4.00 per share, and shall otherwise be on terms and
conditions satisfactory to the Representative. On or before the Closing Date,
the Company shall deliver instructions to the Transfer Agent authorizing it to
place appropriate legends on the certificates representing the securities
subject to the Lock-up Agreement and to place appropriate stop transfer orders
on the Company's ledgers.
(l) Neither the Company, nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act and the Rules and Regulations, and all such reports, forms and
documents filed shall comply as to form and substance with the applicable
requirements under the Act, the Exchange Act and the Rules and Regulations.
(o) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of
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<PAGE>
the Registration Statement) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 6(j) hereof.
(p) The Company shall cause the Shares, the Common Stock and the
Public Warrants to be listed on the Nasdaq SmallCap Market and upon the request
of the Representative to be listed on the BSE, and for a period of seven (7)
years from the date hereof, use its best efforts to maintain such listings of
the Shares, the Common Stock and the Public Warrants to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representative at the Representative's request and at the
Company's sole expense, (i) the list of holders of all of the Company's
securities and (ii) a Blue Sky "Trading Survey" for secondary sales of the
Company's securities prepared by counsel to the Company.
(r) The Company shall as soon as practicable, (i) but in no event more
than five business days before the effective date of the Registration Statement,
file a Form 8-A with the Commission providing for the registration under the
Exchange Act of the Securities and (ii) but in no event more than 30 days from
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's Manual in order to satisfy the requirements for "manual
exemption" in those states where available and to maintain such inclusion for as
long as the Securities are outstanding.
(s) Until the completion of the distribution of the Securities, the
Company shall not without the prior written consent of the Representative and
Underwriters' Counsel, issue, directly or indirectly any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(t) For a period of three (3) years after the effective date of the
Registration Statement, the Representative shall have the right to designate one
(1) individual for election to the Company's Board of Directors ("Board") and
the Company shall cause such individual to be elected to the Board. In the event
the Representative shall not have designated such individual at the time of any
meeting of the Board or such person is unavailable to serve, the Company shall
notify the Representative of each meeting of the Board and an individual
designated by the Representative shall be permitted to attend all meetings of
the Board and to receive all notices and other correspondence and communications
sent by the Company to members of the Board. Such individual shall be reimbursed
for all out-of-pocket expenses incurred in connection with his or her service
on, or attendance at meetings of, the Board. The Company shall provide its
outside directors with compensation in the form of cash and/or options on its
Common Stock as deemed appropriate and customary for similar companies.
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(u) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the date of the sale to the public of the securities
issuable upon exercise of the Representative's Securities, the Company will not
take any action or actions which may prevent or disqualify the Company's use of
any form otherwise available for the registration under the Act of the
securities issuable upon exercise of the Representative's Securities.
(v) Commencing one year from the date hereof, the Company shall pay
the Representative a commission equal to five percent (5%) of the exercise price
of the Public Warrants, payable on the date of the exercise thereof on terms
provided for in the Warrant Agreement. The Company will not solicit the exercise
of the Public Warrants other than through the Representative and will not
authorize any other dealer or engage in such solicitation without the
Representative's prior written consent.
(w) On or before the effective date of the Registration Statement, the
Company shall have retained a financial public relations firm reasonably
satisfactory to the Representative, which shall be continuously engaged from
such engagement date to a date twelve (12) months from the Closing Date.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, the Representative's Warrant Agreement and the Warrant
Agreement including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, (including mailing and
handling charges) filing, delivery and mailing (including the payment of postage
with respect thereto) of the Registration Statement and the Prospectus and any
amendments and supplements thereto and the printing, mailing (including the
payment of postage with respect thereto) and delivery of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement, and related
documents, including the cost of all copies thereof and of the Preliminary
Prospectuses and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriters and such dealers as the Underwriters may
request, in quantities as hereinabove stated, (iii) the printing, engraving,
issuance and delivery of the Securities, including, but not limited to, (x) the
purchase by the Underwriters of the Securities and the purchase by the
Representative of the Representative's Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement, the
Representative's Warrant Agreement, and the Warrant Agreement, and (z) resale of
the Securities by the Underwriters in connection with the distribution
contemplated hereby, (iv) the qualification of the Securities under state or
foreign securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum", the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, provided, however, that the
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Company's obligation with respect to such "Blue Sky" fees and disbursement of
counsel shall not exceed $30,000 (v) advertising costs and expenses, including
but not limited to costs and expenses in connection with the "road show",
information meetings and presentations, bound volumes and prospectus
memorabilia, tombstones in the Wall Street Journal and other appropriate
publications, (vi) costs, fees and expenses in connection with due diligence
investigations, including but not limited to the costs of background checks on
key management and/or personnel of the Company and the fees of any independent
counsel or consultant retained, (vii) fees and expenses of the transfer agent,
warrant agent, escrow agent, if any, and registrar, (viii) applications for
assignments of a rating of the Securities by qualified rating agencies, (ix) the
fees payable to the Commission, Nasdaq and the NASD, and (x) the fees and
expenses incurred in connection with the listing of the Securities on the Nasdaq
SmallCap Market, the BSE and any other exchange.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 6, Section 10(a) or Section 12, the Company shall
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel (and in
addition to fees and expenses of Underwriter's Counsel incurred pursuant to
Section 5(a)(iv) above for which the Company shall remain liable), provided,
however, that in the event of a termination pursuant to Section 10(a) hereof
such obligation of the Company shall not exceed $50,000.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Units. In the event the Representative elects to exercise the
over-allotment option described in Section 2(b) hereof, the Company further
agrees to pay to the Representative on each Option Closing Date (by certified or
bank cashier's check or, at the Representative's election, by deduction from the
proceeds of the offering) a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
relevant Option Securities.
(d) The Underwriters shall not be responsible for any expense of the
Company or others or for any charge or claim related to the offering
contemplated by hereunder in the event that the sale of the Securities as
contemplated hereunder is not consummated.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
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(a) The Registration Statement, which shall be in form and substance
satisfactory to the Representative and Underwriter's Counsel, shall have become
effective no later than 12:00 p.m., New York time, on the date of this Agreement
or such later date and time as shall be consented to in writing by the
Representative and, at the Closing Date and each Option Closing Date, if any, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending or contemplated by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of Underwriters' Counsel. If the Company has elected
to rely upon Rule 430A of the Rules and Regulations, the price of the Units and
any price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representative shall have
received from Underwriters' Counsel, such opinion or opinions with respect to
the organization of the Company, the validity of the Securities, the
Representative's Warrants, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received such papers and information as they request to enable them
to pass upon such matters.
(d) On the Closing Date, the Underwriters shall have received the
favorable opinion of Scheichet & Davis, P.C., counsel to the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) the Company (A) has been duly organized and is validly existing as
a corporation in good standing under the laws of its jurisdiction, and (B) has
all requisite corporate power and authority, and has obtained any and all
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification
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or licensing; to such counsel's knowledge, the Company has not received any
notice of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially adversely affect the business, operations,
condition, financial or otherwise, or the earnings, business affairs or
prospects, properties, business, assets or results of operations of the Company.
The disclosures in the Registration Statement concerning the effects of federal,
state and local laws, rules and regulations on the Company's business as
currently conducted and as contemplated are correct in all material respects and
do not omit to state a fact necessary to make the statements contained therein
not misleading in light of the circumstances in which they were made.
(ii) to such counsel's knowledge, the Company does not own an equity
interest in any other corporation, partnership, joint venture, trust or other
business entity;
(iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or supplement
thereto, under "Capitalization", and, to such counsel's knowledge, after due
inquiry, the Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement, the Representative's
Warrant Agreement, the Warrant Agreement and as described in the Prospectus. The
Securities, and all other securities issued or issuable by the Company, conform
in all material respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable; the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability under the laws of the
State of New York as currently in effect by reason of being such holders; and
none of such securities were issued in violation of the preemptive rights of any
holders of any security of the Company. The Securities to be sold by the Company
hereunder and under the Representative's Warrant Agreement are not and will not
be subject to any preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered in accordance with
the terms hereof, will be validly issued, fully paid and non-assessable and
conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities has been duly and validly taken; and the certificates
representing the Securities are in due and proper form. The Public Warrants and
the Representative's Warrants constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment therefore the
number and type of securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement of the Securities to be sold by
the Company, the Underwriters and the Representative will acquire good and
marketable title to the Securities free and clear of any pledge, lien, charge,
claim, encumbrance, pledge, security interest, or other restriction or equity of
any kind whatsoever. No transfer tax is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters and the Representative of the
Securities from the Company,
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(C) consummation by the Company of any of its obligations under this Agreement,
or (D) resales of the Securities in connection with the distribution
contemplated hereby.
(iv) the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and, to such counsel's knowledge, after due
inquiry no stop order suspending the use of the Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof or suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending, threatened or
contemplated under the Act;
(v) each of the Preliminary Prospectus, the Registration Statement,
and the Prospectus and any amendments or supplement thereto (other than the
financial statements and other financial and statistical data included therein,
as to which no opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and the Rules and Regulations.
(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
(or required to be filed under the Exchange Act if upon such filing they would
be incorporated, in whole or in part, by reference therein) and the Prospectus
and filed as exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be copies; (B) the
descriptions in the Registration Statement and the Prospectus and any supplement
or amendment thereto of contracts and other documents to which the Company is a
party or by which it is bound, including any document to which the Company is a
party or by which it is bound, incorporated by reference into the Prospectus and
any supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown under the Act and the
Rules and Regulations of the Commission thereunder; (C) there is not pending or
threatened against the Company any action, arbitration, suit, proceeding,
inquiry, investigation, litigation, governmental or other proceeding (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened against (or circumstances
that may give rise to the same), or involving the properties or business of the
Company which (1) is required to be disclosed in the Registration Statement
which is not so disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all respects), (2) questions
the validity of the capital stock of the Company or this Agreement or of any
action taken or to be taken by the Company pursuant to or in connection with any
of the foregoing; (D) no statute or regulation or legal or governmental
proceeding required to be described in the Prospectus is not described as
required; and (E) except as disclosed in the Prospectus, there is no action,
suit or proceeding pending, or threatened, against or affecting the Company
before any court or arbitrator or governmental body, agency or official (or any
basis thereof known to such counsel) in which an adverse decision which may
result in a material adverse change in the condition, financial or otherwise, or
the earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of the Company, could adversely
affect the present or prospective ability of the Company to perform its
obligations under
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this Agreement, the Representative's Warrant Agreement or the Warrant Agreement
or which in any manner draws into question the validity or enforceability of
this Agreement, the Representative's Warrant Agreement or the Warrant Agreement;
(vii) the Company has full legal right, power and authority to enter
into this Agreement, the Representative's Warrant Agreement and the Warrant
Agreement and to consummate the transactions provided for therein; and this
Agreement, the Representative's Warrant Agreement and the Warrant Agreement has
been duly authorized, executed and delivered by the Company. This Agreement, the
Representative's Warrant Agreement and the Warrant Agreement assuming due
authorization, execution and delivery by each other party hereto and thereto
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and neither the Company's execution or delivery of
this Agreement, the Representative's Warrant Agreement and the Warrant
Agreement, its performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its business as
described in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of, (A)
the certificate of incorporation or by-laws of the Company, (B) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
to which any of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) any statute, judgment, decree, order, rule
or regulation applicable to the Company of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties, except for conflicts, breaches, violations,
defaults, creations or impositions which do not and would not have a material
adverse effect on the condition, financial or otherwise, or the earnings,
business affairs, position, shareholder's equity, value, operations, properties,
business or results of operations of the Company.
(viii) except as described in the Prospectus, no consent, approval,
authorization or order, and no filing with, any court, regulatory body,
government agency or other body (other than such as may be required under Blue
Sky laws, as to which no opinion need be rendered) is required in connection
with the issuance of the Securities pursuant to the Prospectus and the
Registration Statement, the issuance of the Representative's Warrants, the
performance of this Agreement, the Representative's Warrant Agreement and the
Warrant Agreement and the transactions contemplated hereby and thereby;
24
<PAGE>
(ix) the properties and business of the Company conform to the
description thereof contained in the Registration Statement and the Prospectus;
(x) the Company is not in breach of, or in default under, any term or
provision of any license, contract, indenture, mortgage, installment sale
agreement, deed of trust, lease, voting trust agreement, stockholders'
agreement, partnership agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which the property or assets (tangible or intangible)
of the Company is subject or affected, which could materially adversely affect
the Company; and the Company is not in violation of any term or provision of its
Certificate of Incorporation or By-Laws, or in violation of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation the result
of which would materially and adversely affect the condition, financial or
otherwise, or the earnings, business affairs, position, shareholders' equity,
value operation, properties, business or results of operations of the Company.
(xi) the Company owns or possesses, free and clear of all liens or
encumbrances and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses necessary
to conduct its business (including, without limitation any such licenses or
rights described in the Prospectus as being owned or possessed by the Company),
and to the best of such counsel's knowledge after reasonable investigation,
there is no claim or action by any person pertaining to, or proceeding, pending,
or threatened, which challenges the exclusive rights of the Company with respect
to any trademarks, service marks, copyrights, service names, trade names,
patents, patent applications and licenses used in the conduct of the Company's
business (including, without limitations, any such licenses or rights described
in the Prospectus as being owned or possessed by the Company).
(xii) except as described in the Prospectus, the Company does not (A)
maintain, sponsor, or contribute to any ERISA Plans, (B) maintain or contribute
now or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA, and (C) has never completely or partially withdrawn from a
"multiemployer plan"; and
(xiii) the Securities have been approved for listing on the Nasdaq
SmallCap Market and the BSE, and the Company's Registration Statement on Form
8-A under the Exchange Act has become effective.
(xiv) to such counsel's knowledge, the persons listed under the
caption "PRINCIPAL SECURITY HOLDERS" in the Prospectus are the respective
"beneficial owners" (as such phrase is defined in Regulation 13d-3 under the
Exchange Act) of the securities set forth opposite their respective names
thereunder as and to the extent set forth therein;
(xv) to such counsel's knowledge, except as described in the
Prospectus, no person, corporation, trust, partnership, association or other
entity has the right to include and/or register any
25
<PAGE>
securities of the Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any security in such
registration statement;
(xvi) to such counsel's knowledge, except as described in the
Prospectus, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Units hereunder or the financial consulting
arrangement between the Representative and the Company, if any, or any other
arrangements, agreements, understandings, payments or issuances that may affect
the Underwriters' compensation, as determined by the NASD;
(xvii) the Lock-up Agreements are legal, valid and binding obligations
of the parties thereto, enforceable against each such party and any subsequent
holder of the securities subject thereto in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable); and
(xviii) all action under the Act necessary to make the public offering
and consummate the sale of the Securities as provided in this Agreement has been
taken by the Company. The provisions of the Certificate of Incorporation and
By-laws of the Company comply as to form in all material respects with the Act
and the Rules and Regulations.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company and representatives of
the independent public accountants for the Company, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which
leads counsel to believe that either the Registration Statement or any amendment
thereto, at the time such Registration Statement or amendment became effective
or the Preliminary Prospectus or Prospectus or amendment or supplement thereto
as of the date of such opinion contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to
26
<PAGE>
the extent they deem proper, on certificates
and written statements of responsible officers of the Company and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested; and (C) as to
regulatory matters, to the extent specified in such opinion and to the extent
reliance is reasonable, on the opinion of special regulatory counsel to the
Company. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and
that the Representative and they are justified in relying thereon.
At each Option Closing Date, if any, the Underwriters shall have received
the favorable opinion of Scheichet & Davis, P.C., counsel to the Company, dated
the Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of such Option Closing Date
the statements made in its opinion delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or covenants of the
Company herein contained.
