As filed with the Securities and Exchange Commission on December 9, 1996.
Registration No. 333-08155
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 4
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.)
1850 McDonald Avenue, Brooklyn, NY 11223 (718) 375-6700
(Address and telephone number of principal executive offices)
1850 McDonald Avenue, Brooklyn, NY 11223 (718) 375-6700
(Address of principal place of business or intended place of business)
JERRY BRAUN, PRESIDENT
New York Health Care, Inc.
1850 McDonald Avenue
Brooklyn, NY 11223
Telephone: (718) 375-6700
Facsimile: (718) 375-1555
(Name, address and telephone number of agent for service)
Copies to:
WILLIAM J. DAVIS, ESQ. KENNETH S. ROSE
Scheichet & Davis, P.C. Morse, Zelnick, Rose &
505 Park Avenue, 20th Floor Lander L.L.P.
New York, NY 10022 450 Park Avenue, Suit 902
(212) 688-3200 New York, NY 10022
(212) 838-5030
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
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of the Underwriter's Warrants................ $ 600,000 $ 174
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL(3) ................................................................................................. $2,157
===============================================================================================================================
</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>
- --------------------------------------------------------------------------------
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 DECEMBER 9, 1996
PROSPECTUS
NEW YORK HEALTH CARE, INC.
1,250,000 Shares of Common Stock
New York Health Care, Inc., (the "Company") hereby offers 1,250,000 shares
(the "Shares") of Common Stock, $.01 par value (the "Common Stock"). See
"Description of Securities."
Prior to this offering, there has been no public market for the Shares, 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 Shares has been arbitrarily determined by
negotiations between the Company and the Underwriter 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 Prices"
and "Underwriting." Application has been made for quotation of the Common Stock
on the Nasdaq SmallCap Market ("Nasdaq") and the Boston Stock Exchange under the
symbols NYHC and NYH, 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
- ------------------------------------------------------------------------------------------------------------------------------------
Total (3) ....................... $5,000,000 $500,000 $4,500,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include additional compensation to H.J. Meyers & Co., Inc., acting
as Underwriter, in the form of (i) a non-accountable expense allowance
equal to 3% of the gross proceeds of this offering, and (ii) warrants (the
"Underwriter's Warrants") to purchase up to 125,000 shares of Common Stock,
and (iii) a two-year financial consulting agreement commencing on the date
of the closing of this offering for which the Underwriter will receive a
consulting fee of $72,000. In addition, the Company has agreed to indemnify
the Underwriter against certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of approximately $632,000 payable by
the Company, including the non-accountable expense allowance and financial
consulting fee payable to the Underwriter.
(3) The Company has granted to the Underwriter an option exercisable within 45
days after the date of this Prospectus to purchase up to an additional
187,500 shares of Common Stock 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 $5,750,000, $575,000 and
$5,175,000, respectively. See "Underwriting."
The Shares are being offered by the Underwriter subject to prior sale when,
as and if delivered to and accepted by the Underwriter and subject to approval
of certain legal matters by its counsel and to certain other conditions. The
Underwriter reserves 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 will be made against payment at the offices
of the Underwriter, H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester,
N.Y., 14620-4596, on or about , 1996.
H.J. MEYERS & CO., INC.
The date of this Prospectus is __________________ , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK 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, 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>
- --------------------------------------------------------------------------------
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, a 1.25 for 1 stock split effected October 17, 1996 and a .8830022 for 1
stock split effected December 4, 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; (ii) the Underwriter's Warrants to purchase up to 125,000
shares of Common Stock; (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 outstanding option to purchase 93,750 shares. 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>
- --------------------------------------------------------------------------------
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% 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 1850 McDonald Avenue,
Brooklyn, NY 11223, telephone (718) 375-6700.
The Offering
<TABLE>
<S> <C>
Securities Offered by the Company ...... 1,250,000 shares of Common Stock. See "Description of
Securities."
Common Stock Outstanding
Before the Offering (1)................ 2,593,750 shares
Common Stock Outstanding
After the Offering(1).................. 3,843,750 shares
Use of Proceeds ........................ Acquisitions, establishment of additional branch offices, sales and marketing,
funding of infusion therapy and pediatric service divisions,
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
Boston Stock Exchange Common Stock ...... NYH
</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."
- --------------------------------------------------------------------------------
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........................ $ .20 $ .08
======= ======
Pro forma weighted average number of
common shares and common share
equivalents(2).................................. 3,436 3,436
======= ======
</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) $3,787
Total assets ........................................................ 4,840 2,853 6,721
Total liabilities ................................................... 1,799 2,613 2,613
Retained earnings ................................................... 3,011 210 210
Stockholders' equity ................................................ 3,041 240 4,108
- ------------
</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 912,778 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
offered by the Company hereby at the initial public offering price of $4.00
per share, 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 75% of revenues during the years ended December 31, 1994 and 1995,
respectively. The various county departments of social services were
collectively responsible for approximately 28% and 27% 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
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 69%
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 Kings County Branch office, 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 leases its Kings County
Branch offices from 1667 Flatbush until October 31, 2000. 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 71.6% of
the estimated net proceeds of this offering will be applied to the acquisition
of businesses, the opening of new branch offices 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
8
<PAGE>
of the net proceeds of the offering. Pending their use for 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 $2,500,000 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 $2.96 (or 74%) in the net tangible book value per
share of Common Stock. See "Dilution."
Arbitrary Determination of Public Offering Prices; Possible Volatility of
Common Stock Price. The initial public offering price of the Shares was
arbitrarily determined by negotiations between the Company and the Underwriter
and does 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 could also be subject to significant fluctuation 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
9
<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 Shares and there can be no assurance that an active public market will
develop or, if developed, be sustained. The Company anticipates that the Shares
will be eligible for listing on Nasdaq. In order to qualify for continued
listing on Nasdaq, however, a company, among other things, must currently have
$2,000,000 in capital and surplus and, $1,000,000 in market value of the public
float or a minimum bid price of $1.00 per share and a minimum of 300
shareholders. On November 6, 1996, Nasdaq approved changes to its listing
requirements which, after a 30-day comment period and consideration of changes
to the proposals, will be submitted to the Securities and Exchange Commission
(the "Commission") for final approval. If the current proposal is approved
without modification, a company's qualification for continued listing on Nasdaq
would require that the company, among other things, have at least $2,000,000 in
"net tangible assets" ("net tangible assets," equals total assets less total
liabilities and good will) or at least $35,000,000 in total market value or at
least $500,000 in net income in two out of its last three fiscal years, as well
as at least 500,000 shares in the public float, at least $1,000,000 in market
value of the public float, a bid price of not less than $1.00 per share, a
minimum of two independent directors and other corporate governance criteria
which are the same as those for the Nasdaq National Market. 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 Shares 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
Shares 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 Shares 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
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 Shares subsequently become characterized as a penny
stock, the market liquidity for the Shares could be severely affected. In
such an event, the regulations relating to penny stocks could limit the ability
of broker-dealers to sell the Shares and, thus, the ability of purchasers in
this offering to sell their Shares in the secondary market.
On July 16, 1996, the National Association of Securities Dealers, Inc.
("NASD") issued a notice of acceptance of Acceptance, Waiver, and Consent (the
"AWC") whereby the Underwriter was censured and ordered to pay fines and
restitution to retail customers in the amount of $250,000 and approximately
$1.025 million, respectively. The AWC was issued in connection with the claims
by the NASD that the Underwriter charged excessive markups and markdowns in
connection with the trading of four certain securities originally underwritten
by the Underwriter. The activities in question occurred during the periods
between December 1990 and October 1993. The Underwriter has informed the Company
that the fines and refunds will not have a material adverse effect on the
Underwriter's operations and that the Underwriter has effected remedial measures
to help ensure that the subject conduct does not recur. As of the date of this
Prospectus, all fines and restitution associated with such activities have been
paid. In the event that the foregoing activities materially adversely affect the
Underwriter's ability to act as a market maker for the Common Stock, and other
market makers do not continue to make a market in the Common Stock, a market for
and liquidity of the said shares may be adversely affected.
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 Shares. Upon the completion of this offering, all 2,500,000
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
10
<PAGE>
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 Underwriter. See "Shares Eligible for Future Sale"
and "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 Underwriter's Warrants and
Registration Rights. The Company has agreed to sell to the Underwriter for an
aggregate purchase price of $5.00, Underwriter's Warrants to purchase an
aggregate of 125,000 shares of Common Stock at an exercise price equal to 120%
of the initial public offering price. The shares of Common Stock issuable upon
exercise of the Underwriter's Warrants are identical to those offered hereby.
The Underwriter's Warrants are exercisable for a period of four years commencing
one year from the date hereof. The exercise of the Underwriter'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 Underwriter's Warrants is sold in the public
market, it may adversely affect the market price of the Common Stock. The
holders of the Underwriter'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
Shares issuable upon exercise of the Underwriter'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 Shares offered hereby are
estimated to be approximately $3,868,000 ($4,250,500 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) ................................. $2,000,000 51.71%
Establishment of new branch offices .......................... 500,000 12.93%
Sales and marketing .......................................... 300,000 7.75%
Funding of Infusion Therapy Division.......................... 250,000 6.46%
Funding of Pediatric Division................................. 250,000 6.46%
Establishment of new principal office......................... 150,000 3.88%
Upgrade of facilities and computer systems.................... 150,000 3.88%
Working capital............................................... 268,000 6.93%
---------- ------
Total ................................................ $3,868,000 100.00%
========== ======
</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
Underwriter's over-allotment option, the Warrants or the Underwriter 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 offered hereby (after deduction of estimated offering expenses and
the underwriting discounts and commissions estimated at $1,132,000), the pro
forma net tangible book value of the Company at September 30, 1996 would have
been $3,897,570, or approximately $1.04 per share of Common Stock, representing
an immediate dilution to new investors of $2.96 per share, or 74%, as
illustrated by the following table:
<TABLE>
<S> <C> <C>
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.......................................... 1.03
-----
Pro forma net tangible book value per share of
Common Stock after offering.................................. 1.04
-----
Dilution per share of Common Stock to new investors............ $2.96
=====
</TABLE>
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
-------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
Present
Stockholders(1) ....................... 2,500,000 67% $ 30,000 0.6% $ .012
New Investors ......................... 1,250,000 33 5,000,000 99.4 $4.00
--------- ---- ---------- -----
Total ................................. 3,750,000 100% $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 Shares offered hereby at an assumed initial public offering price of
$4.00 per share of Common Stock 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; 2,500,000 shares
issued and outstanding, actual; 3,750,000
shares issued and outstanding
as adjusted(1) ................................... 25,000 37,500
Additional paid-in capital ......................... 5,000 3,860,500
Retained earnings .................................. 210,155 210,155
--------- ---------
Total stockholders' equity ......................... 240,155 4,108,155
--------- ---------
Total capitalization ............................... 2,248,254 6,116,254
========= =========
</TABLE>
- ------------
(1) Does not include (i) 125,000 shares reserved for issuance upon exercise of
the Underwriter's Warrants; and (ii) 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)
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) ............ $ .20 $ .08
======== =======
Pro forma weighted average number of
common shares and common share
equivalents(2)............................... 3,436 3,436
======== =======
</TABLE>
December 31, September 30,
1995 1996
------- --------
(In thousands)
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
- ------------
(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 912,778 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 75% of net revenues for 1995, 76% of net
revenues for 1994 and 69% 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 24% of net revenues for
the first nine months of 1996, 26.8% of net revenues for 1995 and 27.7% 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 15.2% to approximately $668,000 from approximately $580,000 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.
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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."
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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 $3,421,000 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.
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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 general
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,
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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.
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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,
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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.
25
<PAGE>
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)........... 27.7% 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 75% of net revenues for 1995, 76% of net revenues for 1994 and 69%
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 $3,421,000 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
26
<PAGE>
$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 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 72% and 73%, 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.
27
<PAGE>
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.