(f) Prior to each of Closing Date and each Option Closing Date, if
any, (i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, prospects,
stockholders' equity or the business activities of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) there
shall have been no transaction, not in the ordinary course of business, entered
into by the Company, (iii) the Company shall not be in default under any
provision of any instrument relating to any outstanding indebtedness; (iv) the
Company shall not have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there shall not have been any change in the capital or
any change in the debt (long or short term) or liabilities or obligations of the
Company (contingent or otherwise); (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus (vi) no action, suit or proceeding, at law
or in equity, shall have been pending or threatened (or circumstances giving
rise to same) against the Company, or affecting any of its properties or
business before or by any court or federal, state or foreign commission, board
or other administrative agency wherein an unfavorable decision, ruling or
finding may adversely affect the business, operations, management prospects or
financial condition or assets of the Company, except as set forth in the
Registration Statement and Prospectus: and (vii) no stop order shall have been
issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
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<PAGE>
(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the principal executive
officer and the chief financial or chief accounting officer of the Company,
dated the Closing Date or Option Closing Date, as the case may be, to the effect
that each of such persons has carefully examined the Registration Statement, the
Prospectus and this Agreement, and that:
(i) The representations and warranties in this Agreement of the
Company are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with all
agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or, are contemplated or threatened
under the Act;
(iii) The Registration Statement and the Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and information
required to be included therein, and none of the Registration Statement, the
Prospectus nor any amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and neither
the Preliminary Prospectus or any supplement thereto included any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Since the dates as of which information is given in the
Registration Statement and the Prospectus, (A) there has not been any material
change in the shares of Common Stock or liabilities of the Company except as set
forth in or contemplated by the Prospectus; (B) there has not been any material
adverse change in the general affairs, management, business, financial condition
or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, as set forth in or contemplated
by the Prospectus; (C) the Company has not sustained any material loss or
interference with its business from any court or from legislative or other
governmental action, order or decree, whether foreign or domestic, or from any
other occurrence, not described in the Registration Statement and Prospectus;
(D) there has not occurred any event that makes untrue or incorrect in any
material respect any statement or information contained in the Registration
Statement or Prospectus or that is not reflected in the Registration Statement
or Prospectus but should be reflected therein in order to make the statements or
information therein, in light of the circumstances in which they were made, not
misleading in any material respect; (E) the Company has not incurred up to and
including the Closing Date or the Option Closing Date, as the case may be, other
than in the ordinary course of its business, any material liabilities or
obligations, direct or contingent; (F) the Company has not paid or declared any
dividends or other distributions on its capital stock; (G) the Company has not
entered into any transactions not in the ordinary course of business; (H) there
has not been any change in the capital stock or long-term debt
28
<PAGE>
or any increase in the short-term borrowings (other than any increase in the
short-terms borrowings in the ordinary course of business) of the Company; (I)
the Company has not sustained any material loss or damage to its property or
assets, whether or not insured; and (J) there has occurred no event required to
be set forth in an amended or supplemented Prospectus which has not been set
forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from M. R. Weiser & Co. LLP,:
(i) confirming that they are independent accountants with respect to
the Company within the meaning of the Act and the applicable Rules and
Regulations;
(ii) stating that it is their opinion that the financial statements of
the Company included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Rules and Regulations thereunder and that the Representative may rely upon the
opinion of M.R. Weiser & Co. LLP, with respect to the financial statements and
supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which included a
reading of the latest available unaudited interim financial statements of the
Company (with an indication of the date of the latest available unaudited
interim financial statements), a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the boards of
directors of the Company, consultations with officers and other employees of the
Company responsible for financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention which would lead
them to believe that (A) the unaudited financial statements, if any, of the
Company included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Rules and Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements of the Company included in the
Registration Statement, or (B) at a specified date not more than five (5) days
prior to the effective date of the Registration Statement, there has been any
change in the capital stock or long-term debt of the Company, or any decrease in
the stockholders' equity or net current assets or net assets of the Company as
compared with amounts shown in the [ ] 199 balance sheet included in the
Registration Statement, other than as set forth in or contemplated by the
Registration
29
<PAGE>
Statement, or, if there was any change or decrease, setting forth the amount of
such change or decrease;
(iv) setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the Company
(including a breakdown of commercial paper and notes payable to banks) ;
(v) stating that they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in each case
to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
(vi) stating that they have in addition carried out certain specified
procedures, not constituting an audit, with respect to certain pro forma
financial information which is included in the Registration Statement and the
Prospectus and that nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro forma financial
information does not comply in form in all respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of that information;
(vii) stating that they have not during the immediately preceding five
(5) year period brought to the attention of any of the Company's management any
"weakness," as defined in Statement of Auditing Standard No. 60 "Communication
of Internal Control Structure Related Matters Noted in an Audit," in any of the
Company's internal controls; and
(viii) statements as to such other matters incident to the transaction
contemplated hereby as the Representative may request.
(j) On or prior to the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received from M.R. Weiser & Co. LLP, a letter,
dated as of the Closing Date or the Option Closing Date, as the case may be, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (i) of this Section, except that the specified date in
the referred to shall be a date not more than five days prior to the Closing
Date or the Option Closing Date, as the case may be, and, if the Company has
elected to rely on Rule 430A of the Rules and Regulations, to the further effect
that they have carried out procedures as specified in clause (v) of subsection
(i) of this Section with respect to certain amounts, percentages and financial
information as specified by the Representative and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
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(k) On each of Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(l) No order suspending the sale of the Securities in any jurisdiction
designated by the Representative pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(m) On or before Closing Date, the Shares, the Common Stock and the
Public Warrants shall have been approved for quotation on the Nasdaq SmallCap
Market and shall have been authorized upon official notice of issuance for
trading on the BSE.
(n) On or before Closing Date, there shall have been delivered to the
Representative the Lock-up Agreements, in form and substance satisfactory to the
Representative.
(o) On or before the Closing Date, the Company shall have executed a
mergers and acquisition agreement with the Representative in form and substance
satisfactory to the Representative.
(p) On or before the Closing Date, the Company shall have executed the
Representative's Warrant Agreement and the Warrant Agreement together with the
applicable Warrant Certificates, each in form and substance satisfactory to the
Representative.
(q) On or before the Closing Date the Representative shall have
received executed copies of the employment agreements and insurance policies
referred to in Section 1 (a) (xxxi) hereof, each to the satisfaction of the
Representative.
(r) Each of the employee bonus pool plan and incentive stock option
plan of the Company shall be in effect as of the Closing Date, shall be in
accordance with terms of the Letter Agreement dated March 6, 1996 between the
Company and RAS and shall otherwise be on terms and conditions satisfactory to
the Representative.
(s) On or before the Closing Date, the Company shall have obtained
officers and directors liability insurance, the terms and conditions of which
shall be reasonably satisfactory to the Representative, and shall keep such
insurance in place for a period of five years from the Closing Date.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Representative may terminate this Agreement or,
if the Representative so elects, it may waive any such conditions which have not
been fulfilled or extend the time for their fulfillment.
31
<PAGE>
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriter or such controlling person may become subject
under the Act, the Exchange Act, or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in any Preliminary Prospectus, the Registration Statement or the Prospectus
(as from time to time amended and supplemented); (ii) in any post-effective
amendment or amendments or any time new registration statement and prospectus in
which is included securities of the Company issued or issuable upon exercise of
the Securities; or (iii) in any application or other document or written
communication (in this Section 7 collectively called "Application") executed by
the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any securities commission or agency,
Nasdaq, the BSE or any securities exchange; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), unless such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, or in
any Application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any Application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such Application, provided that such written
information or omissions only pertain
32
<PAGE>
to disclosures in the Preliminary Prospectus, the Registration Statement or
Prospectus directly relating to the transactions effected by the Underwriters in
connection with this offering. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes claim for indemnification pursuant to
this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7
33
<PAGE>
provide for indemnification in such case, or (ii) contribution under the Act may
be required on the part of any indemnified party, then each indemnifying party
shall contribute to the amount paid as a result of such losses, claims, damages,
expenses or liabilities (or actions in respect thereof) (A) in such proportion
as is appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand, from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriters are the indemnified party, the relative benefits received
by the Company, on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Units (before deducting expenses) bear to the total underwriting
discounts received by the Underwriters hereunder, in each case as set forth in
the table in the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d), Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall be
deemed to be representations, warranties and agreements at the
34
<PAGE>
Closing Date and any Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the respective
indemnity agreements contained in Section 7 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any Underwriter, the Company, any controlling person of any Underwriter or the
Company, and shall survive termination of this Agreement or the issuance and
deliver of the Securities to the Underwriters and the Representative, as the
case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m., New
York City time, on the next full business day following the date hereof, or at
such earlier time after the Registration Statement becomes effective as the
Representative, in it's discretion, shall release the Securities for the sale to
the public; provided, however, that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such shares for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Representative
shall have the right to terminate this Agreement, (i) if any domestic or
international event or act or occurrence has disrupted, or in the
Representative's opinion will in the immediate future disrupt the financial
markets; or (ii) any material adverse change in the financial markets shall have
occurred; or (iii) if trading on the New York Stock Exchange, the American Stock
Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required on the over-the-counter
market by the NASD or by order of the Commission or any other government
authority having jurisdiction; or (iv) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency shall
have been declared in the United States; or (v) if a banking moratorium has been
declared by a state or federal authority; or (vi) if a moratorium in foreign
exchange trading has been declared; or (vii) if the Company, shall have
sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representative's opinion, make it inadvisable to proceed with the delivery of
the Securities; or (vii) if there shall have been such a material adverse change
in the condition (financial or otherwise), business affairs or prospects of the
Company, whether or not arising in the ordinary course of business, which would
render, in the Representative's judgment, either of such parties unable to
perform satisfactorily its respective obligations as contemplated by this
Agreement or the Registration Statement, or such material adverse change in the
general market, political or economic conditions, in the United States or
elsewhere as in the Representative's judgment would make it inadvisable to
proceed with the offering, sale and/or delivery of the Securities.
35
<PAGE>
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a), the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
in an amount not to exceed $50,000 (less amounts previously paid pursuant to
Section 5(c) above). Notwithstanding any contrary provision contained in this
Agreement, if this Agreement shall not be carried out within the time specified
herein, or any extension thereof granted to the Representative, by reason of any
failure on the part of the Company to perform an undertaking or satisfy any
condition of this Agreement to be performed or satisfied by the Company
(including, without limitation, pursuant to Section 6 or Section 12) then, the
Company shall promptly reimburse and indemnify the Representative for all of its
actual out-of-pocket expenses, including the fees and disbursements of counsel
for the Underwriters (less amounts previously paid pursuant to Section 5 (c)
above). In addition, the Company shall remain liable for all Blue Sky counsel
fees and expenses and Blue Sky filing fees. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement (including, without limitation, pursuant to Sections 6, 10, 11
and 12 hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representative
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Units to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non- defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Units, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven
36
<PAGE>
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents.
12. Default by the Company. If the Company shall fail at the Closing Date
or any Option Closing Date, as applicable, to sell and deliver the number of
Units which it is obligated to sell hereunder on such date, then this Agreement
shall terminate (or, if such default shall occur with respect to any Option
Securities to be purchased on any Option Closing Date, the Underwriters may at
the Representative's option, by notice from the Representative to the Company,
terminate the Underwriters' obligation to purchase Option Securities from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5, Section 7 and Section 10 hereof. No
action taken pursuant to this Section shall relieve the Company from liability,
if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at 2 Broadway, New York, New York 10004, Attention: Mr. Robert A.
Schneider, Chairman of the Board, with a copy to Bachner, Tally, Polevoy &
Misher LLP, 380 Madison Avenue, New York, NY 10017, Attention: Fran M. Stoller,
Esq. Notices to the Company shall be directed to the Company at New York Health
Care, Inc. 1667 Flatbush Avenue, Brooklyn, New York, Attn: Jerry Braun, with a
copy to Scheichet & Davis, P.C., 505 Park Avenue, New York, NY 10022, Attention:
William J. Davis, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal representatives and assigns and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
37
<PAGE>
17. Entire Agreement; Amendments. This Agreement, the Representative's
Warrant Agreement and the Warrant Agreement constitute the entire agreement of
the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
NEW YORK HEALTH CARE, INC.
By:
-----------------------
Jerry Braun, President
Confirmed and accepted as of
the date first above written
RAS SECURITIES CORP.
For itself and as Representative of the several
Underwriters named in Schedule A hereto
By:
--------------------------------
Robert A. Schneider, Chairman
38
<PAGE>
SCHEDULE A
Name of Underwriters Number of Firm
Securities to
be purchased
TOTAL
------------------------------------------------------
=================
39
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NEW YORK HEALTH CARE, INC.
Under Section 805 of the
Business Corporation Law
Pursuant to the provisions of Section 805 of the Business Corporation Law,
the undersigned, being the President and Secretary of the corporation, hereby
certify:
FIRST: the name of the corporation is:
NEW YORK HEALTH CARE, INC.
SECOND: That the Certificate of Incorporation was filed by the Secretary of
State of New York on the twenty-fourth day of February, 1983.
THIRD: The amendments to the Certificate of Incorporation are as follows:
1. The 2,265,000 issued Common shares of $0.01 par value are changed into
2,831,250 issued Common shares of $0.01 par value on a basis of 1 for 1.25,
thereby increasing the authorized and issued Common shares by 566,250.
2. The 7,735,000 unissued Common shares of $0.01 par value are changed into
9,668,750 unissued Common shares of $0.01 par value on a basis of 1 for 1.25,
thereby increasing the authorized and unissued Common shares by 1,933.750.
Paragraph (3) (a) of the Certificate of Incorporation, relating to the
authorized number of shares of the corporation, as hereby amended shall read as
follows:
"(3) (a) The corporation shall be authorized to issue the following shares:
Class Number of Shares Par Value
----- ---------------- ---------
Common 12,500,000 $.01
Preferred 2,000,000 $.01"
1
<PAGE>
FOURTH: That the amendment of the Certificate of Incorporation is
authorized by the unanimous written consent of the holders of all the
outstanding shares of the corporation entitled to vote. Said authorization being
subsequent to the affirmative vote of the Board of Directors.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this 11th day of
October 1996.
/s/ JERRY BRAUN
-------------------------------
Jerry Braun, President
/s/ JACOB ROSENBERG
-------------------------------
Jacob Rosenberg, Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NEW YORK HEALTH CARE, INC.
Under Section 805 of the
Business Corporation Law
Scheichet & Davis. P.C.
505 Park Avenue
New York, New York 10022
3
NEW YORK HEALTH CARE, INC.
AND
RAS SECURITIES CORP.
-----------
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of __________, 1996
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of ___________ , 1996 between
NEW YORK HEALTH CARE, INC., a New York corporation (the "Company") and RAS
SECURITIES CORP., its successors, designees and assigns (hereinafter referred to
as the "Representative").
W I T N E S S E T H:
-------------------
WHEREAS, the Company proposes to issue to the Representative warrants
("Warrants") to purchase up to an aggregate of 125,000 shares of common stock,
$.01 par value, of the Company's ("Common Stock") and/or up to 250,000 warrants
("Underlying Warrants"), with two Underlying Warrants entitling the holder to
purchase one share of Common Stock. (One share of Common Stock and Underlying
Warrant are each hereinafter referred to as a "Warrant Security" and more than
one collectively referred to as the "Warrant Securities"); and
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof among the
underwriters named therein ("Underwriters") and the Company to act as the
representative of such underwriters in connection with the Company's proposed
public offering of up to 1,250,000 shares of Common Stock and 2,500,000
redeemable warrants ("Redeemable Warrants") at a public offering price of $4.00
per share of Common Stock and $.10 per Redeemable Warrant (the "Public
Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate thirty-seven dollars and fifty
cents ($37.50), the agreements
<PAGE>
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant The Representative is hereby granted the right to purchase, at any
time from __________________, 1997 until 5:00 P.M., New York time, on
___________, 2001, up to an aggregate of 125,000 shares of Common Stock (the
"Shares") and/or 250,000 Underlying Warrants at an initial exercise price
(subject to adjustment as provided in Section 8 hereof) of $4.80 per Share and
$.12 per Underlying Warrant, subject to the terms and conditions of this
Agreement. Two Underlying Warrants are exercisable to purchase one additional
share of Common Stock at an initial exercise price of $ 4.00 from __________,
1997 until 5:00 P.M. New York time on February ______________, 2001 at which
time the Underlying Warrants will expire. Except as set forth herein, the
Underlying Warrants issuable upon exercise of the Warrants are in all respects
identical to the Redeemable Warrants being purchased by the Underwriters for
resale to the public pursuant to the terms and provisions of the Underwriting
Agreement and the Redeemable Warrant Agreement dated ______________ 1996 between
the Company and Continental Stock Transfer & Trust Company ("Redeemable Warrant
Agreement"). Except as set forth herein, the shares issuable upon exercise of
the Warrants are in all respects identical to the shares of Common Stock being
purchased by the Underwriters for resale to the public pursuant to the terms and
provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
(i) in the form set forth in Exhibit A, with respect to Warrants to purchase
Shares and (ii) in the form set forth in Exhibit B with respect to Warrants to
purchase Underlying Warrants, each attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
- 2 -
<PAGE>
3. Exercise of Warrant.
-------------------
3.1 Method of Exercise. The Warrants initially are exercisable at the
initial exercise prices (subject to adjustment as provided in Section 8 hereof)
per Share and per Underlying Warrant as set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Warrant Securities purchased at the Company's principal offices (presently
located at 1667 Flatbush Avenue, Brooklyn, New York, 11210) the registered
holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased and/or a certificate or certificates for the Underlying Warrants so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holders thereof, in whole or part (but not as
to fractional shares of the Common Stock and/or Underlying Warrants). In the
case of the purchase of less than all Warrant Securities purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Warrant Securities purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the method of payment
set forth in Section 3.1 and in lieu of any cash payment required thereunder,
the Holder(s) of the Warrants shall have the right at any time and from time to
time to exercise the Warrants in full or in part by surrendering the applicable
Warrant Certificates in the manner specified in Section 3.1. The number of
shares of Common Stock to be issued pursuant to this Section 3.2 shall be equal
to the difference between (a) the number of shares of Common Stock in respect of
which the Warrants are exercised and (b) a fraction, the numerator of which
shall be the number of shares of Common Stock in respect of which the Warrants
are exercised multiplied by the Exercise Price (as hereinafter defined) and the
denominator of which shall be the Market Price. The number of Underlying
Warrants to be issued pursuant to this Section 3.2 shall be equal to the
difference between (a) the number of Underlying Warrants in respect of which the
Warrants are exercised and (b) a fraction, the numerator of which shall be the
number of Underlying Warrants in respect of which the Warrants are
- 3 -
<PAGE>
exercised multiplied by the Exercise Price (as hereinafter defined) and the
denominator of which shall be the Market Price.
3.3 Definition of Market Price. As used herein, the phrase "Market Price"
at any date shall be deemed to be (i) when referring to the Common Stock, the
last reported sale price, or, in case no such reported sale takes place on such
day, the average of the last reported sale prices for the last three (3) trading
days, in either case as officially reported by the principal securities exchange
on which the Common Stock is listed or admitted to trading or by the Nasdaq
National Market ("NNM"), or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted by NNM, the average
closing bid price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Common Stock is not quoted on
Nasdaq, or such similar organization as determined in good faith by resolution
of the Board of Directors of the Company, based on the best information
available to it or (ii) when referring to an Underlying Warrant, the last
reported sale price, or, in the case no such reported sale takes place on such
day, the average of the last reported sale prices for the last three (3) trading
days, in either case as officially reported by the principal securities exchange
on which the Underlying Warrants are listed or admitted to trading or by NNM,
or, if the Underlying Warrants are not listed or admitted to trading on any
national securities exchange or quoted by NNM, the average closing bid price as
furnished by the NASD through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Underlying Warrant is not quoted on
Nasdaq or such similar organization, the Market Price of an Underlying Warrant
shall equal the difference between the Market Price of the Common Stock and the
Exercise Price (as hereinafter defined) of the Underlying Warrant.
Notwithstanding the foregoing, for purposes of Section 8, the Market Price of a
share of Common Stock or an Underlying Warrant shall be determined by reference
to the relevant information set forth above during the thirty (30) trading days
immediately preceding the date of the event requiring the determination of the
Market Price (except that, in the event of a public offering of shares of Common
Stock, the Market Price of a share of Common Stock or an Underlying Warrant
shall be determined by reference to the trading day immediately preceding the
effective date of the public offering and not such thirty (30) trading day
period).
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4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and Underlying Warrants
and/or other securities, properties or rights underlying such Warrants and, upon
the exercise of the Underlying Warrants, the issuance of certificates for shares
of Common Stock and/or other securities, properties or rights underlying such
Underlying Warrants, shall be made forthwith (and in any event within five (5)
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 5
and 7 hereof) be issued in the name of, or in such names as may be directed by,
the Holder thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares,
Underlying Warrants and the shares of Common Stock underlying such Underlying
Warrants (and/or other securities, property or rights issuable upon the exercise
of the Warrants or the Underlying Warrants) shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or President or Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or Assistant Secretary of
the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof. Neither the Warrants or the Warrant Securities may be sold,
transferred, assigned, hypothecated or otherwise disposed of, in whole or in
part, for a period of one (1) year from the date hereof, except that they may be
transferred to successors
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of the Representative, and may be assigned in whole or in part to any person who
is an officer of the Representative, any participant in the underwriting
syndicate or selling group relating to the Public Offering or any officer of
such syndicate or selling group member. Any such assignment shall be effected by
the Holder (i) executing the form of assignment at the end hereof and (ii)
surrendering the Warrant certificate for cancellation at the office or agency of
the Company referred to in Section 3 hereof, accompanied by a certificate
(signed by an officer of the Holder if the Holder is a corporation), stating
that each transferee is a permitted transferee under this Section 5 hereof;
whereupon the Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Warrant certificate or certificates of like tenor
and representing in the aggregate rights to purchase the same number of Warrant
Securities as are purchasable hereunder.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in
Section 8 hereof, the initial exercise price of each Warrant to purchase Common
Stock shall be $4.80 per share of Common Stock and the initial exercise price of
each Warrant to purchase Underlying Warrants shall be $.12 per Underlying
Warrant. The adjusted exercise price shall be the price which shall result from
time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Section 8 hereof and/or in accordance with a
reduction by the Company, in its sole discretion, of the exercise price of each
Warrant to purchase Common Stock.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
applicable initial exercise price or with respect to Warrants to purchase Common
Stock the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Current Registration Under the Securities Act of 1933. The Warrants,
the Shares, the Underlying Warrants issuable upon exercise of the applicable
Warrants and the shares of Common Stock issuable upon exercise of such
Underlying Warrants have been registered under the Securities Act of 1933, as
amended (the "Act"), pursuant to the Company's Registration Statement
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on Form SB-2 (Registration No.333- 08155) (the "Registration Statement"). The
Company covenants andagrees to use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five (5) years from
its effective date.
7.2 Contingent Registration Rights. In the event that, for any reason
whatsoever, the Company shall fail to maintain the effectiveness of the
registration Statement for a period of five (5) years from its effective date
and, in any event, from and after the fifth (5th) anniversary of the effective
date of the Registration Statement, the Representative shall have commencing the
date of any such occasion, the contingent registration rights ("Registration
Rights") set forth in Sections 7.3 and 7.4 hereof.
7.3 Piggyback Registration. (a) If, at any time commencing after the
effective date of the Registration Rights and expiring on the seventh (7th)
anniversary of the effective date of the Registration Statement, the Company
proposes to register any of its securities under the Act, either for its own
account or the account of any other security holder or holders of the Company
possessing registration rights ("Other Stockholders") (other than pursuant to
Form S-4, Form S-8 or comparable registration statement), it shall give written
notice, at least thirty (30) days prior to the filing of each such registration
statement, to the Representative and to all other Holders of Warrants, Shares,
Underlying Warrants and/or shares of Common Stock issuable upon exercise of the
Underlying Warrants (collectively, "Registrable Securities") of its intention to
do so. If the Representative or other Holders of Registrable Securities notify
the Company within twenty-one (21) days after the receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford the Representative and such other Holders of
such securities the opportunity to have any such securities registered under
such registration statement.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Representative and such other Holders as part of the written notice
given pursuant to Section 7.3(a) hereof. The right of the Representative or any
such other Holder to registration pursuant to this Section 7.3 shall be
conditioned upon their participation in such underwriting and the inclusion of
their Registrable Securities in the underwriting to the extent hereinafter
provided. The Representative and all other
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Holders proposing to distribute their securities through such underwriting shall
(together with the Company and any officer, directors or Other Stockholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company. Notwithstanding any other
provision of this Section 7.3, if the representative of the underwriter or
underwriters advises the Company in writing that marketing factors require a
limitation or elimination of the number of shares of Common Stock or other
securities to be underwritten, the representative may limit the number of shares
of Common Stock or other securities to be included in the registration and
underwriting. The Company shall so advise the Representative and all other
Holders of Registrable Securities requesting registration, and the number of
shares of Common Stock or other securities that are entitled to be included in
the registration and underwriting shall be allocated among the Representative
and other Holders requesting registration, in each case, in proportion, as
nearly as practicable, to the respective amounts of securities which they had
requested to be included in such registration at the time of filing the
registration statement.
(c) Notwithstanding the provisions of this Section 7.3, the Company
shall have the right at any time after it shall have given written notice
pursuant to Section 7.3(a) hereof (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
7.4 Demand Registration. (a) At any time commencing after the effective
date of the Registration Rights and ending on the fifth (5th) anniversary of the
effective date of the Registration Statement, the Representative and Holders of
Registrable Securities representing a "Majority" (as hereinafter defined) of
such securities (assuming the exercise of all of the Warrants and Underlying
Warrants) (the "Initiating Holders") shall have the right (which right is in
addition to the registration rights under Section 7.3 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Commission, on one occasion, a registration statement and such other documents,
including a prospectus, as may be necessary in the opinion of both counsel for
the Company and counsel for the Holders, in order to comply with the provisions
of the Act, so as to permit a public offering and sale of their respective
Registrable Securities for up
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to two hundred and seventy (270) days by such Holders and any other Holders of
Registrable Securities, as well as anyother security holders possessing similar
registration rights, who notify the Company within twenty-one (21) days after
receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.4 by any Holder or Holders to all
other registered Holders of Registrable Securities, as well as any other
security holders possessing similar registration rights, within ten (10) days
after the date of the receipt of any such registration request.
(c) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to Section 7.4(a)
hereof. The right of any Holder to registration pursuant to this Section 7.4
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent and subject to the limitations provided herein. A Holder may elect to
include in such underwriting all or a part of the Registrable Securities it
holds.
(d) The Company shall (together with all Holders, officers, directors and
Other Stockholders proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
representative of the underwriter of underwriters selected for such underwriting
by the Initiating Holders, which underwriter(s) shall be reasonably acceptable
to the Representative. Notwithstanding any other provision of this Section 7.4,
if the representative of the underwriter or underwriters advises the Initiating
Holders in writing that marketing factors require a limitation or elimination of
the number of shares of Common Stock or other securities to be underwritten, the
representative may limit the number of shares of Common Stock or other
securities to be included in the registration and underwriting. The Company
shall so advise the Representative and all Holders of Registrable Securities
requesting registration, and the number of shares of Common Stock or other
securities that are entitled to be included in the registration and underwriting
shall be allocated among the Representative and other Holders requesting
registration, in each case, in proportion, as nearly as practicable, to the
respective amounts of securities which they had requested to be included in such
registration at the time of filing the registration statement. If the Company or
any Holder of Registrable Securities who has
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requested inclusion in such registration as provided above disapproves of the
terms of any such underwriting,such person may elect to withdraw its securities
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. Any securities so excluded shall be withdrawn from such registration.
No securities excluded from such registration by reason of such underwriters'
marketing limitations shall be included in such registration. To facilitate the
allocation of shares in accordance with this Section 7.4(d), the Company or
underwriter or underwriters selected as provided above may round the number of
securities of any holder which may be included in such registration to the
nearest 100 shares.
(e) In the event that the Initiating Holders are unable to sell all of the
Registrable Securities for which they have requested registration due to the
provisions of Section 7.4(d) hereof and if, at that time, the Initiating Holders
are not permitted to sell Registrable Securities under Rule 144(k), the
Initiating Holders shall be entitled to require the Company to afford the
Initiating Holders an opportunity to effect one additional demand registration
under this Section 7.4.
(f) In addition to the registration rights under Section 7.3 and subsection
(a) of Section 7.4 hereof, at any time commencing on the date hereof and
expiring five (5) years thereafter any Holder of Registrable Securities shall
have the right, exercisable by written request to the Company, to have the
Company prepare and file, on one occasion, with the Commission a registration
statement so as to permit a public offering and sale for 270 days by any such
Holder of its Registrable Securities provided, however, that the provisions of
Section 7.5(b) hereof, shall not apply to any such registration request and
registration and all costs incident thereto shall be at the expense of the
Holder or Holder's making such request.
(g) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Registrable
Securities of the Initiating Holders or the Holder(s) referred to in Section
7.5(f) above (the "Paying Holders"), within the time period specified in Section
7.5(a) below, the Company shall upon the written notice of election of the
Initiating Holders or the Paying Holders, as the case may be, repurchase (i) any
and all Shares and/or Underlying Warrants at the higher of the Market Price per
share of Common Stock or per Underlying Warrant, as the case may be, on (x) the
date of the notice sent to the Company under Section 7.4(a) or (f), as the case
may be, or (y) the expiration of the period specified in Section
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7.5(a) and (ii) any and all Warrants at such Market Price less the Exercise
Price of such Warrant. Such repurchase shallbe in immediately available funds
and shall close within five (5) business days after the expiration of the period
specified in Section 7.5(a).
7.5 Covenants of the Company With Respect to Registration. In connection
with any registration under Sections 7.3 and 7.4 hereof, the Company covenants
and agrees as follows:
(a) The Company shall use its best efforts to file a registration statement
within thirty (30) days of receipt of any demand therefor, shall use its best
efforts to have any registration statements declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Registrable
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.3 and 7.4 hereof including, without limitation, the Company's legal
and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section 7.5(a), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), extend the exercise period of the Warrants by such number of days as
shall equal the delay caused by the Company's failure.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Registrable Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s); provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Registrable Securities
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the
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provisions pursuant to which the Company has agreed to indemnify each of the
Underwriters contained in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Registrable Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
(f) For a period of one hundred eighty (180) days after the effectiveness
of any registration statement filed pursuant to Section 7.4 hereof, the Company
shall not permit any other registration statement (other than (1) a registration
statement relating to the securities for which the Company has granted demand
registration rights, as described in the Prospectus included in the Registration
Statement, (2) a registration statement relating to the shares of Common Stock
issuable upon exercise of the Redeemable Warrants issued to the public pursuant
to the Registration Statement, (3) a registration statement relating to the
securities for which the Company has granted piggyback registration rights, as
described in the Prospectus included in the Registration Statement and (4) a
registration statement filed on Forms S-4 or S-8) to be or remain effective
during the effectiveness of a registration statement filed pursuant to Section
7.4 hereof, without the prior written consent of the Holders of the Registrable
Securities representing a Majority of such securities.
(g) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such
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registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(h) The Company shall as soon as practicable after the effective date of
any registration statement filed pursuant to Sections 7.3 and 7.4 hereof, and in
any event within 15 months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings statement
(which need not be audited) complying with Section 11(a) of the act and covering
a period of at least 12 consecutive months beginning after the effective date of
the registration statement.
(i) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all written correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(j) With respect to any registration under Section 7.4 hereof, the Company
shall enter into an underwriting agreement with the managing underwriter
selected for such underwriting by the Initiating Holders or the Paying Holders,
as the case may be, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company, each
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Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities and may, at their option,
require that any or all the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made to and for
the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters, except as they may relate to such Holders and their intended
methods of distribution.
(k) For purposes of this Agreement, the term "Majority" in reference to the
Holders of Registrable Securities, shall mean in excess of fifty percent (50%)
of the then outstanding Warrants, Shares, Underlying Warrants and/or shares of
Common Stock issued upon exercise of the Underlying Warrants that (i) are not
held by the Company, an affiliate, officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith and (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
(l) Nothing contained in this Agreement shall be construed as requiring the
Holder(s) to exercise their Warrants or Underlying Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(m) In addition to the Registrable Securities, upon the written request
therefor, by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
7.6 Restrictive Legends. In the event that the Company fails to maintain
the effectiveness of the Registration Statement, such that the exercise, in part
or in whole, of the Warrants and/or the Underlying Warrants are not, at the time
of such exercise, registered under the Act, any certificates representing the
Shares underlying the Warrants, the Underlying Warrants underlying the Warrants
and/or the shares of Common Stock underlying the Underlying Warrants,
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and any of the other securities issuable upon exercise of the Warrants shall
bear the following restrictive legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), and may not be offered or
sold except pursuant to (i) an effective registration statement under the Act,
(ii) to the extent applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii) an opinion
ofcounsel, if such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act is available.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Computation of Adjusted Exercise Price. Except as hereinafter provided,
in the event the Company shall at any time after the date hereof issue or sell
any shares of Common Stock (other than the issuances or sales referred to in
Section 8.7 hereof), including shares held in the Company's treasury and shares
of Common Stock issued upon the exercise of any options, rights or warrants to
subscribe for shares of Common Stock and shares of Common Stock issued upon the
direct or indirect conversion or exchange of securities for shares of Common
Stock, for a consideration per share less than the Market Price in effect
immediately prior to the issuance or sale of such shares, or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (i) an
amount equal to the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to the issuance or sale of such shares, multiplied
by the Exercise Price in effect immediately prior to such issuance or sale, and
(b) the aggregate of the amount of all consideration, if any, received by the
Company upon such issuance or sale, by (ii) the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided, however,
that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock, as provided by Section 8.3 hereof.
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For the purposes of this Section 8 the term Exercise Price shall mean
the Exercise Price per share of Common Stock set forth in Section 6 hereof, as
adjusted from time to time pursuant to the provisions of this Section 8.
For the purposes of any computation to be made in accordance with this
Section 8.1, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if either of such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or other performing similar
services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (other than as a dividend or other
distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company and shall include any amounts payable to security holders or any
affiliates thereof, including without limitation, pursuant to any employment
agreement, royalty, consulting agreement, covenant not to compete, earnout or
contingent payment right or similar arrangement, agreement or understanding,
whether oral or written; all such amounts being valued for the purposes hereof
at the aggregate amount payable thereunder, whether such payments are absolute
or contingent, and irrespective of the period or uncertainty of payment, the
rate of interest, if any, or the contingent nature thereof; provided, however,
that if any Holder(s) does not agree with such evaluation, a mutually acceptable
independent appraiser shall make such evaluation, the cost of which shall be
borne by the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
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(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subsection (ii) of this Section
8.1.
(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
8.2 Options, Rights, Warrants and Convertible and Exchangeable Securities.
In case the Company shall at any time after the date hereof issue options,
rights or warrants to subscribe for shares of Common Stock, or issue any
securities convertible into or exchangeable for shares of Common Stock, for a
consideration per share less than the Market Price in effect immediately prior
to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration, the Exercise Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 8.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall be deemed
to be issued and outstanding at the time such options, rights or warrants were
issued, and for a consideration equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of issuance, plus
the consideration (determined in the same manner as consideration received on
the issue or sale of shares in accordance with the terms of the Warrants), if
any, received by the Company for such options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal
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to the consideration (determined in the same manner as consideration received on
the issue or sale of shares of Common Stock in accordance with the terms of the
Warrants) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or exchange
thereof.