28
<PAGE>
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
29
<PAGE>
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
30
<PAGE>
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 a one-story commercial
building of approximately 6,000 square feet located at 1850 McDonald Avenue,
Brooklyn, New York 11223, which is leased from an unaffiliated person. The lease
is for a period ending March 31, 2000 and is subject to a renewal option for
five years in favor of the Company. The rent is $5,200 per month and is subject
to annual increases, beginning April 1, 1997, equal to 4% of the total prior
year's monthly rent and all increases in real estate taxes for the original and
renewal terms. The Company sublets approximately 2,500 square feet to an
unaffiliated third party for a period and with a renewal option the same as that
in the Company's lease. The rent is $2,860 per month and is subject to annual
increases beginning June 1, 1997 equal to 4% of the total prior years monthly
rent and 30% of all increases in real estate taxes for the original and renewal
term.
The Company acquired the lease and sublease from an unaffiliated person
pursuant to an agreement dated October 8, 1996 in consideration for $90,000.
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<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. The Company intends to use a portion of the proceeds of
this offering to upgrade its existing branch office facilities and its computer
management systems. See "Use of Proceeds."
<TABLE>
<CAPTION>
Lease Terms
Approx. ----------------------------
Opening Square Expiration Annual
Location Date Footage Date Rental(1)
-------- ------ ------- ---------- --------
<S> <C> <C> <C> <C>
Kings County (2)
Branch Office
1667 Flatbush Avenue
Brooklyn, NY 11210.......................... 11/95 2,000 10/31/00 $37,800
Nassau County
Branch Office
175 Fulton Avenue
Hempstead, NY 11550......................... 9/93 1,600 10/31/98 $20,187
Westchester County
Branch Office
6 Gramatan Avenue
Mt. Vernon, NY 10550........................ 12/96 2,000 12/31/01 $25,200
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.
(2) The Company's Kings County Branch office occupies two of the three floors
of a commercial building 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 subject to a renewal option for five
years in favor of the Company. The rent is subject to annual increases,
beginning November 1, 1997, equal to 5% ofthe total prior year's monthly
rent for the original term and all renewal terms of the lease.
32
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- ------
<S> <C> <C>
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
</TABLE>
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
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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
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<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 Underwriter 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.
To date, no options have been granted under the Plan. 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 Underwriter 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 per share of the Common Stock on the date of grant or
$4.00 per share 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 three years following such an increase will have an exercise
price no lower than the greater of the fair market value per share of the Common
Stock upon the date of the option grant or $4.00 per share.
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
Underwriter 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 Underwriter.
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<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) ................................ 1,031,248 39.76% 26.83%
929 East 28th Street
Brooklyn, NY 11210
Jacob Rosenberg ............................... 468,751 18.75% 13.30%
932 East 29th Street
Brooklyn, NY 11210
Samson Soroka ................................. 468,751 18.75% 13.30%
1228 East 22nd Street
Brooklyn, NY 11210
Hirsch Chitrik ................................ 500,000 20.00% 13.33%
1401 President Street
Brooklyn, NY 11213
Sid Borenstein ............................. 125,000 5.00% 3.33%
1246 East 10th Street
Brooklyn, NY 11230
All officers and directors
as a group (5 persons)(1)(2)................. 2,593,750 100.00% 69.17%
</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."
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<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 625,000 shares of Common Stock and the
Company issued 500,000 shares of its Common Stock to Hirsch Chitrik and 125,000
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 Kings County
Branch office, 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 leases its Kings County Branch office from 1667 Flatbush
until October 31, 2000 for $3,150 per month in rent, which is subject to annual
increases beginning November 1, 1997 equal to 5% of the prior year's monthly
rent. Management believes that the terms of the lease are no less favorable to
the Company than could have been 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. 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
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<PAGE>
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 2,500,000 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.
38
<PAGE>
Transfer Agent
Continental Stock Transfer & Trust Company, New York, New York, is the
transfer agent for the shares of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 2,500,000 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, 1,875,000 shares of
such restricted securities may be sold immediately and 625,000 shares may be
sold beginning in May, 1997. 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 Underwriter.
39
<PAGE>
Subject to the terms and conditions set forth in the Underwriting
Agreement, which is filed as an exhibit to the Registration Statement, the
Underwriter has agreed to purchase, and the Company has agreed to sell the
1,250,000 shares of Common Stock offered hereby. The Underwriting Agreement
provides that the Underwriter will be obligated to purchase all the Shares
offered hereby on a "firm commitment" basis, if any are purchased.
The Company has been advised by the Underwriter that it proposes to offer
the Shares to the public initially at the offering price set forth on the cover
page of this Prospectus; that the Underwriter may allow to selected dealers a
concession of $.** per Share.
The Company has granted to the Underwriter an over-allotment option to
purchase up to 187,500 shares of Common Stock during the 45 day period
commencing with the date of this Prospectus, solely to cover over-allotments in
the sale of the Shares.
The Underwriter has informed the Company that it does not intend to confirm
sales to any accounts over which it exercises discretionary authority.
The Underwriting Agreement provides that the Company will pay to the
Underwriter a nonaccountable expense allowance of 3% of the gross proceeds of
this offering, or $150,000 ($172,000 if the over-allotment option is exercised
in full) of which $55,000 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 offered hereby for sale under the laws of such states as the Underwriter
may designate, including fees and expenses of counsel retained for such
purposes, and other expenses in connection with the offering, estimated to total
approximately $410,000.
The Company has also agreed to sell to the Underwriter for nominal
consideration the Underwriter's Warrants to purchase an aggregate of 125,000
shares of Common Stock. The Underwriter's Warrants are exercisable at a price
equal to 120% of the initial offering price of the Shares offered hereby, for a
period of four years commencing one year from the date of this Prospectus. The
Underwriter'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 Underwriter's Warrants. During the term
of the Underwriter'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
Underwriter'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
Underwriter's Warrants.
Pursuant to the Underwriting Agreement, the Underwriter has been granted
the right, for a period of three years after completion of the offering, to
designate an individual to serve on the Company's Board of Directors or as an
observer to the Board. The Underwriter has not advised the Company whether it
will exercise such right or, if so, whether it will designate a director or an
observer, or who it will designate.
All of the Company's current stockholders, officers and directors have
agreed not to sell their shares without the consent of the Underwriter 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 to purchase Common Stock, warrants or any other
equity or debt security within 12 months after the date of this Prospectus
without the consent of the Underwriter. In addition, for a period of 24 months
after the date of this Prospectus, the Company will not issue or sell any
securities pursuant to Regulation S under the Securities Act without the prior
written consent of the Underwriter.
The Company, and its officers and directors, have agreed that the
Underwriter shall have a right of first refusal for three years to manage,
underwrite or purchase for its own account any securities to be sold by the
Company, any subsidiary or successor of the Company or, subject to certain
exceptions, by any officer or director of the Company. The Company has also
agreed to pay the Underwriter a consulting fee of $72,000 for financial
consulting services to be performed over a period of two years.
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<PAGE>
The Company has also agreed that, for a period of 24 months after the
closing date of this offering, if it participates in any merger, consolidation
or other transaction which the Underwriter has brought to the Company, or for
which the Company retains the Underwriter for consultation or other services in
connection therewith (including an acquisition of assets or stock in which it
pays for the acquisition, in whole or in part, with shares of the Common Stock
or other securities), then it will pay for the Underwriter's services an amount
based upon a percentage of the consideration paid in the transaction ranging
from 5% of the first $3,000,000 to 2% of any consideration in excess of
$5,000,000. There are no current plans, proposals, arrangements or
understandings with the Underwriter with respect to any financing, merger,
acquisition or other transaction.
Prior to this offering, there has been no public market for any of the
Companys securities. Accordingly, the initial public offering prices of the
Securities was determined by negotiation between the Company and the
Underwriter. 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 Companys management, the prospects of the Company, its capital structure
and such other factors as were deemed relevant.
On July 16, 1996, the NASD issued a notice of acceptance of the AWC whereby
the Underwriter was censured, and ordered to pay fines and restitution to retail
customers in the amount of $250,000 and approximately $1.025 million,
respectively. The AWC was issued in connection with claims by the NASD that the
Underwriter charged excessive markups and markdowns in connection with the
trading of four certain securities originally underwritten by the Underwriter.
The activities in question occurred during periods between December 1990 and
October 1993. The Underwriter has informed the Company that the fines and
refunds will not have a material adverse effect on the Underwriter's operations
and that the Underwriter has effected remedial measures to help ensure that the
subject conduct does not recur. As of the date of this Prospectus, all fines and
restitution associated with such AWC have been paid.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter 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.
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. Morse, Zelnick, Rose &
Lander L.L.P., New York, New York will pass upon certain matters for the
Underwriter 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, 1995 and for the
years ended 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.
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<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
<TABLE>
<S> <C>
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
</TABLE>
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 December 4, 1996,
Note 12, which is as of December 5, 1996, and
Note 15, which is as of October 8, 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; 2,500,000 shares issued and outstanding ........................ 25,000 25,000
Additional paid-in capital ................................................... 5,000 5,000
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 ................. $ .20 $ .08
=========== =========
Pro forma weighted average number of
common shares and common share equivalents.... 3,436,215 3,436,215
=========== =========
</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 ............ 2,500,000 $25,000 $5,000 $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 .......... 2,500,000 25,000 5,000 2,722,715 2,752,715
Net income ............................ 1,128,011 1,128,011
Distributions ($.34 per share)......... (840,032) (840,032)
--------- ------- ------ ---------- ----------
Balance at December 31, 1995 .......... 2,500,000 25,000 5,000 3,010,694 3,040,694
Net income (unaudited) ................ 424,892 424,892
Distributions ($1.29 per share)
(unaudited)......................... (3,225,431) (3,225,431)
--------- ------- ------ ---------- ----------
Balance at September 30, 1996
(unaudited)......................... 2,500,000 $25,000 $5,000 $ 210,155 $ 240,155
========= ======= ====== ========== ==========
</TABLE>
- --------
(a) Retroactive effect has been given to the March 26, 1996, October 17, 1996
and December 4, 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 912,778 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. (See Note 15.)
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. On December 4, 1996 the
shareholders and Board of Directors effected a stock split of .8830022 for 1 of
the Corporation's common stock issued and outstanding. 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.
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)
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
securities. Such agreement was terminated on December 3, 1996. On December 5,
1996 the Corporation signed a letter with another investment banker, which
specifies that the investment banker will underwrite, on a firm commitment
basis, 1,250,000 shares of common stock anticipated to be offered $4.00 per
share. The investment banker will receive warrants to purchase up to 125,000
shares of Common Stock, and a two-year consulting agreement commencing on the
date of closing of the public offering for which they will receive a fee of
$72,000.
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. Also see Notes 10 and 12.
15. SUBSEQUENT EVENT:
On October 8, 1996, the Corporation entered into an agreement to acquire a
lease, for new office space, and a sub-lease from an unaffiliated person for
$90,000. The lease is for a term expiring March 31, 2000, and is subject to
renewal by the Corporation for an additional five years. The rent is $62,400 per
annum, and is subject to annual increases beginning April 1, 1997. The
Corporation sub-leases a portion of the space for $34,320 per annum. The
sub-lease is subject to the same renewal option and annual increases as the
Corporation's lease.
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 _____, 1997 (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
NEW YORK HEALTH CARE, INC.
----------------------
P R O S P E C T U S
----------------------
H.J. Meyers & Co., Inc.
December __, 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
Underwriter's 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 ....................................... $ 2,157
NASD Filing Fee ............................................ 2,089
Nasdaq Filing Fee .......................................... 10,000
Boston Stock Exchange Filing Fee ........................... 14,150
Printing and engraving expenses ............................ 90,000
Legal fees and expenses .................................... 135,000
Blue Sky fees and expenses ................................. 30,000
Accounting fees and expenses ............................... 100,000
Transfer Agent fees ........................................ 3,000
Miscellaneous expenses ..................................... 23,604
--------
$410,000
========
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 500,000 shares of its Common Stock to
Hirsch Chitrik and 125,000 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.