(c) If any change shall occur in the price per share provided for in any of
the options, rights or warrants referred to in subsection (a) of this Section
8.2, or in the price per share at which the securities referred to in subsection
(b) of this Section 8.2 are convertible or exchangeable, such options, rights or
warrants or conversion or exchange rights, as the case may be, shall be deemed
to have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the exercise
or conversion or exchange thereof, and the Company shall be deemed to have
issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
8.3 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.4 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.5 Definition of Common Stock. For the purpose of this Agreement, the term
"Common Stock" shall mean (i) the class of stock designated as Common Stock in
the Certificate of Incorporation of the Company as amended as of the date
hereof, or (ii) any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. The
Company covenants that so long as any of the Warrants are outstanding, the
Company shall not
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without the prior written consent of the Representative issue any securities
whatsoever other than Common Stock. In the event that the Company shall, upon
the consent of the Representative, after the date hereof issue securities with
greater or superior voting rights than the shares of Common Stock outstanding as
of the date hereof, the Holder, at its option, may receive upon exercise of any
Warrant either shares of Common Stock or a like number of such securities with
greater or superior voting rights.
8.6 Merger or Consolidation. In case of any consolidation of the Company
with, or merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
8.7 No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants, Underlying Warrants,
Redeemable Warrants or the shares of Common Stock issuable upon the exercise of
(i) the Warrants, (ii) the Underlying Warrants, or (iii) the Redeemable
Warrants; or
(b) If the amount of said adjustment shall be less than two cents (2) per
Warrant Security, provided, however, that in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to at least two cents
($.02) per Warrant Security.
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8.8 Dividends and Other Distributions. In the event that the Company shall
at any time prior to the exercise of all Warrants declare a dividend (other than
a dividend consisting solely of shares of Common Stock) or otherwise distribute
to its stockholders any assets, property, rights, evidences of indebtedness,
securities (other than shares of Common Stock), whether issued by the Company or
by another, or any other thing of value, the Holders of the unexercised Warrants
shall
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designed by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue fractional shares of Common Stock or Underlying Warrants upon the
exercise of Warrants. Warrants may only be exercised in such multiples as are
required to permit the issuance by the Company of one or more whole shares of
Common Stock and/or Underlying Warrants. If one or
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more Warrants shall be presented for exercise in full at the same time by the
same Holder, the number of whole shares of Common Stock or Underlying Warrants
which shall be issuable upon such exercise thereof shall be computed on the
basis of the aggregate number of shares of Common Stock and/or Underlying
Warrants purchasable on exercise of the Warrants so presented. If any fraction
of a share of Common Stock or Underlying Warrants would, except for the
provisions provided herein, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current market value of a share of Common
Stock or Underlying Warrants, determined as follows:
(1) If the Common Stock or Underlying Warrant, as the case may
be, is listed, or admitted to unlisted trading privileges on the New York Stock
Exchange ("NYSE") or the American Stock Exchange ("AMEX"), or is traded on the
NNM, the current market value of a share of Common Stock or Underlying Warrant,
as the case may be, shall be the closing sale price of the Common Stock or the
Underlying Warrant, as the case may be, at the end of the regular trading
session on the last business day prior to the date of exercise of the Warrants
on whichever of such exchanges or NNM had the highest average daily trading
volume for the Common Stock or the Underlying Warrant, as the case may be, on
such day; or
(2) If the Common Stock or the Underlying Warrant, as the case
may be, is not listed or admitted to unlisted trading privileges, on either the
NYSE or the AMEX and is not traded on NNM, but is quoted or reported on Nasdaq,
the current market value of a share of Common Stock or the Underlying Warrant,
as the case may be, shall be the average of the representative closing bid and
asked prices (or the last sale price, if then reported by Nasdaq) of the Common
Stock or the Underlying Warrant, as the case may be, at the end of the regular
trading session on the last business day prior to the date of exercise of the
Warrants as quoted or reported on Nasdaq, as the case may be; or
(3) If the Common Stock or the Underlying Warrant, as the case
may be, is not listed, or admitted to unlisted trading privileges, on either of
the NYSE or the AMEX, and is not traded on NNM or quoted or reported on Nasdaq,
but is listed or admitted to unlisted trading privileges on the BSE or another
national securities exchange (other than the NYSE or the AMEX), the current
market value of a share of Common Stock or Underlying Warrant, as the case may
be, shall be the
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<PAGE>
closing sale price of the Common Stock or the Underlying Warrant, as the case
may be, at the end of the regular trading session on the last business day prior
to the date of exercise of the Warrants on whichever of such exchanges has the
highest average daily trading volume for the Common Stock or the Underlying
Warrant, as the case may be, on such day; or
(4) If the Common Stock or the Underlying Warrant, as the case may be,
is not listed or admitted to unlisted trading privileges on any national
securities exchange, or listed for trading on NNM or quoted or reported on
Nasdaq, but is traded in the over-the-counter market, the current market value
of a share of Common Stock or the Underlying Warrant, as the case may be, shall
be the average of the last reported bid and asked prices of the Common Stock or
the Underlying Warrant, as the case may be, reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of exercise of the
Warrants; or
(5) If the Common Stock or the Underlying Warrant, as the case may be,
is not listed, admitted to unlisted trading privileges on any national
securities exchange, or listed for trading on NNM or quoted or reported on
Nasdaq, and bid and asked prices of the Common Stock or the Underlying Warrant,
as the case may be, are not reported by the National Quotation Bureau, Inc., the
current market value of a share of Common Stock or the Underlying Warrant, as
the case may be, shall be an amount, not less than the book value thereof as of
the end of the most recently completed fiscal quarter of the Company ending
prior to the date of exercise, determined in accordance with generally
acceptable accounting principles, consistently applied.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants and the Underlying
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. The Company covenants
and agrees that, upon exercise of the Warrants and payment of the Exercise Price
therefor, all shares of Common Stock and other Securities issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. The Company further
covenants and agrees that upon exercise of the Underlying Warrants underlying
the Warrants and payment of the respective Underlying Warrant exercise price
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<PAGE>
therefor, all shares of Common Stock and other securities issuable upon such
exercises shall be duly and validly issued, fully paid, non- assessable and not
subject to the preemptive rights of any stockholder. As long as the Warrants
shall be outstanding, the Company shall use its best efforts to cause all shares
of Common Stock issuable upon the exercise of the Warrants and Underlying
Warrants and all Underlying Warrants underlying the Warrants to be listed
(subject to official notice of issuance) on all securities exchanges on which
the Common Stock or the Underlying Warrants issued to the public in connection
herewith may then be listed and/or quoted on NNM.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable other than in cash, or a cash dividend or distribution
payable other than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding
up of the Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business as an
entirety shall be proposed; then, in any one or more of said events, the Company
shall give written notice of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer book, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any
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<PAGE>
such dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing Underlying Warrants (and the form
of election to purchase shares of Common Stock upon the exercise of Underlying
Warrants and the form of assignment printed on the reverse thereof) shall be
substantially as set forth in Exhibit "A" to the Redeemable Warrant Agreement
provided, however, that the Underlying Warrants will be subject to redemption
only after the Warrants have been exercised and the Underlying Warrants are
outstanding. Two Underlying Warrants shall entitle the Holder to purchase one
fully paid and non-assessable share of Common Stock at an initial purchase price
of $4.00 from ___________, 1997 until 5:00 P.M. New York time on ___________,
2001 at which time the Underlying Warrants shall expire. The exercise price of
the Underlying Warrants and the number of shares of Common Stock issuable upon
the exercise of the Underlying Warrants are subject to adjustment, whether or
not the Warrants have been exercised and the Underlying Warrants have been
issued, in the manner and upon the occurrence of the events set forth in Section
8 of the Redeemable Warrant Agreement, which is hereby incorporated herein by
reference and made a part hereof as if set forth in its entirety herein. Subject
to the provisions of this Agreement and upon issuance of the Underlying
Warrants, each registered holder of such Underlying Warrants shall have the
right to purchase from the Company (and the Company shall issue to such
registered holders) up to the number of fully paid and non-assessable shares of
Common Stock (subject to adjustment as provided herein and in the Redeemable
Warrant Agreement), free and clear of all preemptive rights of stockholders,
provided that such registered holder complies with the terms governing exercise
of the Underlying Warrants set forth in the Redeemable Warrant Agreement, and
pays the applicable exercise price, determined in accordance with the terms of
the Redeemable Warrant Agreement. Upon exercise of the Underlying Warrants, the
Company shall forthwith issue to the registered holder of any such Underlying
Warrants in his name or in such name as may be directed by him, certificates for
the number of shares of Common Stock so purchased. Except as otherwise provided
herein and in Section 6.1 hereof, the Underlying Warrants shall be governed in
all respects by the terms of the
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<PAGE>
Redeemable Warrant Agreement, except that any notice of redemption that the
Company may issue with respect to the Redeemable Warrants shall be applicable to
the Underlying Warrants subject to the first sentence of this Section 13. The
Underlying Warrants shall be transferable in the manner provided in the
Redeemable Warrant Agreement, and upon any such transfer, a new Underlying
Warrant to, and agrees with, the Holder(s) that without the prior written
consent of the Holder(s), which will not be unreasonably withheld, the
Redeemable Warrant Agreement will not be modified, amended, canceled, altered or
superseded, and that the company will send to each Holder, irrespective of
whether or not the Warrants have been exercised, any and all notices required by
the Redeemable Warrant Agreement to be sent to holders of Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made and sent when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof or
to such other address as the Company may designate by notice to the Holders.
15. Supplements and Amendments. The Company and the Representative may from
time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
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<PAGE>
16. Successors. All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close of business on
________________, 2003. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on _____________, 2005.
18. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Representative and any other registered Holders hereby
agree that any action, proceeding or claim against it arising out of, or
relating in any way to, this Agreement shall be brought and enforced in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company, the Representative and any
other registered Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Representative and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
14 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, the Representative and any other registered Holders agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its'/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
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<PAGE>
19. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement and the Redeemable Warrant Agreement to the extent
portions thereof are referred to herein) contains the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Warrant Certificates or
Warrants Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Representative and any other registered Holders of Warrant Certificates or
Warrant Securities.
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<PAGE>
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
NEW YORK HEALTH CARE, INC.
By:_______________________________
Name: Jerry Braun
Title: President
Attest:
- -------------------------
Name:
Title:
RAS SECURITIES CORP.
By:_______________________________
Name:
Title:
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<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _________, 2001
No. W- Warrants to Purchase
_______ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that ___________, or registered
assigns, is the registered holder of ^____Warrants to purchase initially, at any
time from __________, 1997 until 5:00 p.m. New York time on ___________, 2001
("Expiration Date"), up to ______ fully-paid and non-assessable shares of common
stock, $.01 par value ("Common Stock") of New York Health Care, Inc., a New York
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $4.80 per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Representative's Warrant Agreement dated
as of ______________, 1996 between the Company and RAS SECURITIES CORP. (the
"Representative's Warrant Agreement"). Payment of the Exercise Price shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
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<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Representative's Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate of
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of , 1996
NEW YORK HEALTH CARE, INC.
By:________________________________
Name: Jerry Braun
Title: President
Attest:
- -------------------------
Name: Jacob Rosenberg
Title: Secretary
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<PAGE>
EXHIBIT B
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, __________, 2001
No. W- Warrants to Purchase
Underlying Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ___________, or registered assigns,
is the registered holder of _________ Warrants to purchase initially, at any
time from ___________, 1997 until 5:00 p.m. New York time on _________, 2001
("Expiration Date"), up to _______ warrants ^(two such Underlying Warrants
entitling the owner to purchase one fully-paid and non-assessable share of
common stock, $.01 par value ("Common Stock") of New York Health Care, Inc., a
New York corporation (the "Company")), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $.12 per Underlying
Warrant upon surrender of this Warrant Certificate and payment of the Exercise
Price at an office or agency of the Company, but subject to the conditions set
forth herein and in the Representative's Warrant Agreement dated as of
________________, 1996 between the Company and RAS SECURITIES CORP. (the
"Representative's Warrant Agreement"). Payment of the Exercise Price shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
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<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Representative's Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate of
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ______________, 1996
NEW YORK HEALTH CARE, INC.
By:____________________________
Name: Jerry Braun
Title: President
Attest:
- -------------------------------
Name:
Title:
RAS SECURITIES CORP.
By:____________________________
Name:
Title:
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[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
______________ Shares
______________ Underlying Warrants
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of New York Health
Care, Inc., in the amount of $_________, all in accordance with the terms of
Section 3.1 of the Representative's Warrant Agreement dated as of
___________________, 1996 between New York Health Care, Inc., and RAS Securities
Corp. The undersigned request that a certificate for such Securities be
registered in the name of _______________________________________ whose address
is ______________________________________________ and that such Certificate be
delivered to ^__________________whose address is
- -----------------------------------------------.
Signature _________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
--------------------------------
(Insert Social Security or Other Identifying Number of Holder)
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[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________________ hereby sells, assigns and
____________ unto
(Please print name and address of transferee)
_________ Warrant Certificate, together with all right, title and interest
therein, and does hereby reasonably constitute and appoint ________________ as
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Date: ___________________
Signature:__________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
-----------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
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NEW YORK HEALTH CARE, INC.
AND
CONTINENTAL STOCK TRANSFER
AND TRUST COMPANY
REDEEMABLE WARRANT AGREEMENT
Dated as of _________________, 1996
<PAGE>
AGREEMENT, dated as of this ________ day of ___________ , 1996, between
NEW YORK HEALTH CARE, INC., a New York corporation (the "Company"), and
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY, as Warrant Agent (the "Warrant
Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public pursuant to the
Prospectus (the "Prospectus") contained in the Company's Registration Statement
on Form SB-2 (Registration No. 333-08155) of up to 1,250,000 shares of the
Company's common stock, $.01 par value per share (the "Common Stock"), (ii) the
offering to the public pursuant to the Prospectus of up to 2,500,000 redeemable
warrants (the "Warrants"), with two Warrants entitling the holder thereof to
purchase one additional share of Common Stock, (iii) the over-allotment option
to purchase up to an additional 187,500 shares of Common Stock and/or 375,000
Warrants, (the "Over-allotment Option"), and (iv) the sale to RAS Securities
Corp. ("RAS"), its successors and assigns (the "Representative"), of warrants
(the "Representative's Warrants") to purchase up to 125,000 shares of Common
Stock and/or 250,000 Warrants, the Company will issue up to 3,125,500 Warrants
(subject to increase as provided in the Representative's Warrant Agreement and
herein); and
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer and exchange of certificates representing the
Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, RAS, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
<PAGE>
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class
whether now or hereafter authorized, which has the right to participate in
the voting and in the distribution of earnings and assets of the Company
without limit as to amount or percentage.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business in
New York, New York, shall be administered, which office is located on the
date hereof at 2 Broadway, New York, New York 10004.
(c) "Exercise Date" shall mean, subject to the provisions of Section
5(b) hereof, as to any Warrant, the date on which the Warrant Agent shall
have received both (i) the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder
hereof or his attorney duly authorized in writing, and (ii) payment in cash
or by check made payable to the Warrant Agent for the account of the
Company, of the amount in lawful money of the United States of America
equal to the applicable Purchase Price in good funds.
(d) "Initial Warrant Exercise Date" shall mean ________________,1997.
(e) "Initial Warrant Redemption Date" shall mean ________________,
1998.
(f) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8, $4.00 and further subject to the
Company's right, in its sole discretion, to decrease the Purchase Price.
(g) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(h) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to
elect a majority of the Board of Directors of such corporation (regardless
of whether or not at the time stock of any other class or classes of such
corporation shall have or may have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
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<PAGE>
(i) "Transfer Agent" shall mean Continental Stock Transfer and Trust
Company, or its authorized successor.
(j) "Underwriting Agreement" shall mean the underwriting agreement
dated _________ , 1996 between the Company and the Representative relating
to the purchase for resale to the public of 1,250,000, shares of Common
Stock and 2,500,000 Warrants plus an over-allotment option of 187,500
shares of Common Stock and/or 375,500 Warrants.
(k) "Representative's Warrant Agreement" shall mean the agreement
dated as of _________ , 1996 between the Company and the Representative
relating to and governing the terms and provisions of the Representative's
Warrants.
(l) "Warrant Certificate" shall mean a certificate representing each
of the Warrants substantially in the form annexed hereto as Exhibit A.
(m) "Warrant Expiration Date" shall mean, unless the Warrants are
redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New
York time), on __________ , 2001, or, if such date shall in the State of
New York be a holiday or a day on which banks are authorized to close, then
5:00 p.m. (New York time) on the next following day which in the State of
New York is not a holiday or a day on which banks are authorized to close,
subject to the Company's right, prior to the Warrant Expiration Date, in
its sole discretion, to extend such Warrant Expiration Date on five
business days prior written notice to the Registered Holders.
(n) "Warrant Agent" shall mean Continental Stock Transfer and Trust
Company, or its authorized successor.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Two Warrants shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrants to purchase at the Purchase Price
therefor from the Initial Warrant Exercise Date until the Warrant Expiration
Date one share of Common Stock upon the exercise thereof, subject to
modification and adjustment as provided in Section 8. The Warrants shall be
exercisable only in pairs.
(b) Upon execution of this Agreement, Warrant Certificates representing
2,500,000 Warrants to purchase up to an aggregate of 1,250,000 shares of Common
Stock (subject to
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<PAGE>
modification and adjustment as provided in Section 8) shall be executed by the
Company and delivered to the Warrant Agent.
(c) Upon exercise of the Over-allotment Option, in whole or in part,
Warrant Certificates representing up to 375,000 Warrants to purchase up to an
aggregate of 187,500 shares of Common Stock (subject to modification and
adjustment as provided in Section 8) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Representative's Warrants as provided therein,
Warrant Certificates representing all or a portion of 250,000 Warrants to
purchase up to an aggregate of 125,000 shares of Common Stock (subject to
modification and adjustment as provided in Section 8 hereof and in the
Representative's Warrant Agreement), shall be countersigned, issued and
delivered by the Warrant Agent upon written order of the Company signed by its
Chairman of the Board, President or a Vice President and by its Treasurer or an
Assistant Treasurer or its Secretary or an Assistant Secretary.
(e) From time to time, up to the Warrant Expiration Date, as the case may
be, the Warrant Agent shall countersign and deliver Warrant Certificates in
required denominations of one or whole number multiples thereof to the person
entitled thereto in connection with any transfer or exchange permitted under
this Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7, (iv) Warrant Certificates issued pursuant to the
Representative's Warrant Agreement (including Warrants in excess of the
Representative's Warrants to purchase 125,000 shares of Common Stock and/or
250,000 Warrants issued as a result of the anti-dilution provisions contained in
the Representative's Warrant Agreement), and (v) at the option of the Company,
Warrant Certificates in such form as may be approved by its Board of Directors,
to reflect any adjustment or change in the Purchase Price, the number of shares
of Common Stock purchasable upon exercise of the Warrants or the redemption
price therefor made pursuant to Section 8 hereof.
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<PAGE>
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which Warrants may be listed, or to conform to usage.
The Warrant Certificates shall be dated the date of issuance thereof (whether
upon initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen
or destroyed Warrant Certificates).
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President or any Vice President and by its Treasurer or
an Assistant Treasurer or its Secretary or an Assistant Secretary, by manual
signatures or by facsimile signatures printed thereon, and shall have imprinted
thereon a facsimile of the Company's seal. Warrant Certificates shall be
manually countersigned. In case any officer of the Company who shall have signed
any of the Warrant Certificates shall cease to be such officer of the Company
before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent,
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company.
SECTION 4. Exercise.
(a) Warrants in denominations of two or whole number multiples thereof may
be exercised at any time commencing with the Initial Warrant Exercise Date, and
ending at the close of business on the Warrant Expiration Date, upon the terms
and subject to the conditions set forth herein (including the provisions set
forth in Sections 5 and 9 hereof) and in the applicable Warrant Certificate.
Warrants shall be deemed to have been exercised immediately prior to the close
of business on the Exercise Date, provided that the Warrant Certificate
representing such Warrants,
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<PAGE>
with the exercise form thereon duly executed by the Registered Holder thereof or
his attorney duly authorized in writing, together with payment in cash or by
check made payable to the Warrant Agent for the account of the Company, of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price has been received in good funds by the Warrant Agent. The person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder of such securities as of the close of
business on the Exercise Date. As soon as practicable on or after the Exercise
Date and in any event within five business days after such date, the Warrant
Agent on behalf of the Company shall cause to be issued to the person or persons
entitled to receive the same a Common Stock certificate or certificates for the
shares of Common Stock deliverable upon such exercise, and the Warrant Agent
shall deliver the same to the person or persons entitled thereto. Upon the
exercise of any Warrants, the Warrant Agent shall promptly notify the Company in
writing of such fact and of the number of securities delivered upon such
exercise and, subject to subsection (b) below, shall cause all payments of an
amount in cash or by check made payable to the order of the Company, equal to
the Purchase Price, to be deposited promptly in the Company's bank account.
(b) At any time upon the exercise of any Warrants after one (1) year and
one day from the date hereof, the Warrant Agent shall, on a daily basis, within
two business days after such exercise, notify the Representative, and its
successors or assigns, of the exercise of any such Warrants and shall, on a
weekly basis (subject to collection of funds constituting the tendered Purchase
Price, but in no event later than five business days after the last day of the
calendar week in which such funds were tendered), remit to the Representative
(so long as the Representative solicited the exercise of such Warrants as
indicated upon the Subscription Form attached to the Warrant Certificate
tendered for exercise), an amount equal to five percent (5%) of the Purchase
Price of such Warrants being then exercised unless (1) the Representative shall
have notified the Warrant Agent that the payment of such amount with respect to
such Warrants is violative of the General Rules and Regulations promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
the rules and regulations of the National Association of Securities Dealers,
Inc. ("NASD") or applicable state securities of "blue sky" laws, or (2) the
Warrants are those underlying the Representative's Warrants, or (3) the market
price of the Common
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Stock on the subject Exercise Date is lower than the Purchase Price, or (4) the
Warrants are held in a discretionary account, or (5) the Warrants are exercised
in an unsolicited transaction, in any of which events the Warrant Agent shall
pay such amount to the Company; provided that the Warrant Agent shall not be
obligated to pay any amounts pursuant to this Section 4(b) during any week that
such amounts payable are less than $1,000 and the Warrant Agent's obligation to
make such payments shall be suspended until the amount payable aggregate $1,000,
and provided further, that, in any event, any such payment (regardless of
amount) shall be made not less frequently than monthly.
(c) The Company shall not be required to issue fractional shares upon the
exercise of Warrants. Warrants may only be exercised in such multiples as are
required to permit the issuance by the Company of one or more whole shares. If
one or more Warrants shall be presented for exercise in full at the same time by
the same Registered Holder, the number of whole shares which shall be issuable
upon such exercise thereof shall be computed on the basis of the aggregate
number of shares purchasable on exercise of the Warrants so presented. If any
fraction of a share would, except for the provisions provided herein, be
issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to such fraction multiplied by the
then current market value of a share of Common Stock, determined as follows:
(1) If the Common Stock is listed or admitted to unlisted trading
privileges on the New York Stock Exchange ("NYSE") or the American Stock
Exchange ("AMEX") or is traded on The Nasdaq National Market ("
Nasdaq/NM"), the current market value of a share of Common Stock shall be
the closing sale price of the Common Stock at the end of the regular
trading session on the last business day prior to the date of exercise of
the Warrants on whichever of such exchanges or Nasdaq/NM had the highest
average daily trading volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on either the NYSE or the AMEX and is not traded on Nasdaq/NM,
but is quoted or reported on Nasdaq, the current market value of a share of
Common Stock shall be the average of the last reported closing bid and
asked prices (or the last sale price, if then reported by Nasdaq) of
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the Common Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Warrants as quoted or
reported on Nasdaq, as the case may be; or
(3) If the Common Stock is not listed or admitted to unlisted trading
privileges on either of the NYSE or the AMEX, and is not traded on
Nasdaq/NM or quoted or reported on Nasdaq, but is listed or admitted to
unlisted trading privileges on the BSE or other national securities
exchange (other than the NYSE or the AMEX), the current market value of a
share of Common Stock shall be the closing sale price of the Common Stock
at the end of the regular trading session on the last business day prior to
the date of exercise of the Warrants on whichever of such exchanges has the
highest average daily trading volume for the Common Stock on such day; or
(4) If the Common Stock is not listed or admitted to unlisted trading
privileges on any national securities exchange, or listed for trading on
Nasdaq/NM or quoted or reported on Nasdaq, but is traded in the
over-the-counter market, the current market value of a share of Common
Stock shall be the average of the last reported bid and asked prices of the
Common Stock reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of exercise of the Warrants; or
(5) If the Common Stock is not listed or admitted to unlisted trading
privileges on any national securities exchange, or listed for trading on
Nasdaq/NM or quoted or reported on Nasdaq, and bid and asked prices of the
Common Stock are not reported by the National Quotation Bureau, Inc., the
current market value of a share of Common Stock shall be an amount, not
less than the book value thereof as of the end of the most recently
completed fiscal quarter of the Company ending prior to the date of
exercise, determined in accordance with generally accepted accounting
principles, consistently applied.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery thereof, be duly and validly issued and
fully
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paid and nonassessable and free from all preemptive or similar rights, taxes,
liens and charges with respect to the issue thereof, and that upon issuance such
shares shall be listed on each securities exchange, if any, on which the other
shares of outstanding Common Stock of the Company are then listed.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post effective amendment, use its best efforts to cause the same to become
effective and use its best efforts to keep such registration statement current
while any of the Warrants are outstanding and deliver a prospectus which
complies with Section 10(a)(3) of the Securities Act of 1933, as amended, (the
"Act"), to the Registered Holder exercising the Warrant (except, if in the
opinion of counsel to the Company, such registration is not required under the
federal securities law or if the Company receives a letter from the staff of the
Securities and Exchange Commission (the "Commission") stating that it would not
take any enforcement action if such registration is not effected). The Company
will use its best efforts to obtain appropriate approvals or registrations under
state "blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer
Agent to requisition from time to time certificates representing shares of
Common Stock or other securities required upon exercise of the Warrants, and the
Company will comply with all such requisitions.
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SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants or may be transferred in
whole or in part. Warrant Certificates to be so exchanged shall be surrendered
to the Warrant Agent at its Corporate Office, and the Company shall execute and
the Warrant Agent shall countersign, issue and deliver in exchange therefor the
Warrant Certificate or Certificates which the Register Holder making the
exchange shall be entitled to receive.
b) The Warrant Agent shall keep, at such office, books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof. Upon due presentment for registration of
transfer of any Warrant Certificate at such office, the Company shall execute
and the Warrant Agent shall issue and deliver to the transferee or transferees a
new Warrant Certificate or Certificates representing an equal aggregate number
of Warrants.
(c) With respect to any Warrant Certificates presented for registration of
transfer, or for exchange or exercise, the subscription or exercise form, as the
case may be, on the reverse thereof shall be duly endorsed or be accompanied by
a written instrument or instruments or transfer and subscription, in form
satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder thereof or his attorney duly authorized in writing.
(d) No service charge shall be made for any exchange or registration of
transfer of Warrant Certificates. However, the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange shall
be promptly canceled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof of each Warrant represented
thereby (notwithstanding any notations of ownership or writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes and shall
not be affected by any notice to the contrary.
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SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and (in the case of loss,
theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of Common
Stock Deliverable.
(a)(i) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof, issue any shares of Common
Stock for a consideration per share less than the "Fair Market Value" (as
defined in Section 8(g)) or issue any shares of Common Stock as a stock dividend
to the holders of Common Stock, or subdivide or combine the outstanding shares
of Common Stock into a greater or lesser number of shares (any such issuance,
subdivision or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Purchase Price for the
Warrants (whether or not the same shall be issued and outstanding) in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined by
dividing (i) the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to such Change of Shares, multiplied by the
Purchase Price in effect immediately prior to such Change of Shares and (b) the
consideration, if any, received by the Company upon such sale, issuance,
subdivision or combination, by (ii) the total number of shares of Common Stock
outstanding immediately after such Change of Shares; provided, however, that in
no event shall the Purchase Price be adjusted pursuant to this computation to an
amount in excess of the Purchase Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock.
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For the purposes of any adjustment to be made in accordance with this
Section 8(a), the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common Stock (or of
other securities deemed hereunder to involve the issuance or sale of shares
of Common Stock) for a consideration part or all of which shall be cash,
the amount of the cash portion of the consideration therefor deemed to have
been received by the Company shall be (i) the subscription price, if shares
of Common Stock are offered by the Company for subscription, or (ii) the
public offering price (before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith), if such securities are sold to
underwriters or dealers for public offering without a subscription
offering, or (iii) the gross amount of cash actually received by the
Company for such securities, in any other case, in each case, without
deduction for any expenses incurred by the Company in connection with such
transaction.
(B) In case of the issuance or sale (other than as a dividend or other
distribution on any stock of the Company) of shares of Common Stock (or of
other securities deemed hereunder to involve the issuance or sale of shares
of Common Stock) for a consideration part or all of which shall be other
than cash, the amount of the consideration therefor other than cash deemed
to have been received by the Company shall be the value of such
consideration as determined in good faith by the Board of Directors of the
Company on the basis of a record of values of similar property or services.
(C) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(D) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled to
receive such shares,
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and the value of the consideration allocable to such shares of Common Stock
shall be determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any time outstanding shall
be deemed to include the aggregate maximum number of shares issuable
(subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
(ii) Upon each adjustment of the Purchase Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying
the number of shares of Common Stock purchasable immediately prior to
such adjustment by the Purchase Price in effect prior to such
adjustment and dividing the product so obtained by the applicable
adjusted Purchase Price.
(b) In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of Common
Stock, for a consideration per share (determined as provided in Section
8(a)(i) and as provided below) less than the Fair Market Value in effect
immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, or without consideration
(including the issuance of any such securities by way of dividend or other
distribution), the Purchase Price for the Warrants (whether or not the same
shall be issued and outstanding) in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making the computation in accordance with the provisions of
Section 8(a)(i) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable or that may become issuable under such options,
rights or warrants (assuming exercise in full even if not then currently
exercisable or currently exercisable in full) shall be deemed to be issued
and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum purchase price per share provided
for in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination
of such options, rights
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or warrants, if any thereof shall not have been exercised, the number of
shares of Common Stock deemed to be issued and outstanding pursuant to this
subsection (A) (and for the purposes of subsection (E) of Section 8(a)(i)
hereof) shall be reduced by the number of shares as to which options,
warrants and/or rights shall have expired, and such number of shares shall
no longer be deemed to be issued and outstanding, and the Purchase Price
then in effect shall forthwith be readjusted and thereafter be the price
that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining
issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock issuable or
that may become issuable upon conversion or exchange of any convertible or
exchangeable securities (assuming conversion or exchange in full even if
not then currently convertible or exchangeable in full) shall be deemed to
be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the
Company upon the conversion or exchange thereof; provided, however, that
upon the termination of the right to convert or exchange such convertible
or exchangeable securities (whether by reason of redemption or otherwise),
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (B) (and for the purposes of subsection (E) of
Section 8(a)(i) hereof) shall be reduced by the number of shares as to
which the conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be
issued and outstanding, and the Purchase Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have been
had adjustment been made on the basis of the issuance only of the shares
actually issued plus the shares remaining issuable upon conversion or
exchange of those convertible or exchangeable securities as to which the
conversion or exchange rights shall not have expired or terminated
unexercised.
(C) If any change shall occur in the price per share provided for in
any of the options, rights or warrants referred to in subsection (A) of
this Section 8(b), or in the price per share or ratio at which the
securities referred to in subsection (B) of this Section 8(b) are
convertible
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or exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, to the extent not theretofore exercised, shall
be deemed to have expired or terminated on the date when such price change
became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants or
convertible or exchangeable securities.
(c) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par
value or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation
(other than a merger with a Subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital
stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value
or as a result of subdivision or combination)) or in case of any sale or
conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, then, as a condition of such
reclassification, change, consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be,
shall make lawful and adequate provision whereby the Registered Holder of
each Warrant then outstanding shall have the right thereafter to receive on
exercise of such Warrant the kind and amount of securities and property
receivable upon such reclassification, change, consolidation, merger, sale
or conveyance by a holder of the number of securities issuable upon
exercise of such Warrant immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance and shall forthwith file
at the Corporate Office of the Warrant Agent a statement signed by its
President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such
provision. Such provisions shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in Section 8(a) and (b). The above provisions of this Section
8(c) shall similarly apply to successive reclassifications and changes of
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
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<PAGE>
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(e) hereof, continue to express the
Purchase Price per share and the number of shares purchasable thereunder as
the Purchase Price per share and the number of shares purchasable
thereunder were expressed in the Warrant Certificates when the same were
originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i)
the Purchase Price as so adjusted, (ii) the number of shares of Common
Stock purchasable upon exercise of each Warrant, after such adjustment, and
(iii) a brief statement of the facts accounting for such adjustment. The
Company will promptly file such certificate with the Warrant Agent and
cause a brief summary thereof to be sent by ordinary first class mail to
each Registered Holder at his last address as it shall appear on the
registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an
officer of the Warrant Agent or the Secretary or an Assistant Secretary of
the Company that such notice has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(f) No adjustment of the Purchase Price shall be made as a result of
or in connection with (A) the issuance of shares of Common Stock underlying
the Warrants or the units issuable upon exercise of the Representative's
Warrants pursuant to the Representative's Warrant Agreement, or (B) the
issuance or sale of shares of Common Stock if the amount of said adjustment
shall be less than $.10, provided, however, that in such case, any
adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment that shall amount, together with any adjustment so
carried forward, to at least $.10. In addition, Registered Holders shall
not be entitled to cash dividends paid by the Company prior to the exercise
of any Warrant or Warrants held by them.