3.6 Amendment to the Certificate of Incorporation of the Company
filed December 4, 1996.*
4.1 Form of certificate evidencing shares of Common Stock.
4.2 Underwriter's Warrant Agreement and Form of Underwriter's
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.
10.36 Assignment of lease dated October 8, 1996, lease dated March 31,
1995 and sublease dated May 1995 among the Company, as tenant,
Prime Contracting Design Corp., as assignor, Bellox Realty
Corp., as landlord and Nutriplus Corp., as subtenant.
10.37 Lease for 6 Gramatan Avenue, Mount Vernon, New York, 10550 by and
between the Company and 6 Gramatan Avenue Corp. dated December
1, 1996*
10.38 Form of Financial Consulting Agreement with H.J. Meyers Co.,
Inc.*
10.39 Forms of Merger and Acquistion Agreement and idemnification.*
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 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 Underwriter 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 9th
day of December, 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, December 9, 1996
- -------------------------------- and Director
Jerry Braun
* Vice President, Chief Operating December 9, 1996
- -------------------------------- Officer, Secretary and Director
Jacob Rosenberg
* Chief Financial Officer and December 9, 1996
- -------------------------------- Chief Accounting Officer
Gilbert Barnett
* Director December 9, 1996
- --------------------------------
Samson Soroka
* Director December 9, 1996
- --------------------------------
Hirsch Chitrik
* Director December 9, 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
December 9, 1996
II-5
UNDERWRITING AGREEMENT
______________, 1996
H.J. Meyers & Co., Inc.
1895 Mt. Hope Avenue
Rochester, New York 14620
Gentlemen:
NEW YORK HEALTH CARE, INC., a New York corporation (the "Company"),
confirms its agreement with H.J. Meyers & Co., Inc. ("Meyers," "you" or the
"Underwriter") with respect to the sale by the Company and the purchase by the
Underwriter 1,250,000 shares ("Shares") of the Company's Common Stock, $.01 par
value per share ("Common Stock"). Such Shares are hereinafter referred to as the
"Firm Shares."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also sell to the Underwriter up to an additional 187,500 Shares
for the purpose of covering over-allotments, if any. Such 187,500 Shares are
hereinafter referred to as the "Option Shares." The Company also proposes to
issue and sell to you warrants (the "Underwriter's Warrants") pursuant to the
Underwriter's Warrant Agreement (the "Underwriter's Warrant Agreement") for the
purchase of an additional 125,000 Shares. The Shares issuable upon exercise of
the Underwriter's Warrants are hereinafter referred to as the "Underwriter's
Securities." The Firm Shares, the Option Shares, the Underwriter's Warrants and
the Underwriter's Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, each Underwriter
that:
(a) A registration statement (File No.333-08155) on Form SB-2 relating to
the public offering of the Securities, including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity in all material respects with the
requirements of the Securities Act of 1933 (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") promulgated thereunder, and has been filed with
the Commission under the Act. "Preliminary Prospectus" shall mean each
prospectus filed pursuant to Rule 430 of the Rules and Regulations. The
registration statement (including all financial schedules and exhibits) as
amended at the time it becomes effective and the final prospectus included
therein are respectively hereinafter referred to as the "Registration
Statement," and the "Prospectus," except that (i) if the
-1-
<PAGE>
prospectus first filed by the Company pursuant to Rule 424(b) or Rule 430A of
the Rules and Regulations or otherwise utilized and not required to be so filed
shall differ from said prospectus as then amended, the term "Prospectus" shall
mean the prospectus first filed pursuant to Rule 424(b) or Rule 430A or so
utilized from and after the date on which it shall have been filed or utilized,
and (ii) if such registration statement or prospectus is amended or such
prospectus is supplemented after the effective date of such registration
statement and prior to the Option Closing Date (as defined in Section 2(b), the
term "Registration Statement" shall include such registration statement as so
amended or supplemented, or both, as the case may be, and the term "Prospectus"
shall include the prospectus as so amended or supplemented, or both, as the case
may be.
(b) At the time the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriter or a dealer, (i) the Registration Statement and Prospectus will
in all material respects conform to the requirements of the Act and the Rules
and Regulations, and (ii) neither the Registration Statement nor the Prospectus
will include any untrue statement of a material fact or omit to state any
material fact required to be stated therein, in light of the circumstances in
which they were made, or necessary to make the statements therein not
misleading; provided, however, that the Company makes no representations,
warranties or agreements as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of you or by or on
behalf of the Underwriter for use in the preparation thereof. It is understood
that the statements set forth in the Prospectus with respect to stabilization,
the material set forth in the second, fourth and twelfth paragraphs under the
heading "Underwriting" and the identity of counsel to the Underwriter under the
heading "Legal Matters" constitute the only information furnished in writing by
you, or by the Underwriter through you, for inclusion in the Registration
Statement and Prospectus, as the case may be.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of New York, with full
power and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus and is duly qualified to do business as
a foreign corporation and is in good standing in all other jurisdictions in
which the nature of its business or the character or location of its properties
requires such qualification, except where failure to so qualify will not
materially affect its business, properties or financial condition.
(d) The authorized capital stock of the Company as of the Effective Date is
set forth under "Capitalization" in the Prospectus. The shares of issued and
outstanding capital stock of the Company set forth thereunder have been duly
authorized, validly issued and are fully paid and non-assessable; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of capital stock of the Company have
been granted or entered into by
-2-
<PAGE>
the Company. The Securities conform in all material respects to all statements
relating thereto contained in the Registration Statement and Prospectus.
(e) The Securities are duly authorized and, when issued, delivered and paid
for pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security holder of
the Company.
(f) This Agreement, the Underwriters' Warrant Agreement, the Financial
Consulting Agreement described in Subsection 3(s) (the "Financial Consulting
Agreement") and the Merger and Acquisition and Indemnification Agreements
described in Subsection 3(w) (collectively, "M/A Agreement") have been duly and
validly authorized, and this Agreement has been executed and delivered by the
Company and, assuming due execution by the Company with regard to the
Underwriter's Warrant, Financial Consulting and M/A Agreements and by the other
party or parties hereto and thereto, constitutes and will constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the rights of creditors
generally. The Company has full power and lawful authority to authorize, issue
and sell the Securities to be sold by it hereunder on the terms and conditions
set forth herein, and no consent, approval, authorization or other order of
anyone, including any governmental authority, is required in connection with the
authorization, issuance and sale of the Securities or the Underwriter's Warrant,
except such as may be required under the Act or state or corporate securities
laws, all of which have been duly obtained.
(g) The Company is not in violation, breach or default of or under, and the
consummation of the transactions herein contemplated, and the fulfillment of the
terms of this Agreement and the agreements described in Subsection 1(f) will not
conflict with, or, with or without giving the notice or the passage of time or
both, result in a breach of, any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance pursuant to the terms of, any indenture, mortgage, deed of trust,
loan agreement or other material agreement or instrument to which the Company is
a party or by which the Company may be bound or to which any of the property or
assets of the Company are subject, nor will such action result in any violation
of the provisions of the certificate of incorporation or the by-laws of the
Company, or any statute or any order, rule or regulation applicable to the
Company of any court or of any regulatory authority or other governmental body
having jurisdiction over the Company, or any judgment or order of any court or
other tribunal by which the Company may be bound; in each case where the breach
or default would have a material adverse effect on the Company.
(h) Subject to the qualifications stated in the Prospectus, the Company has
good and marketable title to all properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances or
restrictions, or any other rights whatsoever of any other entity or person,
except such as are not materially significant or important in relation to its
business; all of the leases and subleases under which the Company is the lessor
or sublessor of
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<PAGE>
properties or assets or under which the Company holds properties or assets as
lessee or sublessee as described in the Prospectus are in full force and effect
and, except as described in the Prospectus, the Company is not in default with
respect to any of the terms or provisions of any of such leases or subleases
and, except as described in the Prospectus, no claim has been asserted by anyone
adverse to rights of the Company as lessor, sublessor, lessee or sublessee under
any of the leases or subleases to which it is a party, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company owns or leases all
such properties described in the Prospectus as are necessary to its operations
as now conducted.
(i) Except as set forth in the Prospectus, the Company owns or possesses
adequate rights to use all material patents, patent applications, trademarks,
mark registrations, copyrights and licenses necessary for the conduct of its
business and has not received any notice of conflict with the asserted rights of
others in respect thereof. All patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, franchises and
other intangible properties and assets (all of the foregoing being herein called
"Intangibles") that the Company owns or has pending, or under which it is
licensed are accurately described in the Prospectus. There is no right under any
Intangible, necessary to the business of the Company as presently conducted or
as the Prospectus indicates it contemplates conducting, except as accurately
described in the Prospectus. Except as set forth in the Prospectus, to the
knowledge of the Company, it has not infringed, is not infringing, and has not
received notice of infringement with respect to, asserted Intangibles of others,
except for such infringement or alleged infringement that has not had, or cannot
be reasonably expected to have, a material adverse effect on the financial
condition, results of operations, business, properties, assets or future
prospects of the Company. Except as accurately described in the Prospectus, to
the knowledge of the Company, there is no infringement by others of any of the
Intangibles of the Company. Except as accurately described in the Prospectus, to
the knowledge of the Company, there is no Intangible of any other entity or
person which has had or may in the future have a material adverse effect on the
financial condition, results of operations, business, properties, assets or
future prospects of the Company.
(j) To the knowledge of the Company, M. R. Weiser & Co., LLP, who have
given their report on certain financial statements filed and to be filed with
the Commission as a part of the Registration Statement, which are included in
the Prospectus, are with respect to the Company independent public accountants
as required by the Act and the Rules and Regulations.
(k) The financial statements and schedules, together with related notes,
set forth in the Prospectus or the Registration Statement present fairly the
financial position and results of operations and changes in cash flows of the
Company on the basis stated in the Registration Statement, at the respective
dates and for the respective periods to which they apply. Said statements and
schedules and related notes have been prepared in accordance with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. To the knowledge of the Company, no other financial statements
are required by Form SB-2 or otherwise to be included in the Registration
Statement or the Prospectus. There has at no time
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<PAGE>
been a material adverse change in the financial condition, results of
operations, business, properties, or assets of the Company from the latest
information set forth in the Registration Statement or the Prospectus, except as
properly described in the Prospectus; and, except as set forth in the
Prospectus, there is no fact known to the Company which could reasonably be
expected to have a material and adverse effect on the future prospects of the
Company (other than political or economic matters of general applicability or as
properly described in the Prospectus).
(l) Except as set forth in the Prospectus, subsequent to the respective
dates as of which information is given in the Registration Statement and
Prospectus, the Company has not incurred any liabilities or obligations, direct
or contingent, not in the ordinary course of business, or entered into any
transaction not in the ordinary course of business, which is material to the
business of the Company, and there has not been any change in the capital stock
of, or any incurrence of long-term debt by, the Company or any issuance of
options (except for the issuance of options pursuant to the Company's
Performance Incentive Stock Option Plan), warrants or other rights to purchase
the capital stock of the Company or any adverse change or any development
involving, so far as the Company can now reasonably foresee, a prospective
adverse change in its condition (financial or other), net worth, results of
operations, business, management or properties which would be material to the
business or financial condition of the Company, and the Company has not become
party to, and neither the business nor the property of the Company has become
the subject of, any material litigation whether or not in the ordinary course of
business.
(m) Except as set forth in the Prospectus, there is not now pending nor, to
the knowledge of the Company, threatened, any action, suit or proceeding
(including those related to environmental matters, discrimination on the basis
of age, sex, religion or race, or any regulatory matters) to which the Company
is a party before or by any court or governmental agency or body, which could
result in any material adverse change in the condition (financial or other),
business prospects, net worth or properties of the Company; and no labor
disputes involving the employees of the Company exist which could be expected to
materially adversely affect the conduct of the business, property or operations
or the financial condition or earnings of the Company.