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<PAGE>
(g) "Fair Market Value" shall mean the value of a share of Common
Stock as determined in accordance with the following provisions:
(1) If the Common Stock is listed or admitted to unlisted trading
privileges on the NYSE or the AMEX or is traded on the Nasdaq/NM, the
Fair Market Value of a share of Common Stock shall be equal to the
average of the closing sale price of the Common Stock during the
thirty (30) trading days immediately preceding the date of the event
which requires the determination of Fair Market Value on whichever of
such exchanges or Nasdaq/NM had the total highest daily trading volume
for the Common Stock during such thirty (30) day trading period.
(2) If the Common Stock is not listed or admitted to unlisted
trading privileges on either the NYSE or the AMEX and is not traded on
Nasdaq/NM, but is quoted or reported on Nasdaq, the Fair Market Value
of a share of Common Stock shall be the average of the last reported
closing bid and asked prices (or the last sale price, if then reported
on Nasdaq) of the Common Stock during the thirty (30) trading days
immediately preceding the date of event which requires the
determination of Fair Market Value.
(3) If the Common Stock is not listed or admitted to unlisted
trading privileges on either of the NYSE or the AMEX and is not traded
on Nasdaq/NM or quoted or reported on Nasdaq, but is listed or
admitted to unlisted trading privileges on the BSE or another national
securities exchange (other than the NYSE or the AMEX), the Fair Market
Value of a share of Common Stock shall be the average of the closing
sale price of the Common Stock during the thirty (30) trading days
immediately preceding the date of the event which requires the
determination of Fair Market Value.
(4) If the Common Stock is not listed or admitted to unlisted
trading privileges on any national securities exchange, or listed for
trading on Nasdaq/NM or quoted or reported on Nasdaq, but is traded in
the over-the-counter market, the Fair Market Value of a share of
Common Stock shall be the average of the average of the last reported
bid and asked prices of the Common Stock reported by the National
Quotation Bureau, Inc. for the thirty (30) trading days immediately
preceding the date of the event which requires the determination of
Fair Market Value.
(5) If the Common Stock is not listed or admitted to unlisted
trading privileges on any national securities exchange, or listed for
trading on Nasdaq/NM or quoted or reported on
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Nasdaq, and bid and asked prices of the Common Stock are not reported
by the National Quotation Bureau, Inc., the Fair Market Value of a
share of Common Stock shall be an amount, not less than the book value
thereof as of the end of the most recently completed fiscal quarter of
the Company ending prior to the date requiring a determination of fair
market value, determined in accordance with general accepted
accounting principles, consistently applied.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the Company may, on
30 days' prior written notice redeem all the Warrants (other than the Warrants
underlying the Representative's Warrants, which shall not be redeemable except
as set forth in the Representative's Warrant Agreement) at five cents ($.05) per
Warrant, provided, however, that before any such call for redemption of Warrants
can take place the closing sale price of the Common Stock as quoted on the
principal market on which such shares shall then be trading, shall have, for
each of the twenty (20) consecutive trading days ending on the tenth (10th) day
prior to the date on which the notice contemplated by (b) and (c) below is
given, equalled or exceeded $6.00 per share (subject to adjustment in the event
of any stock splits or other similar events as provided in Section 8 hereof).
(b) In case the Company shall exercise its right to redeem all of the
Warrants so redeemable, it shall give or cause notice to such effect to be given
to the Representative in the same manner that notice is required to be given by
the Representative's Warrant Agreement. The Representative may, at its option,
solicit exercises of the Warrants. In the event that the Representative does not
commence solicitation of exercises of the Warrants within thirty (30) days of
notice from the Company, the Company may give notice of redemption to the
Registered Holders of the Warrants by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, at their last address as
shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. Not less than five
business days prior to the mailing to the Registered Holders of the Warrants of
the notice of redemption, the Company shall deliver or cause to be delivered to
the Representative a similar notice telephonically and confirmed in
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writing together with a list of the Registered Holders (including their
respective addresses and number of Warrants beneficially owned) to whom such
notice of redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption price, (ii)
the date fixed for redemption, which shall in no event be less than thirty (30)
days after the date of mailing of such notice, (iii) the place where the Warrant
Certificate shall be delivered and the redemption price shall be paid, (iv) that
the Representative is the Company's warrant solicitation agent and may receive
the commission contemplated by Section 4(b) hereof, and (v) that the right to
exercise the Warrant shall terminate at 5:00 p.m. (New York time) on the
business day immediately preceding the date fixed for redemption. The date fixed
for the redemption of the Warrants shall be the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity of the proceedings for such redemption except as to a holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Warrant Agent or the Secretary or Assistant Secretary of the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New York
time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
(e) The Company shall indemnify the Representative and each person, if any,
who controls the Representative within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from the
registration statement or prospectus referred to in Section 5(b) hereof to the
same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the Company has agreed to
indemnify the Underwriters contained in Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date, the Company shall
furnish to the Representative (i) an opinion of counsel to the Company, dated
such date and addressed to
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Representative, and (ii) a "cold comfort" letter
dated such date addressed to the Representative, signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(g) The Company shall as soon as practicable after the Redemption Date, and
in any event within 15 months thereafter, make "generally available to its
security holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning after the
Redemption Date.
(h) The Company shall deliver within five business days prior to the
Redemption Date copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to such registration statement and
permit the Representative to do such investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as the
Representative shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial capacity
for the Company and the Representative, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not, by issuing and
delivering Warrant Certificates or by any other act hereunder, be deemed to make
any representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property
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<PAGE>
delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustment, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
gross negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board of Directors, President or any Vice President (unless
other evidence in respect thereof is herein specifically prescribed). The
Warrant Agent shall not be liable for any action taken, suffered or omitted by
it in accordance with such notice, statement, instruction, request, direction,
order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder; the Company further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.
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<PAGE>
(f) The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own gross negligence or willful misconduct), after giving
30 days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation the Company shall
appoint in writing a new warrant agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company doing business in
Massachusetts or New York. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the warrant agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged, any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent or
any new warrant agent shall be a successor warrant agent under this Agreement
without any further act, provided that such corporation is eligible for
appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such
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<PAGE>
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holders of each Warrant
Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from the date
of exercise any Warrant Certificate received by it upon such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (i) that they shall deem appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained; (ii) to reflect an increase in the
number of Warrants which are to be governed by this Agreement resulting from a
subsequent public offering of Company securities which includes warrants having
the same terms and conditions as the Warrants originally covered by or
subsequently added to this Agreement under this Section 11; or (iii) that they
may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Warrant Certificates; provided, however, that this
Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders
representing not less that 66-2/3% of the Warrants then outstanding (including,
for this purpose Warrants issuable to the Representative pursuant to the
Representative's Warrants, whether or not then outstanding); provided, further,
that no change in the number or nature of the securities purchasable upon the
exercise of any Warrant, or to increase the Purchase Price therefor, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate, other than such changes as are specifically prescribed by this
Agreement as originally executed. In addition, this Agreement may not be
modified, amended or supplemented without the prior written consent of the
Representative, other than to cure any ambiguity or to correct any provision
which is inconsistent with any other provision of this Agreement or to make
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any such change that is necessary or desirable and which shall not adversely
affect the interests of the Representative and except as may be required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been made when delivered or mailed
first-class postage prepaid, or delivered to a telegraph office for transmission
if to the Registered Holder of a Warrant Certificate, at the address of such
holder as shown on the registry books maintained by the Warrant Agent; if to the
Company at New York Health Care, Inc., 1667 Flatbush Avenue, Brooklyn, New York
11210, Attention: Jerry Braun, President, or at such other address as may have
been furnished to the Warrant Agent in writing by the company; and if to the
Warrant Agent, at its Corporate Office. Copies of any notice delivered pursuant
to this Agreement shall be delivered to RAS at RAS Securities Corp., 2 Broadway,
New York, New York 10004-2801, Attention: Mr. Robert A. Schneider, or at such
other address as may have been furnished to the Company and the Warrant Agent in
writing.
SECTION 13. Construction.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. The Underwriters (as defined in
the Underwriting Agreement) are, and shall at all times irrevocably be deemed to
be, third-party beneficiaries of this Agreement, with full power, authority and
standing to enforce the rights granted to it hereunder.
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SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the first date first above written.
NEW YORK HEALTH CARE, INC. CONTINENTAL STOCK TRANSFER
TRUST COMPANY
By: ____________________________ By:______________________________
Jerry Braun, President
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EXHIBIT A
No. W ____________ VOID AFTER _______________, 2001
__________________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
NEW YORK HEALTH CARE, INC.
CUSIP______________________
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number
of Redeemable Warrants (the "Warrants") specified above. Two Warrants initially
entitle the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.01 par
value, of New York Health Care, Inc., a New York corporation (the "Company"), at
any time between ________________________ , 1997 (the "Initial Warrant Exercise
Date"), and the Expiration Date (as hereinafter defined) upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of Continental Stock
Transfer and Trust Company, 2 Broadway, New York, New York 10004, as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $4.00
per share, subject to adjustment (the "Purchase Price"), in lawful money of the
United States of America in cash or by check made payable to the Warrant Agent
for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Redeemable Warrant Agreement (the "Warrant Agreement"), dated
___________ , 1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrant represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and
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shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
___________ , 2001. If each such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the Expiration
Date shall mean 5:00 p.m. (New York time) the next following day which in the
State of New York is not a holiday or a day on which banks are authorized to
close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, use
its best efforts to keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
of Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrants represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.05 per
Warrant, at any time commencing one year after the Initial Warrant Exercise
Date, provided that (i) the closing bid price for the Common Stock is reported
by The Nasdaq Stock Market, Inc. ("Nasdaq"), if the Common Stock is then traded
in the over-the-counter market or (ii) the closing sale price, if the Common
Stock is then traded on Nasdaq/NM or a national securities exchange, shall have
equalled or exceeded for each of the twenty (20) consecutive trading days ending
on the tenth (10) day prior to the Notice of Redemption, as defined below, $6.00
per share (subject to adjustment in the event of any stock splits or other
similar events). Notice of redemption (the "Notice of Redemption") shall be
given not later than the thirtieth day before the date fixed for redemption, all
as provided in the Warrant Agreement. On and
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after the date fixed for redemption, the Registered Holder shall have no rights
with respect to the Warrants except to receive the $.05 per Warrant upon
surrender of this Warrant Certificate.
Under certain circumstances, RAS Securities Corp. shall be entitled to
receive an aggregate of five percent (5%) of the Purchase Price of the Warrants
represented hereby.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ______________________, 1996
[SEAL] NEW YORK HEALTH CARE, INC.
By: _____________________________
Jerry Braun, President
By: _____________________________
Jacob Rosenberg, Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
AND TRUST COMPANY
as Warrant Agent
By: _____________________________
Name: ___________________________
Title: __________________________
- 28 -
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
____________________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
(please print or type name and address)
and be delivered to
_____________________________
_____________________________
_____________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
- 29 -
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1 The exercise of these Warrants was
solicited by RAS Securities Corp.
2. The exercise of these Warrants
was not solicited.
Dated:___________________________ X ___________________________
___________________________
___________________________
Address
___________________________
Social Security or Taxpayer
Identification Number
___________________________
Signature Guaranteed
___________________________
- 30 -
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________, hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
(please print or type name and address)
____________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints ______________________ Attorney
to transfer this Warrant Certificate on the _________ of the Company, with full
power of substitution in the premises.
Dated:___________________________ X ____________________________
Signature Guaranteed
____________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
- 31 -
Scheichet & Davis, P.C.
Counselors at Law
505 Park Avenue
New York, NY 10022
(212) 688-3200
Fax: (212) 371-7634
November 5, 1996
New York Health Care, Inc.
1667 Flatbush Avenue
Brooklyn, NY 11021
Re: Registration Statement on Form SB-2
Under the Securities Act of 1933;
S.E.C. File No. 333-08155
-----------------------------------
Gentlemen:
In our capacity as counsel to New York Health Care, Inc., a New York
corporation (the "Company"), we have been asked to render this opinion in
connection with the Company's Registration Statement on Form SB-2 (the
"Registration Statement"), heretofore filed by the Company with the Securities
and Exchange Commission under the Securities Act of 1933, as amended.
The Registration Statement covers the following securities:
1. 1,250,000 shares of Common Stock, $.01 par value per share (the
"Common Stock");
2. 2,500,000 Redeemable Warrants to purchase 1,250,000 shares of Common
Stock (the "Redeemable Warrants");
3. 1,250,000 shares of Common Stock issuable upon the exercise of the
Redeemable Warrants;
4. 187,500 shares of Common Stock and 375,000 Redeemable Warrants
issuable solely at the option of the Underwriters to cover
over-allotments, if any;
5. Representative's Warrants entitling the Representative to purchase
125,000 shares of Common Stock and 250,000 Redeemable Warrants from
the Company;
<PAGE>
New York Health Care, Inc.
November 5, 1996
Page 2
6. 125,000 shares of Common Stock issuable upon the exercise of the
Representative's Warrants;
7. 250,000 Redeemable Warrants issuable upon the exercise of the
Representative's Warrants; and
8. 125,000 shares of Common Stock issuable upon the exercise of the
Redeemable Warrants which, in turn, are to be issued upon the exercise
of the Representative's Warrants.
In that connection, we have examined the Company's Certificate of
Incorporation and By-Laws, as amended, the Registration Statement, corporate
proceedings of the Company relating to the issuance of the Common Stock, the
Redeemable Warrants and the Representative's Warrants, respectively, and such
other instruments and documents as we have deemed relevant under the
circumstances.
In making the aforesaid examinations, we have assumed the genuineness of
all signatures and the conformity to original documents of all copies furnished
to us as original or photostatic copies. We have also assumed that the corporate
records furnished to us by the Company include all corporate proceedings taken
by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of New York;
2. The shares of Common Stock, including the shares issuable upon the
exercise of the over-allotment option, have been duly and validly authorized
and, when issued and paid for as described in the Registration Statement, will
be duly and validly issued, fully paid and non-assessable;
3. The Redeemable Warrants, including the Redeemable Warrants issuable upon
the exercise of the over-allotment option, have been duly and validly authorized
and, when issued and paid for as described in the Registration Statement, will
be duly and validly issued;
4. The shares of Common Stock, including the shares issuable upon the
exercise of the over-allotment option, which are to be issued upon the exercise
of the Redeemable Warrants have been duly and validly authorized and, when
issued and paid for as described in the Registration Statement and the
Redeemable Warrants, will be duly and validly issued, fully paid and
non-assessable;
5. The shares of Common Stock which are to be issued upon the exercise of
the Representative's Warrants have been duly and validly authorized and, when
issued and paid for as described in the Registration Statement and the
Representative's Warrants, will be duly and validly issued, fully paid and
non-assessable;
<PAGE>
New York Health Care, Inc.
November 5, 1996
Page 3
6. The Redeemable Warrants which are to be issued upon the exercise of the
Representative's Warrants have been duly and validly authorized and, when issued
and paid for as described in the Registration Statement, will be duly and
validly issued; and
7. The shares of Common Stock which are to be issued upon the exercise of
the Redeemable Warrants, issuable upon the exercise of the Representative's
Warrants, have been duly and validly authorized and, when issued and paid for as
described in the Registration Statement, will be duly and validly issued, fully
paid and non-assessable.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement.
Very truly yours,
SCHEICHET & DAVIS, P.C.
/s/ William J. Davis
---------------------------
William J. Davis
A Member of the Firm
WJD/jm
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 26th day of March, 1996 by New York Health
Care, Inc., a New York Corporation (the "Company") and Jerry Braun residing at
929 East 28th Street, Brooklyn, NY 11210 (the "Optionee"):
In consideration for One Hundred Dollars ($100.00) by the Optionee, receipt
of which is hereby acknowledged, the Company hereby grants to the Optionee the
option (the "Option"), commencing on the effective date of the initial public
offering of New York Health Care, Inc. (the "Option Commencement Date"), to
purchase from the Company all or any part of an aggregate of Ninety-Three
Thousand Seven Hundered and Fifty (93,750) shares of the Common Stock of the
Company, par value $.01 per share (the "Shares"), at a price of $3.00 per share.
The following terms and conditions shall apply to the Option:
1. The Option and all rights of the Optionee to purchase shares of Common
Stock hereunder shall terminate on March 26, 2006 (hereinafter referred to as
the "Expiration Date"). On or prior to the Expiration Date such Option shall be
exercisable subject to the following terms:
(a) The Optionee may exercise the Option with respect to all or any
part of the shares then exercisable by giving the Company written notice, as
provided in paragraph 2 hereof, of such exercise. Such notice shall specify the
number of shares as to which the Option is being exercised and shall be
accompanied by payment of an amount equal to the option price of such shares
multiplied by the number of shares as to which the Option is being exercised.
Such payment shall be for the full amount of the exercise price in cash (by
check subject to collection) or in common stock of the Company.
(b) As soon as practicable after receipt of the notice and payment
referred to in subdivision (a) above, the Company shall deliver to the Optionee
at the office of the Company, or at such other place as may be mutually
acceptable to the Company and the Optionee, a certificate or certificates for
such shares; provided, however, that the time of such delivery may be postponed
by the Company for such period of time as the Company may require to comply with
any applicable registration requirements of any national securities exchange and
any other law or regulation applicable to the issuance or transfer of shares. If
the Optionee fails for any reason to accept delivery of or any part of the
number of shares specified in such notice upon tender of delivery thereof, his
or her right to purchase such undelivered shares may be terminated by the
Company by notice in writing to the Optionee and refund of the payment.
(c) Prior to or concurrently with delivery by the Company to the
Optionee of a certificate(s) representing such shares, the Optionee shall (i)
upon notification of the amount due,
3921
<PAGE>
pay promptly any amount necessary to satisfy applicable federal, state or local
tax requirements, and (ii) if such shares are not then registered under the
Securities Act of 1933, give assurance satisfactory to the Company and counsel
for the Company that such shares are being purchased for investment and not with
a view to the distribution thereof, and the Optionee shall give such other
assurance and take such other action as the Company and counsel for the Company
shall require to secure compliance with any federal or state securities law
applicable to the issuance of shares; provided that the out-of-pocket expense of
such registration or compliance shall be borne by the Company.
2. Any notice to the Company provided for in the Option shall be addressed
to the Company at its address as set forth above, with a copy to Scheichet &
Davis, P.C., 505 Park Avenue, New York, NY 10022, Attn: William J. Davis, Esq.,
and any notice to the Optionee shall be addressed to him at his address as set
forth above, or to such other address as either may last have designated to the
other by notice as provided herein. Any notice so addressed shall be deemed to
be given on the fourth business day after mailing, by registered or certified
mail, return receipt requested, at a post office or branch post office within
the United States.
3. In the event of any change in the Company's Common Stock subject to the
Option, by reason of any stock dividend, split-up, recapitalization, merger,
consolidation, combination or exchange of shares, spin-off, reorganization,
liquidation or the like, such adjustment shall be made in the number of shares
subject to the option and the price per share as the Company shall, in its sole
judgment, deem appropriate to give proper effect to such event.
4. The Option is not transferable and may not be exercised by any person
other than the Optionee or his executors, administrators, successors or heirs.
In the event the Optionee transfers, assigns, pledges, hypothecates or otherwise
disposes of the Option, other than as permitted herein, or of any right
hereunder, that transfer shall be void and shall not be recognized by the
Company nor vest in the transferee any rights hereunder. In the event of the
levy of any attachment, execution or similar process upon the rights or interest
hereby conferred, the Company may terminate the Option by notice to the Optionee
and it shall thereupon become null and void.
5. In the event one or more of the following events has occurred or is
about to occur: i.e. (i) the dissolution, liquidation, merger or consolidation
of the Company (where the Company is not the surviving corporation) or (ii) the
sale of all or substantially all the assets of the Company or (iii) the sale of
shares of the Company's Common Stock, in any case resulting in a change in
control of the Company, then the Option to the extent not then exercisable or
not exercisable upon the happening of the event described in such notice shall
terminate simultaneously with the happening of such event. The Company shall ten
(10) days prior to the scheduled happening of the event, give the Optionee
notice thereof.
For purposes of this section, the term (i) "a change in control" means an
event or series of events that would be required to be described as a change in
control of the Company in a proxy or information statement distributed by the
Company pursuant to Section 14 of the Securities Exchange
3921
2
<PAGE>
Act of 1934 in response to Item 6(e) of Schedule 14A promulgated thereunder, or
any substitute provision which may hereafter be promulgated thereunder or
otherwise adopted, as if the Company were subject to the proxy rules of such
Act, and (ii) "affiliate" shall have the same meaning as set forth in Rule 405
of the Rules and Regulations promulgated under the Securities Act of 1933, as
amended.
6. In the event that any question or controversy shall arise with respect
to the nature, scope or extent of any one or more rights conferred by the
Option, or any provision of this Agreement, it shall be settled under the laws
of the State of New York by arbitration in the City of New York before three
arbitrators, one chosen by each of the Company and the Optionee and the third
chosen by the other two, or appointed by a court if the other two are unable to
agree upon the third within 30 days of their selection. The determination by the
arbitrators shall be conclusive, final and binding upon the Company and the
Optionee and upon any other person who shall assert any right pursuant to this
Option.
7. The Optionee shall have no rights of a stockholder with respect to the
shares covered by the Option until he or she becomes the holder of record of
such shares. All shares issued upon exercise of the Option shall be fully paid
and non-assessable.
NEW YORK HEALTH CARE, INC.
By: /s/ Jacob Rosenberg, C.O.O.
-----------------------------------
ACCEPTED AND AGREED:
/s/ Jerry Braun
- -----------------------------
Jerry Braun
3921
3
<PAGE>
SUBSCRIPTION FORM III
(To Be Executed Only Upon Exercise of Option)
The undersigned, holder of an option (the "Option") pursuant to a Stock
Option Agreement dated March 26, 1996 between himself and New York Health Care,
Inc. hereby irrevocably exercises his option thereunder to purchase the number
of shares of Common Stock of New York Health Care, Inc. specified below and
herewith makes payment therefore, all at the price and on the terms and
conditions specified in this Option.
Dated: _________________
Number of Shares: _________________
Purchase Price: _________________
--------------------------------------
Signature of Registered Owner
--------------------------------------
Street Address
--------------------------------------
City, State, Zip
--------------------------------------
Social Security Number
3921
4
EXHIBIT 10.33
NEW YORK HEALTH CARE, INC.
Performance Incentive Plan
1. Definitions: As used herein, the following definitions shall apply:
(a) "Committee" shall mean a Committee meeting the standards of Rule 16b-3
of the Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any similar successor rule, appointed by the
Board of Directors of the Company to administer the Plan or, if no such
Committee is appointed the Board of Directors as a whole shall be the Committee.
All members of the Committee shall be "disinterested directors" as defined by
Rule 16b-3 of the Exchange Act.
(b) "Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
(c) "Company" shall mean New York Health Care, Inc., a New York
corporation, or any successor thereof.
(d) "Eligible Person" means any individual who performs services for the
Company or a Subsidiary, who is a key employee, officer or director of the
Company or a Subsidiary and is included on the regular payroll of the Company or
a Subsidiary.
(e) "Incentive Option" shall mean an option to purchase Common Stock which
meets the requirements set forth in the Plan and also meets the definition of an
incentive stock option set forth in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). The stock option agreement for an Incentive
Option shall state that the option is intended to be an Incentive Option.
(f) "Nonqualified Option" shall mean an option to purchase Common Stock
which meets the requirements set forth in the Plan but does not meet the
definition of an incentive stock option set forth in Section 422 of the Code.
The stock option agreement for a Nonqualified Option shall state that the option
is intended to be a Nonqualified Option.
(g) "Participant" shall mean any Eligible Person designated by the
Committee under Paragraph 6 for participation in the Plan.
(h) "Plan" shall mean this Performance Incentive Plan for the Company.
(i) "Subsidiary" shall mean any Company in which the Company owns directly
or indirectly, stock possessing more than twenty-five percent of the combined
voting power of all classes of stock; provided however, that an Incentive Option
may be granted to a key employee of a
<PAGE>
Subsidiary only if the Company owns, directly or indirectly, 50% or more of the
total combined voting power of all classes of stock of the Subsidiary.
2. Purpose of Plan: The purpose of the Plan is to provide key employees with
incentives to make significant and extraordinary contributions to the long-term
performance and growth of the Company and its Subsidiaries and to increase their
personal interest in the continued success and progress of the Company and its
Subsidiaries.
3. Administration: The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee shall determine, from those eligible
to be Participants under the Plan, the persons to be granted stock options, the
amount of stock to be optioned or granted to each such person, and the terms and
conditions of any stock options. Subject to the provisions of the Plan, the
Committee is authorized to interpret the Plan, to promulgate, amend and rescind
rules and regulations relating to the Plan and to make all other determinations
necessary or advisable for its administration. Interpretation and construction
of any provision of the Plan by the Committee shall be final and conclusive.
Acts approved by either a majority of the members present at any meeting at
which a quorum is present, or without a meeting by the unanimous written
approval of the members of the Committee, shall be the acts of the Committee.
4. Indemnification of Committee Members: In addition to such other rights of
indemnification as they may have, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any option granted hereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by the Board of Directors of the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member has acted in bad faith; provided, however,
that within sixty days after receipt of notice of institution of any such
action, suit or proceeding a Committee member shall offer the Company in writing
the opportunity, at its own cost, to handle and defend the same.
5. Maximum Number of Shares Subject to Plan: The maximum number of shares of
Common Stock with respect to which stock options may be granted under the Plan
shall be 262,500 shares. Shares of Common Stock shall be made available for
issuance pursuant to the Plan either from shares of Common Stock reacquired by
the Company or from authorized but unissued shares. Any shares of Common Stock
with respect to which stock options have expired for any reason other than
exercise of such stock options or which are forfeited back to the Company, shall
not be available for issuance pursuant to the Plan.
The number of shares of Common Stock subject to each outstanding stock option,
the option price with respect to outstanding stock options, and the aggregate
number of shares available at any time under the Plan shall be subject to such
adjustment as the Committee, in its discretion, deems
2
<PAGE>
appropriate to reflect such events as stock dividends, stock splits,
recapitalization, mergers, consolidations or reorganizations of or by the
Company; provided however, that no fractional shares shall be issued pursuant to
the Plan, no rights may be granted under the Plan with respect to fractional
shares, and any fractional shares resulting from such adjustments shall be
eliminated from any outstanding stock option.
6. Participants: The Committee shall determine and designate from time to time,
in its sole discretion, those Eligible Persons to whom stock options are to be
granted or awarded and who thereby become Participants under the Plan.
Notwithstanding the foregoing, Incentive Options may be granted (i) to key
employees of a Subsidiary only if the Company owns, directly or indirectly, 50%
or more of the total combined voting power of all classes of stock of the
Subsidiary, and (ii) in all circumstances, only to key employees eligible to
receive Incentive Options pursuant to Section 422 of the Code.
7. Written Agreement: Each stock option shall be evidenced by a written
agreement between the Company and the Participant and shall contain such
provisions as may be approved by the Committee. Such agreements shall constitute
binding contracts between the Company and the Participant, and every
Participant, upon acceptance of such agreement, shall be bound by the terms and
restrictions of the Plan and of such agreement. The terms of each such agreement
shall be in accordance with the Plan, but the agreements may include such
additional provisions and restrictions determined by the Committee, provided
that such additional provisions and restrictions are not inconsistent with the
terms of the Plan.
8. Allotment of Shares: The Committee shall determine and fix the number of
shares of Common Stock with respect to which each Participant may be granted
stock options provided however, that no Incentive Option may be granted under
the Plan to any one Participant which would result in the aggregate fair market
value, determined as of the date the option is granted, of Common Stock with
respect to which Incentive Options are exercisable for the first time by such
Participant during any calendar year under any plan maintained by the Company
(or any parent or subsidiary Company of the Company) exceeding $100,000.
9. Stock Options: Subject to the terms of the Plan the Committee may grant to
Participants either Incentive Options, Nonqualified Options or any combination
thereof. Each option granted under the Plan shall designate the number of shares
covered thereby, if any, with respect to which the option is an Incentive
Option, and the number of shares of Common Stock covered thereby, if any, with
respect to which the option is a Nonqualified Option.
10. Stock Option Price: Subject to the rules set forth in this Paragraph 10, at
the time any stock option is granted, the Committee shall establish the price
per share for which the shares of Common Stock covered by the option may be
purchased. With respect to an Incentive Option or Nonqualified Option, such
option price shall not be less than 100% of the fair market value of a share of
Common Stock on the date on which such option is granted; provided, however,
that with respect to an Incentive Option granted to an employee who at the time
of the grant owns (after applying the
3
<PAGE>
attribution rules of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of the stock of the Company or of any
parent or subsidiary, the option price shall not be less 110% of the fair market
value of a share of Common Stock on the date such Incentive Option is granted.
For purposes of the Plan, the "fair market value" of a share of Common Stock
means the closing sale price on a specified date of a share on the principal
United States securities exchange registered under the Exchange Act on which
such stock is listed, or, if such stock is not listed on any such exchange, on
the National Association of Securities Dealers, Inc. Automated Quotations
Systems or any system then in use, or, if no such Quotations are available, the
fair market value on a specified date of a share as determined by the Committee
in good faith. The option price shall be subject to adjustment in accordance
with the provisions of Paragraph 5 of the Plan.
11. Payment of Stock Option Price: At the time of the exercise in whole or in
part of any stock option granted hereunder, payment of the option price in full
in cash or in Common Stock, shall be made by the Participant for all shares so
purchased. In the discretion of and subject to such conditions as may be
established by the Committee, payment of the option price may also be made by
the Company retaining from the shares of Common Stock to be delivered upon
exercise of the stock option that number of shares having a fair market value on
the date of exercise equal to the option price of the number of shares with
respect to which the Participant exercises the stock option. Such payment may
also be made in such other manner as the Committee determines is appropriate, in
its sole discretion. No Participant shall have any of the rights of a
shareholder of the Company under any stock option until the actual issuance of
shares to said Participant, and prior to such issuance no adjustment shall be
made for dividends, distributions or other rights in respect of such shares,
except as provided in Paragraph 5.
12. Granting and Exercise of Stock Options: Each stock option granted hereunder
shall be exercisable in three equal annual installments; provided, however, that
no stock option granted in conjunction therewith may be exercisable prior to the
expiration of six months from the date of grant unless the Participant dies or
becomes disabled prior thereto. If a Participant who is granted a stock option
is a person who is regularly required to report his ownership and changes in
ownership of Common Stock to the Securities and Exchange Commission, then any
election to exercise, as well as any actual exercise of his stock option, shall
be made only during the period beginning on the third business day and ending on
the twelfth business day following the release for publication by the Company of
quarterly or annual summary statements of sales and earnings. Notwithstanding
anything contained in the Plan to the contrary, stock options shall always be
granted and exercised in such a manner as to conform to the provisions of Rule
l6b-3(e), or any replacement rule, adopted pursuant to the provisions of the
Exchange Act. In addition, the value (determined at the time the option is
granted) of Common Stock with respect to which Incentive Options are exercisable
for the first time by a Participant during any calendar year shall not exceed
$100,000.
A Participant may exercise a stock option, if then exercisable, in whole or in
part by delivery to the Company of written notice of the exercise, in such form
as the Committee may prescribe, accompanied by (i) full payment for the shares
with respect to which the stock option is exercised, or (ii) in the sole
discretion of the Committee and subject to the requirements of Regulation T (as
in
4
<PAGE>
effect from time to time) under the Exchange Act, irrevocable instructions to a
stockbroker to promptly deliver to the Company full payment for the shares with
respect to which the stock option is exercised from the proceeds of the
stockbroker's sale of or loan against the shares. Except as provided in
Paragraph 17, stock options may be exercised only while the Participant is an
employee of, or performing service to, the Company or a Subsidiary.
Successor stock options may be granted to the same Participant whether or not
the stock option(s) previously granted to such Participant remain unexercised. A
Participant may exercise a stock option, if then exercisable, notwithstanding
that stock options previously granted to such Participant remain unexercised.
13. Non-Transferability of Stock Options: No stock option granted under the Plan
to a Participant shall be transferable by such Participant otherwise than by
will, or by the laws of descent and distribution, and such option shall be
exercisable, during the lifetime of the Participant, only by the Participant.
14. Term of Stock Options: If not sooner terminated, each stock option granted
hereunder shall expire not more than ten (10) years from the date of the
granting thereof.
15. Continuation of Employment: The Committee may require, in its discretion,
that any Participant under the Plan to whom a stock option shall be granted
shall agree in writing as a condition of the granting of such stock option to
remain in the employ of, or continue to provide services to, the Company or a
Subsidiary for a designated minimum period from the date of the granting of such
stock option as shall be fixed by the Committee.
16. Termination of Employment: If a Participant's employment by, or provision of
services to, the Company or a Subsidiary shall be terminated, the Committee may,
in its discretion, permit the exercise of stock options granted to such
Participant (i) for a period not to exceed one year following such termination
of employment with respect to Incentive Options, and (ii) for a period not to
extend beyond the expiration date with respect to Nonqualified Options;
provided, however, that no Incentive Option may be exercised after three months
following a Participant's termination of employment, unless such termination of
employment is due to the Participant's death or permanent disability, in which
event the Incentive Option may be permitted to be exercised for up to one year
following the Participant's termination of employment for such reason. In no
event, however, shall a stock option be exercisable subsequent to its expiration
date and, furthermore, unless the Committee otherwise determines, a stock option
may only be exercised after termination of a Participant's employment or service
to the extent exercisable on the date of termination of employment or as a
result of termination of employment.
17. Investment Purpose: If the Committee in its discretion determines that as a
matter of law such procedure is or may be desirable, it may require a
Participant, upon any acquisition of Common Stock hereunder and as a condition
to the Company's obligation to deliver certificates representing such shares, to
execute and deliver to the Company a written statement, in form satisfactory to
the
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Committee, representing and warranting that the Participant's acquisition of
shares of Common Stock shall be for such person's own account, for investment
and not with a view to the resale or distribution thereof and that any
subsequent offer for sale or sale of any such shares shall be made either
pursuant to (a) a Registration Statement on an appropriate form under the
Securities Act of 1933, as amended (the "Securities Act"), which Registration
Statement has become effective and is current with respect to the shares being
offered and sold, or (b) a specific exemption from the registration requirements
of the Securities Act, but in claiming such exemption the Participant shall,
prior to any offer for sale or sale of such shares, obtain a favorable written
opinion from counsel for or approved by the Company as to the availability of
such exemption. The Company may endorse an appropriate legend referring to the
foregoing restriction upon the certificate or certificates representing any
shares issued or transferred to the Participant under this Plan.