(n) Except as set forth in the Prospectus, the Company (i) has paid all
federal, state, local and foreign taxes for which it is liable to the extent
such taxes are due and payable, 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, (ii) has established adequate reserves
for such taxes which are not due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(o) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are executed
in accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
-5-
<PAGE>
principles and to maintain accountability for assets; (C) access to assets is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(p) Except as set forth in the Prospectus, the Company has sufficient
licenses, permits and other governmental authorizations currently required for
the conduct of its business or the ownership of its property as described in the
Prospectus and is in all material respects complying therewith. To the best
knowledge of the Company, none of the activities or business of the Company is
in violation of, or could cause the Company to violate, any law, rule,
regulation or order of the United States, any state, county or locality, or of
any agency or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations or net worth of the Company.
(q) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or if made, failed to
disclose fully any such contribution made in violation of law, or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(r) On the Closing Dates (as defined in Section 2 (c)), all transfer or
other taxes (including franchise, capital stock or other tax, other than income
taxes imposed by any jurisdiction), if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Underwriter
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(s) Any contract, agreement, instrument, lease or license required to be
described in the Registration Statement or the Prospectus has been properly
described therein. Any contract, agreement, instrument, lease, or license
required to be filed as an exhibit to the Registration Statement has been filed
with the Commission as an exhibit to the Registration Statement.
(t) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
hereunder.
(u) The Company has no subsidiaries.
(v) Except as described in the Prospectus, there are no claims, payments,
issuances, arrangements or understandings, 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,
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<PAGE>
agreements, understandings, payments or issuances with respect to the
Company or any of its officers, directors, stockholders, partners, employees or
affiliates that may affect the Underwriter' compensation, as determined by the
National Association of Securities Dealers, Inc. ("NASD").
(w) Neither the Commission nor, to the knowledge of the Company, the "blue
sky" or securities authority of any jurisdiction has issued an order (a "Stop
Order") suspending the effectiveness of the Registration Statement, preventing
or suspending the use of any Preliminary Prospectus, the Prospectus, the
Registration Statement, or any amendment or supplement thereto, refusing to
permit the effectiveness of the Registration Statement, or suspending the
registration or qualification of the Securities, nor, to the knowledge of the
Company, has any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(x) The Company has all requisite power and authority to execute, deliver,
and perform this Agreement. All necessary corporate proceedings of the Company
have been duly taken to authorize the execution, delivery and performance of
this Agreement by the Company. This Agreement has been duly authorized, executed
and delivered by the Company, is the legal, valid and binding obligation of the
Company, and is enforceable as to the Company in accordance with its terms
(subject to applicable bankruptcy, insolvency and other laws affecting
creditors' rights generally and except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws and public policy).
Except as described in the Prospectus, no consent, authorization, approval,
order, lien, certificate, or permit of or from, or declaration or filing with,
any federal, state, local or other governmental authority or any court or other
tribunal is required for the execution, delivery, or performance of this
Agreement by the Company (except filings under the Act which have been or will
be made before the Closing Date and such consents consisting only of consents
under "blue sky" or securities laws which have been obtained at or prior to the
date of this Agreement). No consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which the Company
is a party, or to which any of its properties or assets are subject, is required
for the execution, delivery or performance or this Agreement; and the execution,
delivery, and performance of this Agreement will not violate, result in a breach
of, conflict with, or (with or without the giving of notice or the passage of
time or both) entitle any party to terminate or call a default under any such
material contract, agreement, instrument, lease, license, arrangement or
understanding, or violate or result in a breach of any term of the articles of
incorporation or by-laws of the Company, or violate, result in a breach of, or
conflict with, any law, rule, regulation, order, judgment, or decree binding on
the Company or to which any of its operations, businesses, properties, or assets
is subject.
(y) The Company has caused to be duly executed agreements ("Lock-up
Agreements") pursuant to which each of the Company's officers, directors and
stockholders has agreed (i) not to, directly or indirectly, offer to sell, sell,
grant any option for the sale of, assign, transfer, pledge, hypothecate or other
encumber or dispose of any shares of Common Stock or securities convertible
into, exercisable or exchangeable for or evidencing any right to purchase or
subscribe for 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 24 months
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<PAGE>
following the Closing Date without the prior written consent of the
Underwriter (provided, however, that as to transfer to immediate family members,
trusts for such family members or recognized charities, which tranferees execute
like Lock-up Agreements, such consent shall not be unreasonably withheld), and
(ii) during the five (5) year period following the Closing Date, to give the
Underwriter the right to purchase for its own account or sell for the account of
such persons, any securities sold by such persons pursuant to Rule 144. The
Company has no reason to believe that the Lock-up Agreements are not legally
binding upon, and enforceable against, the respective security holder
signatories thereto. The Company will cause the Transfer Agent 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.
(z) The Common Stock has been approved for quotation on the National
Association of Securities Dealers, Inc. Automated Quotation System Small Cap
Market ("NASDAQ"), and approved for listing on the Boston Stock Exchange
("BSE"), subject to notice of issuance.
(aa) Except as set forth in the Prospectus, no officer, director, principal
stockholder or partner 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, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, or (ii) a beneficial 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 stockholder of the
Company, or any partner, affiliate or associate of any of the foregoing persons
or entities required to be set forth in the Prospectus.
(bb) Any certificate signed by any officer of the Company and delivered to
the Underwriter or to Underwriter' Counsel (as defined herein) shall be deemed a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
(cc) The minute book of the Company has been made available to the
Underwriter and contains a complete record in all material respects of all
meetings and actions of the directors and stockholders of the Company,
respectively, since the time of its respective incorporation and accurately
reflects all transactions referred to in such minutes in all material respects.
(dd) 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 in any other
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and except as described in the
Registration
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<PAGE>
Statement, no person or entity holds any price protection anti-dilution rights
with respect to any securities of the Company.
(ee) 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 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.
(ff) 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."
(gg) 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.
(hh) Immediately prior to the effective date of the Registration Statement
there shall be no more than an aggregate of 2,593,750 shares of Common Stock
issued and outstanding (including any and all (A) securities with equivalent
rights as the Common Stock, (B) Common
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<PAGE>
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
Underwriter's Warrant).
2. Purchase, Delivery and Sale of the Shares.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties and agreements herein contained, the
Company agrees to issue and sell to the Underwriter, and the Underwriter agrees
to buy from the Company, at $3.60 per Share at the place and time hereinafter
specified, the Firm Shares.
Delivery of the Firm Shares against payment therefor shall take place at
the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New
York 14620 (or at such other place as may be designated by agreement between you
and the Company) at 10:00 a.m. New York time on ___________, 1996, or at such
later time and date as you may designate, such time and date of payment and
delivery for the Firm Shares being herein called the "First Closing Date." Time
shall be of the essence and delivery at the time and place specified in this
subsection (a) is a further condition to the obligations of the Underwriter
hereunder.
(b) In addition, subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to the Underwriter to purchase
all or any part of an aggregate of 187,500 additional Shares at the same price
per Share as the Underwriter shall pay for the Firm Shares being sold pursuant
to the provisions of subsection (a) of this Section 2 (such additional Shares
being referred to herein as the "Option Shares"). This option may be exercised
within 45 days after the Effective Date upon notice by you to the Company
advising it as to the amount of Option Shares as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Shares are to be registered and the time and date when such certificates are to
be delivered. Such time and date shall be determined by you but shall not be
earlier than four and not later than ten full business days after the exercise
of said option, nor in any event prior to the First Closing Date, and such time
and date is referred to herein as the "Option Closing Date." Delivery of the
Option Shares against payment therefor shall take place at the offices of H.J.
Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New York 14620 (or at such
other place as may be designated by agreement between you and the Company). Time
shall be of the essence and delivery at the time and place specified in this
subsection (b) is a further condition to the obligations of the Underwriter
hereunder.
The Option granted hereunder may be exercised only to cover over-allotments
in the sale by the Underwriter of Firm Shares referred to in subsection (a)
above.
(c) The Company will make the certificates for the Shares to be purchased
by the Underwriter hereunder available to you for inspection at least two full
business days prior to the First Closing Date or the Option Closing Date (which
are collectively referred to herein as the
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<PAGE>
"Closing Dates" and individually as a "Closing Date"), as the case may be. The
certificates shall be in such names and denominations as you may request, at
least two full business days prior to the relevant Closing Dates. Time shall be
of the essence and the availability of the certificates at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriter.
Definitive certificates in negotiable form for the Shares to be purchased
by the Underwriter hereunder will be delivered by the Company to you for the
account of the Underwriter against payment of the purchase price by you, for the
account of the Underwriter, at your option, by certified or bank cashier's
checks in New York Clearing House funds or by wire transfer, payable to the
order of the Company or up to three designees of the Company.
In addition, in the event the Underwriter exercises the option to purchase
from the Company all or any portion of the Option Shares pursuant to the
provisions of subsection (b) above, payment for such Option Shares shall be made
to or upon the order of the Company by you, for the account of the Underwriter,
at your option, by certified or bank cashier's checks payable in New York
Clearing House funds or by wire transfer, at the offices of H.J. Meyers & Co.,
Inc. at the time and date of delivery of such Option Shares as required by the
provisions of subsection (b) above, against receipt of the certificates for such
Option Shares by you, for the account of the Underwriter, registered in such
names and in such denominations as you may request.
It is understood that the Underwriter propose to offer the Shares to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter Underwriter's Warrants, for an aggregate purchase price of $5.00,
which warrants shall entitle the holders thereof to purchase an aggregate of
125,000 shares of Common Stock. The Underwriter's Warrants shall be exercisable
for a period of four (4) years commencing one (1) year from the effective date
of the Registration Statement at a price equaling one hundred twenty percent
(120%) of the initial public offering price of the Shares. The Underwriter's
Warrant Agreement and form of Warrant Certificate shall be substantially in the
form filed as Exhibit 4.2 to the Registration Statement. Payment for the
Underwriter's Warrants shall be made on the Closing Date.
3. Covenants of the Company
The Company covenants and agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will not
at any time, whether before or after the Effective
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<PAGE>
Date, file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you or counsel for the Underwriter shall have objected
in writing or which is not in compliance with the Act and the Rules and
Regulations. At any time prior to the later of (A) the completion by the
Underwriter of the distribution of the Securities contemplated hereby (but in no
event more than nine months after the Effective Date) and (B) 25 days after the
Effective Date, the Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or Prospectus which, in your reasonable opinion, may be necessary or advisable
in connection with the distribution of the Securities.
Promptly after you or the Company is advised thereof, you will advise the
Company or the Company will advise you, as the case may be, and confirm the
advice in writing, of the receipt of any comments of the Commission, of the
effectiveness of any post-effective amendment to the Registration Statement, of
the filing of any supplement to the Prospectus or any amended Prospectus, of any
request made by the Commission for amendment of the Registration Statement or
for supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop orders or other order suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering in any jurisdiction, or the institution of any proceedings for any of
such purposes, and the Company will use its best efforts to prevent the issuance
of any such order and, if issued, to obtain as soon as possible the lifting
thereof.
The Company has caused to be delivered to you copies of each Preliminary
Prospectus, and the Company has consented and hereby consents to the use of such
copies for the purposes permitted by the Act. The Company authorizes the
Underwriter and selected dealers to use the Prospectus in connection with the
sale of the Securities for such period as in the opinion of counsel for the
Underwriter the use thereof is required to comply with the applicable provisions
of the Act and the Rules and Regulations. In case of the happening, at any time
within such period as a Prospectus is required under the Act to be delivered in
connection with sales by an underwriter or dealer, of any event of which the
Company has knowledge and which materially affects the Company or the
Securities, or which in the opinion of counsel for the Company or counsel for
the Underwriter should be set forth in an amendment to the Registration
Statement or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required to be delivered to a purchaser of the Securities, or
in case it shall be necessary to amend or supplement the Prospectus to comply
with the Act or with the Rules and Regulations, the Company will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or
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<PAGE>
amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriter, except that in case the Underwriter are
required, in connection with the sale of the Securities, to deliver a Prospectus
nine months or more after the Effective Date, the Company will upon request of
and at the expense of the Underwriter, amend or supplement the Registration
Statement and Prospectus and furnish the Underwriter with reasonable quantities
of prospectuses complying with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations and the
Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and
regulations promulgated thereunder in connection with the issuance and offering
of the Securities.