18. Rights to Continued Employment: Nothing contained in the Plan or in any
stock option granted or awarded pursuant to the Plan, nor any action taken by
the Committee hereunder, shall confer upon any Participant any right with
respect to continuation of employment by, or the provision of services to, the
Company or a Subsidiary nor interfere in any way with the right of the Company
or a Subsidiary to terminate such person's employment or service at any time
with or without cause.
19. Withholding Payments: If upon the exercise of a Nonqualified Option, or upon
a disqualifying disposition (within the meaning of Section 422 of the Code) of
shares acquired upon exercise of an Incentive Option, there shall be payable by
the Company or a Subsidiary any amount of income tax withholding, in the
Committee's sole discretion, either the Company shall appropriately reduce the
amount of Common Stock or cash to be paid to the Participant or the Participant
shall pay such amount to the Company or Subsidiary to reimburse it for such
income tax withholding. The Committee may, in its sole discretion, permit
Participants to satisfy such withholding obligations, in whole or in part, by
electing to have the amount of Common Stock delivered or deliverable by the
Company upon exercise of a stock option appropriately reduced or by electing to
tender Common Stock back to the Company subsequent to exercise of a stock option
to reimburse the Company for such income tax withholding, subject to the rules
and regulations as the Committee may adopt. The Committee may make such other
arrangements with respect to income tax withholding as it shall determine.
20. Effectiveness of Plan: The Plan shall be effective as of March 26, 1996, the
date the Board of Directors of the Company and a majority of the shareholders of
the Company adopted the Plan.
21. Termination, Duration and Amendment of Plan: The Plan shall terminate on
March 26, 2006, and no stock options may be granted or awarded thereafter. The
termination of the Plan shall not affect the validity of any stock option
outstanding on the date of termination.
For the purpose of conforming to any changes in applicable law or governmental
regulations, or for any other lawful purpose, the Board of Directors shall have
the right, with or without approval of the shareholders of the Company, to amend
or revise the terms of the Plan or terminate the Plan at any time; provided,
however, that no such amendment or revisions or termination shall (i) increase
the
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maximum number of shares of Common Stock in the aggregate which are subject to
the Plan (except as provided under the provisions of Paragraph 5), change the
class of persons eligible to be Participants under the Plan or materially
increase the benefits accruing to Participants under the Plan, without approval
or ratification of the shareholders of the Company; or (ii) change the stock
option price (except as contemplated by Paragraph 5) or alter or impair any
stock option which shall have been previously granted or awarded under the Plan,
without the consent of the holder thereof.
22. Interpretation: If any provision of the Plan should be held invalid or
illegal for any reason, such determination shall not affect the remaining
provisions hereof, but instead the Plan shall be construed and enforced as if
such provision had never been included in the Plan. Without limiting the
generality of the foregoing, transactions under the Plan are intended to comply
with all applicable conditions of Rule 16b-3 or its successors promulgated under
the Exchange Act. To the extent any provision of the Plan or any action by the
Committee or the Board of Directors hereunder is inconsistent with the foregoing
requirements, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee or the Board of Directors. This Plan shall
be governed by laws of the State of New York. Headings contained in the Plan are
for convenience only and shall in no manner be construed as part of the Plan.
Any reference to the masculine, feminine, or neuter gender shall be a reference
to such other gender as is appropriate.
7
EMPLOYMENT AGREEMENT
This Agreement made and entered into this 27th day of August, 1996, by and
between New York Health Care, Inc., a New York corporation, with its principal
place of business at 1667 Flatbush Avenue, Brooklyn, New York 11210,
(hereinafter "Employer" or the "Company"), and Gilbert Barnett, an individual
whose residential address is at 3 Terrace Circle, Great Neck, New York 11021
(hereinafter "Employee").
W I T N E S S E T H :
WHEREAS, Employer is engaged in the business of home health care;
WHEREAS, Employee possesses skills, knowledge, abilities and experience
which Employer wishes to continue to avail itself of; and
WHEREAS, Employer wishes to continue the employment of Employee;
NOW, THEREFORE, in consideration of the mutual covenants as set forth
herein:
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Employment. Employer hereby shall employ Employee as the Chief Financial
Officer of the Company and to perform such additional duties and services as may
be assigned to him pursuant to Paragraph 3 hereof. Employee hereby accepts such
employment, upon the terms and conditions hereinafter set forth.
2. Term. The term of employment of Employee hereunder shall be for the
period commencing as of August 1, 1996 and ending at the close of business July
30, 1999. Employer will give Employee written notice of any intention to renew
this Agreement on or before May 30, 1999.
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3. Duties.
(A) Employee's duties shall include overseeing and directing the
Company's financial and accounting activities, and generally promoting and
facilitating the Company's business objectives. For purposes of this paragraph,
Employer's subsidiaries, if any, are also encompassed in the term "Company".
(B) During the term of this Agreement, Employee shall perform such
additional services as shall from time to time be assigned to him by the Board
of Directors or the Chief Executive Officer or Chief Operating Officer of
Employer and which are consistent with the duties reasonably assigned to the
Chief Financial Officer of such size Company.
(C) Employee shall devote his entire business time and attention,
energy, and skill to the business of Employer. Notwithstanding the foregoing,
Employee may take all necessary and appropriate action to maintain his
registrations and licences as an NASD Registered Representative and a CFTC
Commodity Trading Advisor in compliance with all applicable rules and
regulations, provided, however, that he will not engage in the rendering of any
advice or in the the execution of any transactions in the securities of the
Employer without prior clearance by the Employer' attorneys.
(D) Employee shall provide to the Employer not less than four (4)
weeks written notice of his intention to resign from his employment.
4. Annual Compensation; Bonus; Supplemental Compensation.
(A) For his services to Employer during the term of this Agreement,
Employee's annual salary shall be Eighty Thousand Dollars ($80,000) (hereinafter
"Annual Base Compensation"). The Annual Base Compensation may be increased at
the discretion of the Employer's Compensation
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Committee, commencing on April 1, 1997 (the "Anniversary Date") and continuing
on the Anniversary Date in each year thereafter during the term of this
Agreement.
(B) Employee shall be granted participation in the Company's 401(k)
Plan, as well as all other benefits available to other employees of the Company.
5. Expenses. Employer will reimburse Employee or cause him to be reimbursed
for all ordinary and necessary traveling expenses and other disbursements
incurred by him for or on behalf of Employer in the performance of his duties
hereunder, and will reimburse him for his professional dues and continuing
professional education expenses up to a maximum of $1,000 per year. For such
purposes Employee shall submit to Employer periodic reports of such expenses and
other disbursements at least once in each calendar quarter.
6. Vacation Time. Employee shall be entitled to two (2) weeks vacation
during the first year of the term of this Agreement and three (3) weeks in each
subsequent year of this Agreement, which vacations shall be at such time or
times and for such periods as Employee shall choose, consistent with the
reasonable performance of his duties hereunder.
7. Employer's Right to Terminate.
(A) Employer shall have the right to terminate this Agreement, without
Cause, at any time. In the event of such termination without Cause, the
Employee's then Annual Base Compensation, as provided in paragraph 4 above,
shall be paid for a period of two (2) months. In this instance, "Annual Base
Compensation" shall include compensation for accrued but unused vacation time
during the year in which termination occurs, prorated for the remaining portion
of that year.
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(B) Employer shall have the right to terminate this Agreement for
Cause at any time during the period of this Agreement. "Cause," for all purposes
for this Agreement, will be defined as follows:
(i) the death of Employee;
(ii) the disability of Employee, said term being defined as Employee
becoming physically or mentally incapable of fully performing the
services required of him in accordance with his obligations
hereunder, and such incapacity continuing, or being reasonably
expected to continue, for more than three (3) months during any
period of twelve (12) months;
(iii) dishonest or illegal conduct of Employee;
(iv) unethical conduct of Employee or failure to perform his material
duties and obligations under this Agreement after thirty (30)
days prior written notice of such unethical conduct or failure;
or
(v) any use of illegal drugs or abuse of substances involving alcohol
or prescription drugs.
In event of termination for cause, the Employee's then Annual Base Compensation
and benefits, as provided in paragraph 4, above, shall be paid for a period of
two (2) weeks following termination, except that in the case of a termination
pursuant to paragraphs 7 (iii), (iv) and (v), such compensation and benefits
shall be paid only to the date of termination, plus all earned and accrued
benefits, and reimbursement of expenses incurred by him for and on its behalf.
Except for those duties and obligations stated in paragraphs 8, 9 (B) and 9(C),
any and all of Employer's other duties and
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obligations shall immediately be extinguished and made null and void and of no
further force and effect.
8. Confidentiality.
(A) Employee understands and acknowledges that as a result of
Employee's employment with Employer and involvement with the business of
Employer, he shall necessarily become informed of and have access to,
confidential information of Employer including, without limitation, inventions,
trade secrets, technical information, know-how, plans, specifications, identity
of customers and identity of suppliers, and that such information, even though
it may have been or may be developed or otherwise acquired by Employee, is the
exclusive property of Employer to be held by Employee in trust and solely for
Employer's benefit and Employee shall not at any time, either during or
subsequent to his employment hereunder, reveal, report, publish, transfer or
otherwise disclose to any person, corporation or other entity or use any of
Employer's confidential information, without its written consent of the Board of
Directors, except for use on behalf of the Company in connection with its
business, and except for such information which legally and legitimately is or
becomes of general public knowledge from authorized sources other than Employer.
(B) Upon the termination of his employment with Employer for any
reason, Employee shall promptly deliver to it all drawings, manuals, letters,
notes, notebooks, reports and copies thereof and all other materials, including,
without limitation, those of a secret or confidential nature, relating to
Employer's business which are in Employee's possession or control. Employer
shall reimburse Employee for any packing or moving costs reasonably incurred by
him in connection with the foregoing delivery.
9. Non-Competition; Restrictive Covenants and Confidentiality; Injunctive
Relief.
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(A) During the term of his employment with Employer pursuant to this
Agreement, or any renewal thereof, Employee shall not, directly or indirectly
whether as principal, agent, shareholder, employee, officer, director,
consultant, joint-venturer, partner or otherwise, own, manage, operate, join,
control or participate in the ownership, management, operation or control of,
render any services to or be connected in any manner with any business which is
in direct competition with or is of the type or character of any business
engaged in by Employer or which offers, sells or markets products, projects or
services that directly compete with products, projects or services offered by
Employer or any of its subsidiaries or affiliates, irrespective of whether
Employee's involvement shall be as an officer, owner, employee, partner,
joint-venturer, consultant, agent or other participant; provided, however, that
the foregoing shall not restrict Employee from making an investment in any
company the securities of which are listed on a national securities exchange or
actively traded in the over-the-counter market, so long as such investment does
not equal or exceed five percent (5%) of the total number of outstanding shares
of common stock of such company.
(B) For a period of up to one (1) year after the expiration or
termination of his employment with Employer without cause, as the Employer in
its sole discretion may elect in writing upon such expiration or termination, or
for a period of one (1) year after termination for cause, Employee shall not,
directly or indirectly, whether as principal, agent, shareholder, employee,
officer, director, joint-venturer, partner, consultant or otherwise, render any
services to or with any company, firm or individual which competes in any way
with Employer in a business actually engaged in or being actively developed by
it, provided that in the event of expiration or a termination without cause the
Employer pays to the Employee fifty percent (50%) of his Annual Base
Compensation during the period of the restriction.
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(C) For a period of one (1) year following the expiration or
termination of his employment with Employer for any reason, Employee shall not,
directly or indirectly, whether as principal, agent, shareholder, employee,
officer, director, joint-venturer, partner, consultant or otherwise, solicit,
raid, entice or induce any person who is, or was at the time of such termination
or at any time within the six-month period immediately preceding such
termination, an employee of Employer to terminate his or her employment with the
Employer or become employed by any other person, firm or corporation, and he
will not approach any such employee for such purpose or authorize or knowingly
approve the taking of such action by other persons to become employed in a
business who or which are actively engaged in a competitive business.
10. Assignability and Binding Effect. The rights and obligations arising
under this Agreement shall inure to the benefit of and shall be binding upon the
executors, administrators, successors and legal representatives of Employee and
shall inure to the benefit of and be binding upon Employer, upon its successors
and assigns, but neither this Agreement nor the rights or obligations of
Employee hereunder may be assigned, pledged, hypothecated or otherwise
transferred by Employee in whole or in part to another person, firm or
corporation nor may the obligations of Employee hereunder be delegated.
11. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered personally or sent by
registered or certified mail, prepaid and return receipt requested, to the other
party hereto at his or its mailing address as set forth at the beginning of this
Agreement, and in the case of Employer with copies to William J. Davis, Esq.,
Scheichet & Davis, P.C., 505 Park Avenue, New York, New York 10022. Either party
may change the address to
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which such communications hereunder shall be sent by sending notice of such
change to the other party as herein provided.
12. Representations by Employee and Employer. Employee hereby represents
and warrants that he is not a party to any other agreement, contract or
understanding, whether of employment or otherwise, which would in any way
restrict or prohibit him from undertaking or performing employment with Employer
in accordance with the terms and conditions of this Agreement. Employer hereby
represents and warrants that this Agreement has been properly authorized by all
necessary corporate action and, when and if, fully executed, will be binding and
enforceable upon the Company in accordance with its terms except for the
application of the laws of insolvency and bankruptcy as they may otherwise
affect such Agreement. Employer further represents and warrants that no other
contract, agreement, provision of its certificate of incorporation or bylaws,
debt obligation, law, regulation or court or administrative order prevents it
from entering into, or conflicts with, this Agreement.
13. Waiver. The waiver by either party of any breach or violation of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach or violation, whether singular in nature or not.
14. Prior Agreements; Complete Understanding; Amendment. This Agreement
cancels and supersedes any and all prior agreements and understandings, if any,
between the parties hereto regarding the services of Employee to Employer and
constitutes the complete understanding between the parties with respect to the
employment of Employee hereunder and no statement, representation, warranty or
covenant has been made by either party with respect thereto except as expressly
set forth herein. Employee acknowledges that he has been afforded the right to
review this Agreement with
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legal counsel prior to the execution of this Agreement, and that he has been
encouraged to do so. This Agreement shall not be altered, modified or amended
except by written instrument signed by each of the parties hereto.
15. Headings. The headings set forth in this Agreement are for convenience
only and shall not be considered as part of this Agreement in any respect nor
shall they in any way affect the substance of any provisions contained in this
Agreement.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one and the same agreement.
17. Arbitration. Any dispute, controversy or claim with respect to the
enforcement of the provisions of paragraph 7(B)(iv) of this Agreement or the
performance or breach of such provision shall be settled exclusively by
arbitration conducted in the English language in New York, New York in
accordance with the arbitration rules of the American Arbitration Association by
a panel of three neutral arbitrators appointed in accordance with such rules. In
any such arbitration proceeding, the arbitrators shall have the authority to
order specific performance of an act by any party to such proceeding, in
addition to or in lieu of monetary damages. The parties to this Agreement hereby
consent to the jurisdiction of the court's of the State of New York in Nassau
County.
18. Indemnification. The Employer shall, to the fullest extent permitted by
applicable law, indemnify and hold harmless the Employee so that he shall not be
personally liable to the Registrant or its stockholders or third parties for
monetary damages for breach of fiduciary duty, and against all expense,
liability and loss reasonably incurred or suffered by such person in connection
with his duties and acts hereunder, together with the right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition.
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19. Governing Law; Construction with Existing Law; Severability. This
Agreement shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of New York. It is the intention of the parties
hereto that all terms and conditions of this Agreement are in compliance with
the laws and regulations of the state of New York, and nothing in this Agreement
shall be construed to be in derogation of the laws, rules and regulations
thereof. If for any reason any provision of this Agreement or any part hereof is
invalid, unlawful or incapable of being enforced by reason of any rule of law,
equity or public policy, all conditions and provisions of the Agreement which
can be given effect without such invalid, unlawful or unenforceable provision
shall, nevertheless, remain in full force and effect, and such invalid, unlawful
or irrevocable provision shall be carried out as nearly as possible according to
its original terms and intent, while eliminating such invalidity or
non-enforceability.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
NEW YORK HEALTH CARE, INC.
By: ___________________________________
Title:
----------------------------------
Gilbert Barnett
10
CONSENT OF ATTORNEYS FOR THE REGISTRANT
We hereby consent to all references to our firm included in or made a part
of this Form SB-2 Registration Statement.
Dated: New York, New York
August 29, 1996
/s/ Halpern & Pasternack, P.C.
-----------------------------
Halpern & Pasternack, P.C.
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We consent to the use in this registration statement on Form SB-2 of our report
dated January 26, 1996, except for the first paragraph of Note 10, which is as
of October 27, 1996, on our audit of the financial statements of New York Health
Care, Inc. as of December 31, 1995 and for the years ended December 31, 1994 and
1995. We also consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts".
/s/
---------------------
M.R. WEISER & CO. LLP
New York, NY
November 5, 1996