(b) The Company will use its best efforts to qualify or register the
Securities for sale under the securities or "blue sky" laws of such
jurisdictions as you may designate and will make such applications and the
Company will furnish such information to counsel for the Underwriter as may be
required for that purpose and to comply with such laws, provided that the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent to service process in any
jurisdiction in any action other than one arising out of the offering or sale of
the Securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as you may reasonably request.
(c) If the sale of the Securities provided for herein is not consummated
due to the Company's breach of any representation or warranty or condition
contained in this Agreement, or because of the Company's actions or failure to
take such actions as are reasonably required hereunder, and the Underwriter is
prepared, and desires at its option, to perform in accordance with the terms
herein, the Company shall pay all costs and expenses incident to the performance
of the Company's obligations hereunder in accordance with Section 8 hereof.
(d) The Company will furnish to you as early as practicable prior to the
Closing Date and any Additional Closing Date, as the case may be, but no less
than two full business days prior thereto, a copy of the latest available
unaudited interim financial statements of the Company which have been read by
the Company's independent certified public accountants, as stated in their
letters to be furnished pursuant to Section 4(e) hereof.
(e) For so long as the Company is a reporting company under either Section
12(b), Section 12(g) or Section 15(d) of the Exchange Act, the Company, at its
expense, will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five years from the
date hereof, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any subsidiaries as at the end of such fiscal
year, together with statements of income, stockholders' equity and cash flows of
the Company and any subsidiaries as at the end of such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of independent public accountants; (ii) as soon as they are available, a copy of
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all quarterly financial statements; (iii) as soon as they are available, a copy
of all reports (financial or other) mailed to security holders; (iv) as soon as
they are available, a copy of all non- confidential reports and financial
statements furnished to or filed with the Commission; and (v) such other
information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries, such
financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will deliver to you at or before the First Closing Date two
signed copies of the Registration Statement including all financial statements
and exhibits filed therewith, and of all amendments thereto. The Company will
deliver to or upon your order, from time to time until the Effective Date as
many copies of any Preliminary Prospectus filed with the Commission prior to the
Effective Date as the Underwriter may reasonably request. The Company will
deliver to you on the Effective Date and thereafter for so long as a Prospectus
is required to be delivered under the Act, from time to time, as many copies of
the Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriter may from time to time reasonably request.
(h) The Company will make generally available to its security holders and
deliver to you as soon as it is practicable to do so, but in no event later than
90 days after the end of 12 months after the end of its current fiscal quarter,
an earnings statement (which need not be audited) covering a period of at least
12 consecutive months beginning after the Effective Date which shall satisfy the
requirements of Section 11(a) of the Act.
(i) The Company will, promptly upon your request, prepare and file with the
Commission any amendments or supplements to the Registration Statement,
preliminary Prospectus or Prospectus and take any other action, which in the
opinion of Morse, Zelnick, Rose & Lander, L.L.P., counsel to the Underwriter,
may be reasonably necessary or advisable in connection with the distribution of
the Securities and will use its best efforts to cause the same to become
effective as promptly as possible.
(j) Prior to the Effective Date, the persons identified in Paragraph 1(y)
shall have executed the Lock-up Agreements described therein. You shall have
received written waivers of demand and/or piggy back registration rights, if
any, from all the holders thereof prior to the Effective Date of the
Registration Statement.
(k) The Company shall upon the initial filing of the Registration Statement
make all filings required to obtain approval for listing for quotation of the
Securities on the National Association of Securities Dealers, Inc. ("NASDAQ")
National Market System and shall use its best efforts to maintain such listing
for at least five years from the date of this Agreement. In the event that the
Securities do not initially qualify for listing on the NASDAQ National Market
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System, such Securities shall be listed on the NASDAQ SmallCap System. Within
ten days after the Effective Date, the Company shall cause the Company to be
listed in Moody's OTC Industrial Manual and shall use its best efforts to cause
such listings to be maintained for five years from the date of this Agreement.
(l) The Company represents that it has not taken, and agrees that it will
not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock or Securities or
to facilitate the sale or resale of the Common Stock or Securities.
(m) During the 90-day period commencing as of the First Closing Date, the
Company will not, without your prior written consent, which consent shall not be
unreasonably withheld, grant options to purchase shares of Common Stock at a
price less than the closing bid price of the Common Stock on the Effective Date.
Furthermore, during the 24-month period commencing on the Effective Date no
options shall be granted by the Company to its officers or directors pursuant to
any stock option plan unless such option is either (a) not exercisable during
such 24-month period, or (b) the shares issuable upon exercise of such option
are subject to a lock-up agreement with the Underwriter restricting the sale of
such shares during such 24 month period.
(n) Prior to the Closing Date or any Additional Closing Date, as the case
may be, the Company will not issue any press release or other communication
directly or indirectly and will hold no press conference with respect to the
Company, or its financial condition, results of operations, business,
properties, or assets, or this offering, without your prior written consent,
which consent will not be unreasonably withheld.
(o) During the period of the offering, and for a period of twelve (12)
months from the Effective Date, the Company will not sell or otherwise dispose
of any securities of the Company, except for shares of Common Stock issuable
upon exercise of options, warrants or convertible securities outstanding on the
Effective Date or options authorized for grant under stock option plans as of
the Effective Date, without your prior written consent, which consent shall not
be unreasonably withheld. During the period of the offering, and for a period of
twenty-four (24) months from the Effective Date, the Company will not sell or
otherwise dispose of any securities of the Company pursuant to Regulation S
under the Act without your prior written consent.
(p) The Company will reserve and keep available that number of its
authorized but unissued shares of Common Stock, which are issuable upon exercise
of the Underwriter's Warrant outstanding from time to time.
(q) Within ninety (90) days from the First Closing Date, the Company shall
deliver to you, at the Company's expense, six bound volumes in form and content
acceptable to you, containing the Registration Statement and all exhibits filed
therewith, and all amendments thereto, and all other correspondence, filings,
certificates and other documents filed and/or delivered in connection with this
offering.
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(r) On or prior to the Effective Date, the Company shall retain a public
relations firm, reasonably acceptable to you, for a period of two years from the
Effective Date or such other firm reasonable acceptable to you.
(s) On or prior to the Closing Date, the Company shall enter into the
Financial Consulting Agreement with you for a period of two years pursuant to
which you will consult with the Company or corporate financing and other
financial service matters for a fee of $72,000 payable in full on the Closing
Date.
(t) 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. Except as described in the Prospectus, no portion
of the net proceeds will be used, directly or indirectly, to acquire any
securities issued by the Company.
(u) For a period of three (3) years from the Closing Date, the Company
shall, as the Underwriter may reasonably request, but not more often than
monthly, furnish to the Underwriter at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock (ii) the list of
holders of all of the Company's securities.
(v) For a period of three (3) years from the date of the Prospectus, the
Underwriter shall have the right, but not the obligation to designate one
nominee for director of the Company, and the principal stockholders of the
Company shall agree that they shall vote their shares for the election of such
nominee, or, at any time during such period you may, alternatively and at your
sole discretion, designate a non-voting observer receive notice of and to attend
all meetings of the Company's Board of Directors. Such individual, whether a
director or an observer, shall be reimbursed for all reasonable out-of-pocket
expenses incurred in connection with his attendance at meetings of the Board and
shall be compensated for his attendance in the same manner as the Company
compensates its non-employee directors.
(w) For a period of two (2) years from the date of the Prospectus, pursuant
to the M/A Agreement, the Company shall, if it participates in any merger,
consolidation or other transaction which the Underwriters have brought to the
Company (including an acquisition of assets or stock for which it pays, in whole
or in part, with shares of the Company's Common Stock or other securities) pay
for the Underwriters' services an amount equal to 5% of the first $3,000,000 of
value paid or received in the transaction, 2 1/2% of any consideration paid over
$3,000,000 and not greater than $5,000,000 and 2% of all such value above
$5,000,000; in addition, during such two-year period, if someone other than the
Underwriters brings such a merger, consolidation or other transaction to the
Company, and the Underwriters render advice in connection therewith, then upon
consummation of the transaction the Company shall pay to the Underwriters as a
fee the aforesaid amount or as otherwise agreed to between the Company and the
Underwriters.
(x) The Company will cause a Registration Statement under the Exchange Act
to be declared effective concurrently with the completion of the offering of the
Securities.
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(y) During the three (3) year period from the Closing Date, you shall have
the right of first refusal (the "Right of First Refusal") to purchase for your
own account or to act as underwriter or agent for any and all public or private
offerings of the securities of the Company, or any successor to or subsidiary of
the Company or other entity in which the Company has an equity interest,
(collectively referred to herein as the "Company") by the Company (the
"Subsequent Company Offering") or any secondary offering of the Company's
securities by the stockholders of the Company as of the date of this Agreement
(the "Secondary Offering"). Accordingly, if during such period the Company
intends to make a Subsequent Company Offering or the Company receives
notification from any of such stockholders of its securities of such holder's
intention to make a Secondary Offering, the Company shall notify you in writing
of such intention and of the proposed terms of the offering. The Company shall
thereafter promptly furnish you with such information concerning the business,
condition and prospects of the Company as you may reasonably request. If within
thirty (30) business days of the receipt of such notice of intention and
statement of terms you do not accept in writing such offer to act as underwriter
or agent with respect to such offering upon the terms proposed, the Company and
each of the Principal Stockholders shall be free to negotiate terms with other
underwriters with respect to such offering and to effect such offering on such
proposed terms within six (6) months after the end of such 30 business days.
Before the Company and/or any of such stockholders shall accept any modified
proposal from such underwriter, your preferential right shall be reinstated and
the same procedure with respect to such modified proposal as provided above
shall be adopted. The failure by you to exercise your Right of First Refusal in
any particular instance shall not affect in any way such right with respect to
any other Subsequent Company Offering or Secondary Offering. By execution of
this Agreement, each of such stockholders agrees to be bound by the terms of
this Section 3(m) concerning any proposed Secondary Offering of the Company's
securities.
4. Conditions of Underwriter's Obligations.
The obligations of the Underwriter to purchase and pay for the Shares
hereunder are subject to the accuracy (as of the date hereof, and as of the
Closing Dates) of and compliance with the representations, warranties and
covenants of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective and you shall
have received notice thereof not later than 4:00 p.m., New York time, on the
date following the date of this Agreement, or at such later time or on such
later date as to which you may agree in writing; on the Closing Dates, no stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that or any similar purpose shall have been
instituted or shall be pending or, to the knowledge of the Underwriter or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of, Tally, Polevoy & Misher
LLP, counsel to the Underwriter; and no stop order shall be in effect
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denying or suspending effectiveness of the Registration Statement nor shall any
stop order proceedings with respect thereto be instituted or pending or
threatened under the Act.
(b) At the First Closing Date, you shall have received the opinion, dated
as of the First Closing Date, of Scheichet & Davis, P. C., counsel for the
Company, in form and substance satisfactory to counsel for the Underwriter, to
the effect that:
(i) the Company has been duly organized and is validly existing as a
corporation in good standing under the laws of its state of incorporation
and is duly authorized to transact business as a foreign corporation in
good standing in each other jurisdiction in which the ownership or leasing
of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified and in good
standing would not have a material adverse effect on the Company; 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;
(ii) to the best knowledge of such counsel, (a) the Company has
obtained, or is in the process of obtaining, all licenses, permits and
other governmental authorizations necessary to the conduct of its business
as described in the Prospectus, and (b) such obtained licenses, permits and
other governmental authorizations are in full force and effect, and the
Company is in all material respects complying therewith;
(iii) the authorized capitalization of the Company is as set forth
under "Capitalization" in the Prospectus; all of the Company's outstanding
securities requiring authorization for issuance by the Company's Board of
Directors have been duly authorized and validly issued, are fully paid and
non-assessable and conform in all material respects to the description
thereof contained in the Prospectus; the outstanding securities of the
Company have not been issued in violation of the preemptive rights of any
stockholder, under the New York Business Corporation Law or the Company's
certificate of incorporation or by-laws and the stockholders of the Company
do not have any statutory preemptive rights or, to the best of such
counsel's knowledge, other than as set forth in the Prospectus, other
rights to subscribe for or to purchase, and there are no restrictions upon
the voting of any of the Common Stock; the Shares, the Common Stock and the
Underwriter's Warrant conform to the respective descriptions thereof
contained in the Prospectus; the Securities to be issued as contemplated in
the Registration Statement have been duly authorized and, when issued and
paid for, will be non-assessable and free of preemptive rights under the
New York Business Corporation Law or the Company's certificate of
incorporation or by-laws, and, to the best of such counsel's knowledge,
contractual preemptive rights, and no personal liability will attach to the
ownership thereof; a sufficient number of shares of Common Stock have been
reserved for issuance upon exercise of the Underwriter's Warrant (without
regard to the anti-dilution provisions thereof) and upon such issuance upon
exercise in accordance with the terms of the Underwriter's Warrant, when
the purchase price is paid, will be fully paid, non-assessable
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and free of preemptive rights under the New York Business Corporation or
the Company's certificate of incorporation or by-laws and, to the best of
such counsel's knowledge, contractual preemptive rights, and no personal
liability will attach to the ownership thereof; and to the best of such
counsel's knowledge, except as set forth in the Prospectus, neither the
filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any registration
rights or other rights, other than those which have been waived or
satisfied, for or relating to the registration of the Securities;
(iv) this Agreement, the Financial Consulting Agreement, the M/A
Agreement and the Underwriter's Warrant have been duly and validly
authorized, executed and delivered by the Company and, assuming due
execution and delivery by you, all of such agreements are, or when duly
executed will be, the valid, legally binding and enforceable obligations of
the Company except (i) as limited by applicable bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights, or (ii) as
limited by general principles of equity; provided, however, that no opinion
need be expressed as to the enforceability of the indemnity provisions
contained in Section 6 or the contribution provisions contained in Section
7 of this Agreement;
(v) the certificates evidencing the shares of Common Stock are in
valid and proper form;
(vi) except as disclosed in the Prospectus, such counsel knows of no
pending legal or governmental proceedings to which the Company is a party
which could materially adversely affect the business, property, financial
condition or operations of the Company or which question the validity of
the Securities, this Agreement, the Financial Consulting Agreement, the M/A
Agreement or the Underwriter's Warrant, or of any action taken or to be
taken by the Company pursuant to this Agreement, the Financial Consulting
Agreement, the M/A Agreement or the Underwriter's Warrant; except as
disclosed in the Prospectus, no such proceedings are known to such counsel
to be threatened against the Company; and there are no governmental
proceedings or regulations known to such counsel required to be described
or referred to in the Registration Statement which are not so described or
referred to;
(vii) to the knowledge of such counsel, the Company is not in
violation of or default under this Agreement, the Financial Consulting
Agreement, the M/A Agreement or the Underwriter's Warrant, and the
execution and delivery hereof and thereof and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated will not result in a violation
of, or constitute a default under, the certificate of incorporation or
by-laws of the Company, or, to the best of such counsel's knowledge, in the
performance or observation of any material obligation, agreement, covenant
or condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement,
lease,
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joint venture or other agreement or instrument to which the Company is a
party or, to the best of such counsel's knowledge, in a violation of any
material order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality or court, domestic or foreign
applicable to the Company or to which it is subject;
(viii) the Registration Statement has become effective under the Act,
and to such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement is in effect, no proceedings for that purpose
have been instituted or are pending before, or threatened by, the
Commission and the Registration Statement and the Prospectus (except for
the financial statements and other financial and statistical data contained
therein, or omitted therefrom, as to which such counsel need express no
opinion) comply as to form in all material respects with the applicable
requirements of the Act and the Rules and Regulations;
(ix) during the course of the preparation of the Registration
Statement, such counsel has participated in conferences with officers and
other representatives of the Company, the Underwriter and independent
public accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus contained therein and related
matters were discussed and, although such counsel need not pass upon and
does not assume any responsibility for the adequacy, accuracy, completeness
or fairness of the statements contained in the Registration Statement and
the Prospectus contained therein (except as specified in such counsel's
opinion), solely on the basis of the foregoing without independent check
and verification, no facts have come to such counsel's attention which lead
it to believe that the Registration Statement or any amendment thereto, at
the time the Registration Statement or amendment became effective,
contained an 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, in light of the circumstances in which they were made,
not misleading or the Prospectus or any amendment or supplement thereto, at
the time they were filed pursuant to Rule 424(b) or at the date hereof,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statement therein, in light of the circumstances under which they were
made, not misleading (except that no view need be expressed as to (i)
financial information and statistical data and information included in the
Registration Statement or the Prospectus, (ii) information included in the
Registration Statement or the Prospectus which was furnished by or on
behalf of the Underwriter, or (iii) information included in the second
paragraph of the "Underwriting" section of the Prospectus).
(x) all descriptions in the Registration Statement and the Prospectus,
and any amendment or supplement thereto, of contracts and other documents
are accurate and complete in all material respects and such counsel is
familiar with the contracts and other documents referred to in the
Registration Statement and the Prospectus and any such amendment or
supplement, or filed as exhibits to the Registration Statement, and such
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counsel does not know of any contracts or documents of a character required
to be summarized (other than real property leases) or described therein or
to be filed as exhibits thereto which are not so summarized, described or
filed; 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.
(xi) except as described in the Prospectus, no authorization,
approval, consent or license of any governmental or regulatory authority or
agency is necessary in connection with the authorization, issuance,
transfer, sale or delivery of the Securities by the Company, in connection
with the execution, delivery and performance of this Agreement by the
Company or in connection with the taking of any action contemplated herein,
or the issuance of the Underwriter's Warrant or the shares of Common Stock
underlying the Underwriter's Warrant, other than registration or
qualification of the Securities under applicable state or foreign
securities or blue sky laws (as to which such counsel need express no
opinion) and registration under the Act;
(xii) the statements in the Registration Statement under the captions
"Business," "Use of Proceeds," "Management - Executive Compensation" (other
than the data contained in the Executive Compensation table), "Principal
Shareholders," "Certain Transactions," "Description of Securities" and
"Shares Eligible for Future Sale" have been reviewed by such counsel and,
insofar as they refer to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are correct in all
material respects;
(xiii) to the knowledge of such counsel, except as described in the
Prospectus, no holders of Common Stock or other securities of the Company
have any registration rights with respect to Common Stock, except as
described in the Prospectus or which have been validly waived or satisfied.
All registration rights known to such counsel have been so described and
have been validly waived or satisfied with respect to the transaction
contemplated hereby;
(xiv) the Company is not required, and will not be required as a
result of this offering, to be registered as an "investment company" under
the Investment Company Act of 1940, as amended.
(xv) the properties and business of the Company conform to the
description thereof contained in the Registration Statement and the
Prospectus;
(xvi) 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,
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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.
(xvii) 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).
(xviii) 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
(xix) 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.
(xx) 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;
(xxi) 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 securities of the
Company in the Registration Statement, require the
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Company to file any registration statement or, if filed, to include any
security in such registration statement;
(xxii) 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;
(xxiii) 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
(xxiv) 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 opinion shall also cover such matters incident to the transactions
contemplated hereby as you or counsel for the Underwriter shall reasonably
request. In rendering such opinion, such counsel may rely upon certificates of
any officer of the Company or public officials as to matters of fact and may
rely as to matters relating to New York and United States health care and third
party reimbursement laws and regulations on the opinion of Halpern & Pasternack,
P. C. and may be limited to the laws of the United States and the State of New
York.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus, and other related matters
shall be reasonably satisfactory to or approved by, Morse, Zelnick, Rose &
Lander, L.L.P., counsel to the Underwriter.
(d) At the First Closing Date, you shall have received the opinion, dated
as of the First Closing Date, of Halpern & Pasternack, P. C. with respect to all
matters governed by New York and United States health care and third party
reimbursement laws and regulations in form and substance satisfactory to counsel
for the Underwriter.
(e) At the time this Agreement is executed and at the Closing Date and any
Additional Closing Date, as the case may be, you shall have received a letter,
addressed to the Underwriter
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and in form and substance satisfactory to you, with reproduced copies or signed
counterparts thereof for each of the Underwriter, from M. R. Weiser & Co. LLP,
dated the date of delivery:
(i) confirming that they are, and during the period covered by their
report(s) included in the Registration Statement and the Prospectus they
were, independent certified public accountants with respect to the Company
within the meaning of the Act and the public Regulations and stating that
the response to Item 10 of the Registration Statement is correct insofar as
it related to them;
(ii) stating that, in their opinion, the financial statements and
schedules of the Company included in the Registration Statement examined by
them comply in form in all material respects with the applicable accounting
requirements of the Act and the Regulations;
(iii) stating that, on the basis of procedures (but not an examination
made in accordance with generally accepted auditing standards) consisting
of 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 of the Company and
committees of such board, inquiries to certain 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
that caused them to believe that (A) the unaudited financial statements and
schedules of the Company included in the Registration Statement and
Prospectus do not comply in form in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and the
related published rules and regulations under either such act or are not
fairly presented in conformity with generally accepted accounting
principles (except to the extent that certain footnote disclosures
regarding any stub period may have been omitted in accordance with the
applicable rules of the Commission under the Exchange Act) applied on a
basis consistent with that of the audited financial statements appearing
therein, (B) any unaudited financial information of the Company included in
the Prospectus was not determined on a basis substantially consistent with
the corresponding information in the audited statements of operations, (C)
there was any change in the capital stock or debt of the Company or any
decrease in the net current assets or stockholders' equity of the Company
as of the date of the latest available monthly financial statements of the
Company or as of a specified date not more than five business days prior to
the date of such letter, each as compared with the amounts shown in the
September 30, 1996 balance sheet included in the Registration Statement and
Prospectus, other than as properly described in the Registration Statement
and Prospectus or any change or decrease (which shall be set forth therein)
which you in your sole discretion shall accept, or (D) there was any
decrease in revenue, net earnings, or net earnings per share of Common
Stock of the Company during the period of September 30, 1996 to the date of
the latest available monthly financial statements of the Company or to a
specified date not more than five
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<PAGE>
business days prior to the date of such letter, each as compared with the
corresponding prior year period, other than as properly described in the
Registration Statement and Prospectus or any decrease (which shall be set
forth therein) which you in your sole discretion shall accept; and
(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the
Registration Statement, each Preliminary Prospectus, and the Prospectus, if
applicable, which have been specified by you prior to the date of this
Agreement, to the extent that such data and information may be derived from
the general accounting records 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.
(f) At each of the Closing Dates, (i) the representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of such Closing
Date, and the Company shall have performed all of its obligations hereunder and
satisfied all the conditions on its part to be satisfied at or prior to such
Closing Date; (ii) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statements 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 in
which they were made, not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no material adverse change in
the business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
the Company from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the Effective Date, and the Company shall not have
incurred any material liabilities or entered into any agreement not in the
ordinary course of business other than as referred to in the Registration
Statement and Prospectus; and (iv) except as set forth in the Prospectus, no
action, suit or proceeding at law shall be pending or threatened against the
Company which would be required to be disclosed in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before or
by any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, rule or finding would materially and
adversely affect the business, property, condition (financial or otherwise),
results of operations or general affairs of the Company. In addition, you shall
have received, at the First Closing Date, a certificate signed by the Chief
Executive Officer and the principal financial or accounting officer of the
Company, dated as of the First Closing Date, evidencing compliance with the
provisions of this subsection (f).
-25-
<PAGE>
(g) Upon exercise of the option provided for in Section 2(b) hereof, the
obligations of the Underwriter to purchase and pay for the Option Shares
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) the Registration Statement shall remain effective at the Option
Closing Date, no stop order suspending the effectiveness thereof shall have
been issued, and no proceedings for that purpose shall have been instituted
or shall be pending or, to the knowledge of the Underwriter or the
knowledge of the Company, shall be contemplated by the Commission, and any
reasonable request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of Morse,
Zelnick, Rose & Lander, L.L.P., counsel to the Underwriter;
(ii) at the Option Closing Date there shall have been delivered to you
the opinion of Scheichet & Davis, P. C., counsel to the Company, and
Halpern & Pasternack, P.C., dated as of the Option Closing Date, in form
and substance reasonably satisfactory to , Tally, Polevoy & Misher
LLP, counsel to the Underwriter, which opinion shall be substantially the
same in scope and substance as the opinion furnished to you at the First
Closing Date pursuant to Sections 4(b) and 4(d) hereof, respectively,
except that such opinion, where appropriate, shall cover the Option Shares
rather than the Firm Shares. If the First Closing Date is the same as the
Option Closing Date, such opinions may be combined;
(iii) at the Option Closing Date, there shall have been delivered to
you a certificate of the Chief Executive Officer and the principal
financial or accounting officer of the Company dated the Option Closing
Date, in form and substance satisfactory to , Tally, Polevoy &
Misher LLP, counsel to the Underwriter, substantially the same in scope and
substance as the certificate furnished to you at the First Closing Date
pursuant to Section 4 (f) hereof;
(iv) at the Option Closing Date, there shall have been delivered to
you a letter in form and substance satisfactory to you from M. R. Weiser &
Co., LLP, dated the Option Closing Date and addressed to you, confirming
the information in each of their letters referred to in Section 4(e) hereof
as of the date thereof and stating that, without any additional
investigation required, nothing has come to their attention during the
period from the ending date of their review referred to in said letter to a
date not more than five (5) days prior to the Option Closing Date which
would require any change in said letter if it were required to be dated the
Option Closing Date;
(v) all proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Shares shall be
reasonably satisfactory in form and substance to you, and you and Morse,
Zelnick, Rose & Lander, L.L.P., counsel to the Underwriter, shall have been
furnished with all such documents, certificates and opinions as you may
request in connection with this transaction in order to evidence the
accuracy
-26-
<PAGE>
and completeness of any of the representations, warranties or statements of
the Company or its compliance with any of the covenants or conditions
contained herein.
(h) If any of the conditions herein provided for in this Section shall not
have been completely fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Underwriter under this
Agreement may be canceled at, or at any time prior to, each Closing Date by your
notifying the Company of such cancellation in writing or by telegram at or prior
to the applicable Closing Date. Any such cancellation shall be without liability
of the Underwriter to the Company, except as otherwise provided herein.
(i) The Company shall have entered into the Financial Consulting Agreement
with the Underwriter providing for the non-refundable payment to the
Underwriter, commencing on the Closing Date, of a three thousand dollar ($3,000)
per month retainer for a period of 24 months, all of which shall be payable in
advance at the Closing.
(k) The Company shall have entered into the M/A Agreement with the
Underwriter in final form and substance satisfactory to the Underwriter and its
counsel.
5. Conditions of the Obligations of the Company.
The obligation of the Company to sell and deliver the Shares is subject to
the following conditions:
(a) The Registration Statement shall have become effective not later than
4:00 p.m. New York time, on the date following the date of this Agreement, or on
such later date or time as the Company and you may agree in writing.
(b) On the Closing Dates, no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the Act or any proceedings
therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Shares on exercise of
the option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Underwriter, each
officer, director, employee and agent of the Underwriter and each person, if
any, who controls the Underwriter, within the meaning of the Act, from and
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees), joint or
several,
-27-
<PAGE>
to which the Underwriter or such controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment thereof or supplement thereto, (B) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
supplement thereto, or in any Blue Sky Application, a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made; provided, however, that the
Company will not be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company through you by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. This indemnity will be in addition to any liability which
the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Company, each
of its directors, each nominee (if any) for director named in the Prospectus,
each of its officers who have signed the Registration Statement, and each
person, if any, who controls the Company, within the meaning of the Act, from
and against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees) to which the
Company or any such director, nominee, officer or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged untrue statement or omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged untrue statement or omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company through you by or on behalf of the
Underwriter and with respect to the Underwriter specifically for use in
preparation thereof, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration Statement
or Prospectus directly relating to the transactions effected by the Underwriter
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
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<PAGE>
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriter expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriter for
inclusion in the Prospectus. This indemnity will be in addition to any liability
which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof,
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel shall
be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the named parties to any such action (including any impleaded parties)
include both such Underwriter or such controlling person and the indemnifying
party, and the indemnified party or parties shall have reasonably concluded that
the indemnified party or parties have one or more legal defenses available to it
which are in conflict to those available to the indemnifying party (in which
case the indemnifying party shall not have the right to assume the defense of
such action on behalf of such indemnified party or parties, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys). The indemnifying party shall be free to settle any claim or action
in respect to which indemnity may be sought against it pursuant to this Section;
provided, however, that the indemnifying party shall not settle any such claim
or action if such settlement would result in the imposition against the
indemnified party or parties of a judgment, decree or order in the nature of
equitable relief without the consent of the indemnified party, which shall not
be unreasonably withheld in light of all factors of importance to such
indemnified party.
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<PAGE>
7. Contribution.
In order to provide for just and equitable contribution under the Act in
any case in which (i) the indemnified party makes claims for indemnification
pursuant to Section 6 hereof 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 Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of the Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that the Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Share appearing on the cover page of the Prospectus bears to the public offering
price per Share appearing thereon, and Company shall be responsible for the
remaining portion; provided, however, that if such allocation is not permitted
by applicable law, then the relative fault of the Company and the Underwriter
and controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company or the Underwriter, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriter to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages or by any other method of allocation that does not take
account of the equitable considerations referred to in the first sentence of
this Section 7 and that the contribution of the Underwriter shall not be in
excess of its proportionate share of the portion of such losses, claims, damages
or liabilities for which the Underwriter is responsible. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this paragraph, the word "Company"
includes any officer, director, or person who controls the Company within the
meaning of Section 15 of the Act. If the full amount of the contribution
specified in this paragraph is not permitted by law, then each Underwriter and
each person who controls each Underwriter shall be entitled to contribution from
the Company to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriter. No contribution shall be requested with regard to the settlement of
any matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
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<PAGE>
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale of the
Shares to the Underwriter is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company, including
but not limited to the fees and expenses of counsel to the Company and of the
Company's accountants; the costs and expenses incident to the preparation,
printing, filing and distribution under the Act of the Registration Statement
(including the financial statements therein and all amendments and exhibits
thereto), each Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the National Association of Securities Dealers, Inc.
("NASD") in connection with the filing required by the NASD relating to the
offering of the Securities contemplated hereby; all expenses, including
reasonable fees and disbursements of counsel to the Underwriter, in connection
with the qualification of the Securities under the state securities or Blue Sky
Laws which you shall designate; the cost of printing and furnishing to the
Underwriter copies of the Registration Statement, each Preliminary Prospectus,
the Prospectus, this Agreement, the Selling Agreement and the Blue Sky
Memorandum; the cost of printing the certificates representing the Shares and
Warrants, the expenses of Company due diligence meetings and presentations, and
the expense (which shall not exceed $10,000) of placing one or more "tombstone"
advertisements as directed by you. The Company shall pay any and all taxes
(including any transfer, franchise, capital stock or other tax imposed by any
jurisdiction) on sales to the Underwriter hereunder. The Company will also pay
all costs and expenses incident to the furnishing of any amended Prospectus or
of any supplement to be attached to the Prospectus as called for in Section 3
(a) of this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the First
Closing Date pay to you the balance of a non-accountable expense allowance of
$150,000, of which $______ has been paid. In the event the over-allotment option
is exercised in part or in full, the Company shall pay to you at the Option
Closing Date, as a non-accountable expense allowance, an amount equal to 3% of
the gross proceeds received upon exercise of the over-allotment option. In the
event the proposed offering is terminated for any reason, the Underwriter shall
return any portion of the $______ advanced by the Company not previously
expended in connection with the proposed offering for actual accountable
out-of-pocket expenses. If the proposed offering is not completed due to the
Company's breach of any representation, warranty, covenant or condition
contained in this Agreement, or because of the Company's actions or failure to
take such actions as are reasonably required hereunder, and the Underwriters are
prepared to perform in accordance with the terms herein, the Company shall be
liable for all of the Underwriter's actual accountable out-of-pocket expenses,
including reasonable legal fees.
(c) No person is entitled either directly or indirectly to compensation
from the Company, from the Underwriter or from any other person for services as
a finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless each Underwriter, and the Underwriter agree to
indemnify and hold harmless, severally and not jointly, the Company from and
against any losses, claims, damages or liabilities, joint or several (which
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<PAGE>
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees) to which
the indemnified party may become subject insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
the claim of any person (other than an employee of the party claiming indemnity)
or entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution, except that you
may, at your option, delay its effectiveness until 4:00 p.m., New York time, on
the first full business day following the Effective Date, or at any such earlier
time after the Effective Date as you in your discretion shall first commence the
initial public offering by the Underwriter of any of the Shares. The time of the
initial public offering shall mean the time of release by you of the first
newspaper advertisement with respect to the Securities, or the time when the
Securities are first generally offered by the Underwriter to dealers by letter
or telegram, whichever shall first occur. This Agreement may be terminated by
you at any time before it becomes effective as provided above except that
Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 shall remain in effect notwithstanding
such termination.
10. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15,
may be terminated at any time prior to the First Closing Date, and the option
referred to in Section 2 (b), if exercised, may be canceled, at any time prior
to the Option Closing Date, by you if in your judgment it is impracticable to
offer for sale or to enforce contracts made by the Underwriter for the resale of
the Shares agreed to be purchased hereunder, by reason of (i) the Company having
sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree, (ii) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited, (iii) material governmental restrictions having been imposed on trading
in securities generally which are not in force and effect on the date hereof,
(iv) a banking moratorium having been declared by federal or New York State
authorities, (v) an outbreak of major international hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
you to have a material adverse impact on the business, financial condition or
financial statements of the Company, (vii) any material adverse change in the
financial or securities markets beyond normal fluctuations in the United States
having occurred since the date of this Agreement, or (viii) any material adverse
change having occurred, since the respective dates for which information is
given in the Registration Statement and Prospectus, in
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<PAGE>
the earnings, business, prospects or general condition of the Company, financial
or otherwise, whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. Underwriter's Warrant.
On the First Closing Date, the Company will issue to you, for total
consideration of $5.00 and upon the terms and conditions set forth in the form
of Underwriter's Warrant annexed as an exhibit to the Registration Statement, an
Underwriter's Warrant to purchase, in the aggregate, one Share for each ten Firm
Shares sold in the Offering. In the event of conflict in the terms of this
Agreement and the Underwriter's Warrant, the language of the Underwriter's
Warrant shall control.
12. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties and
other statements of the Company or its Affiliates, where appropriate, and the
Underwriter, set forth in or made pursuant to this Agreement will remain in full
force and effect regardless of any investigation made by or on behalf of the
Underwriter, the Company or any of its officers or directors or any controlling
persons and will survive delivery of and payment for the Shares and the
termination of this Agreement.
13. Notice.
All communications hereunder will be in writing and, except as otherwise
expressly provided herein, if sent to the Underwriter, will be mailed, delivered
or telecopied and confirmed to it at H.J. Meyers & Co., Inc. 2495 Mt. Hope
Avenue, Rochester, New York 14620, with a copy sent to Morse, Zelnick, Rose &
Lander, L.L.P., 450 Park Avenue, Suite 902, New York, New York 10022, or if sent
to the Company, will be mailed, delivered, or telecopied and confirmed to it at
1850 McDonald Avenue, Brooklyn, New York 11223, with a copy sent to Scheichet &
Davis, P. C., 505 Park Avenue, New York, New York 10022.
14. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of the
Underwriter, the Company and, to the extent expressed, the Affiliates, any
person controlling the Company, or the Underwriter, and directors of the
Company, nominees for directors of the Company (if any) named in the Prospectus,
the officers of the Company who have signed the Registration Statement, and
their respective executors, administrators, successors and assigns, and no other
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person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include any purchaser, as such
purchaser, from Underwriter.
15. Applicable Law.
This Agreement will be governed by, and construed in accordance with, the
laws of the State of New York applicable to agreements made and to be entirely
performed within New York.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it shall become a binding
agreement between the Company and you, as Underwriter, in accordance with its
terms.
Yours very truly,
NEW YORK HEALTH CARE, INC.
By:________________________________
Officer
Dated: ______________, 1996
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
H.J. MEYERS & CO., INC.
By:________________________________
Authorized Officer
Dated: ______________, 1996
-34-
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
<PAGE>
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: That the amendment to the Certificate of Incorporation effected by
this Certificate is as follows:
1. The 2,831,250 issued Common shares of $0.01 par value are changed into
2,500,000 issued Common shares of $0.01 par value on a basis of
2,831,250/2,500,000ths for 1, thereby decreasing the authorized and issued
Common shares by 331,250.
2. The 9,668,750 unissued Common shares of $0.01 par value are changed into
10,000,000 unisssued Common shares of $0.01 par value on a basis of 1 for
9,668,750/10,000ths, thereby increasing the authorized and unissued Common
shares by 331,250.
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:
<PAGE>
"(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
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 third
day of December 1996.
S/JERRY BRAUN
----------------------------
Jerry Braun, President
S/JACOB ROSENBERG
----------------------------
Jacob Rosenberg, Secretary
NY HEALTH
and
H.J. MEYERS & CO., INC.
Dated as of _______________________ __, 1996
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT
THIS UNDERWRITER'S WARRANT AGREEMENT (the "Agreement"), dated as of
___________ ___, 1996, is made and entered into by and between NEW YORK HEALTH
CARE, INC. a New York corporation (the "Company"), and H.J. MEYERS & CO., INC.,
a Delaware corporation (the "Warrantholder").
The Company agrees to issue and sell, and the Warrantholder agrees to
purchase, for an aggregate purchase price of $5.00, warrants, as hereinafter
described (the "Warrants"), to purchase up to an aggregate of 125,000 (subject
to adjustment pursuant to Section 8 hereof) shares (the "Shares") of the
Company's Common Stock, $.01 par value (the "Common Stock"), in connection with
a public offering by the Company of 1,250,000 shares of Common Stock (the
"Public Shares") pursuant to an underwriting agreement (the "Underwriting
Agreement"), dated ___________ ___, 1996, between the Company and the
Warrantholder, as underwriter (the "Underwriter"). The purchase and sale of the
Warrants shall occur on the First Closing Date, as defined in the Underwriting
Agreement, and shall be subject to the conditions to the Underwriter's
obligations to purchase Public Shares thereunder.
In consideration of the foregoing and for the purpose of defining the terms
and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholder, for value received, hereby agree
as follows:
Section 1. Transferability and Form of Warrants.
1.1 Registration. The Warrants shall be numbered and registered on the
books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on the books of
the Company maintained at its principal office, wherever its principal office
may then be located, upon delivery thereof duly endorsed by the Warrantholder or
by its duly authorized attorney or Underwriter, accompanied by proper evidence
of succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver new Warrants to the person
entitled thereto.
1.3 Limitations on Transfer of the Warrants. Subject to the provisions
of Section 11, the Warrants shall not be sold, transferred, assigned or
hypothecated by the Warrantholder until ____________. 1997 except to (i) one or
more persons, each of whom on the date of transfer is an officer of the
Warrantholder; (ii) any of the members of the selling group and/or the officers
or partners thereof; (iii) a successor to the Warrantholder in merger or
consolidation; (iv) a purchaser of all or substantially all of the
Warrantholder's assets; or (v) any person receiving the Warrants from one or
more of the persons listed in this subsection 1.3 at such person's or persons'
death pursuant to will, trust or the laws of intestate succession. The Warrants
may be divided or combined, upon request to the Company by the Warrantholder,
into a certificate or certificates representing the right
<PAGE>
to purchase the same aggregate number of Shares. Unless the context indicates
otherwise, the term "Warrantholder" shall include any transferee or transferees
of the Warrants pursuant to this subsection 1.3, and the term "Warrants" shall
include any and all warrants outstanding pursuant to this Agreement, including
those evidenced by a certificate or certificates issued upon division, exchange,
substitution or transfer pursuant to this Agreement.
1.4 Form of Warrants. The text of the Warrants and of the form of
election to purchase Shares shall be substantially as set forth in Exhibit "A"
attached hereto. The number of shares issuable upon exercise of the Warrants is
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by its Chief
Executive Officer or by a Vice President, attested to by its Secretary or an
Assistant Secretary. A Warrant bearing the signature of an individual who was at
any time the proper officer of the Company shall bind the Company
notwithstanding that such individual shall have ceased to hold such office prior
to the delivery of such Warrant or did not hold such office on the date of this
Agreement.
The Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 Legend on Shares. Each certificate for Shares initially issued upon
exercise of the Warrants or a Unit Warrant shall bear the following legend,
unless, at the time of exercise, such Shares are subject to a currently
effective Registration Statement under the Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN
ANY MANNER EXCEPT IN COMPLIANCE WITH SECTION 11 OF THE AGREEMENT
PURSUANT TO WHICH THEY WERE ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act of 1933 (the "Act"), of the securities represented thereby) shall
also bear the above legend unless, in the opinion of the Company's counsel, the
securities represented thereby need no longer be subject to such restrictions.
Section 2. Exchange of Warrant Certificate. Any Warrant certificate may be
exchanged for another certificate or certificates entitling the Warrantholder to
purchase a like aggregate number of Shares as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, with
signatures guaranteed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested.
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<PAGE>
Section 3. Term of Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement, the Warrantholder shall
have the right, at any time during the period commencing at 9:00 a.m., New York
City Time, on ____________, 1997 and ending at 5:00 p.m., New York City Time, on
____________, 2001 (the "Termination Date"), to purchase from the Company up to
the number of fully paid and nonassessable Shares which the Warrantholder may at
the time be entitled to purchase pursuant to this Agreement, upon surrender to
the Company, at its principal office, of the certificate evidencing the Warrants
to be exercised, together with the purchase form on the reverse thereof duly
filled in and signed, with signatures guaranteed, and upon payment to the
Company of the Warrant Price (as defined in and determined in accordance with
the provisions of this Section 3 and Sections 7 and 8 hereof), for the number of
Shares in respect of which such Warrants are then exercised, but in no event for
less than 100 Shares (unless less than an aggregate of 100 Shares are then
purchasable under all outstanding Warrants held by a Warrantholder).
(b) Except as otherwise provided for in this Section 3, payment of the
aggregate Warrant Price shall be made in cash or by check, or any combination
thereof. No Warrant may be exercised by the Warrantholder after 5:00 p.m., New
York City Time, on |____________, 2001. Subject to the terms of this agreement,
each Warrant may be exercised to purchase one Unit at a price of $__________
[120% of the Public Share offering price].
Upon such surrender of the Warrants and payment of such Warrant Price as
aforesaid, the Company shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the Warrantholder and in such name or
names as the Warrantholder may designate a certificate or certificates for the
number of full Shares so purchased upon the exercise of the Warrant, together
with cash, as provided in Section 9 hereof, in respect of any fractional Shares
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such securities as of the
date of surrender of the Warrants and payment of the Warrant Price, as
aforesaid, notwithstanding that the certificate or certificates representing
such securities shall not actually have been delivered or that the stock
transfer books of the Company shall then be closed. The Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that a certificate evidencing the Warrants is
exercised in respect of less than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing the remaining
portion of the Warrants will be issued by the Company.
(c) Notwithstanding the provisions of Section 1(b) with respect to the
payment of the aggregate Warrant Price to the contrary, the Holder may elect to
exercise this Warrant, in whole or in part, by receiving Shares equal to the
value (as herein determined) of the portion of this Warrant then being
exercised, in which event the Company shall issue to the Holder the number of
Shares determined by using the following formula:
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<PAGE>
X = Y(A-B)
-----
A
where: X = the number of Shares to be issued to the Holder under the
provisions of this Section 1(c).
Y = the number of Shares that would otherwise be issued upon
such exercise.
A = the Current Fair Market Value (as hereinafter defined) of
one Share calculated as of the last trading day immediately
preceding such exercise.
B = the Exercise Price
As used herein, the "Current Fair Market Value" of the Shares as of a
specified date shall mean with respect to each Share, (i) the aggregate of the
average of the last reported sales price regular way of the Common Stock sold on
all securities exchanges on which such securities may at the time be listed, or
(ii) if there have been no sales on any such exchange on such day, the average
of the highest bid and lowest asked prices on all such exchanges at the end of
such day, or (iii) if on such day such securities are not so listed, the average
of the representative bid and asked prices quoted in the NASDAQ System as of
4:00 p.m., New York time, or (iv) if on such day such securities are not quoted
in the NASDAQ System, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated or any similar successor organization, in each
such case averaged over a period of 21 days consisting of the day as of which
the Current Fair Market Value is being determined and the 20 consecutive
business days prior to such day. If on the date for which Current Fair Market
Value is to be determined such securities are not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, then
Current Fair Market Value of such securities shall be the highest price per
share and per warrant which the Company could then obtain from a willing buyer
(not a current employee or director) for such securities sold by the Company for
such securities, as determined in good faith by the Board of Directors of the
Company, unless prior to such date the Company has become subject to a merger,
consolidation, reorganization, acquisition or other similar transaction pursuant
to which the Company is not the surviving entity, in which case the Current Fair
Market Value of the securities shall be deemed to be the per share value
received or to be received in such transaction by the holder of such securities.
Section 4. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
securities comprising the Shares; provided, however, the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the Shares.
-4-
<PAGE>
Section 5. Mutilated or Missing Warrants. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and a bond of indemnity, if requested, also
satisfactory in form and amount at the applicant's cost. Applicants for such
substitute Warrants certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
Section 6. Reservation of Shares. There have been reserved, and the Company
shall at all times keep reserved so long as the Warrants remain outstanding, out
of its authorized Common Stock, such number of shares of Common Stock as shall
be subject to purchase under the Warrants. Every transfer agent for the Common
Stock and other securities of the Company, if any, issuable upon the exercise of
the Warrants will be irrevocably authorized and directed at all times to reserve
such number of authorized shares and other securities as shall be requisite for
such purpose. The Company will keep a copy of this Agreement on file with every
transfer agent for the Common Stock and other securities of the Company issuable
upon the exercise of the Warrants. The Company will supply every such transfer
agent with duly executed stock and other certificates, as appropriate, for such
purpose and will provide or otherwise make available any cash which may be
payable as provided in Section 9 hereof.
Section 7. Warrant Price. The price per Share at which Shares shall be
purchasable upon the exercise of the Warrants (the "Warrant Price") shall be
$_______ [120% of the Public Share offering price], subject to further
adjustment pursuant to Section 8 hereof.
Section 8. Adjustment of Number of Shares. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
8.1 Adjustments. The number of Shares purchasable upon the exercise of the
Warrants shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in Common Stock or
make a distribution in Common Stock, (ii) subdivide its outstanding Common
Stock, (iii) combine its outstanding Common Stock into a smaller number of
shares of Common Stock, or (iv) issue by reclassification of its Common Stock
other securities of the Company, the number of Shares purchasable upon exercise
of the Warrants immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of shares of
Common Stock or other securities of the Company which it would have owned or
would have been entitled to receive immediately after the happening of any of
the events described above, had the Warrants been exercised immediately prior to
the happening of such event or any record date with respect thereto.
-5-
<PAGE>
Any
adjustment made pursuant to this subsection 8.l(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
Initial Price (defined as $______ per share of Common Stock), the Warrant Price
shall be adjusted so that it shall equal the price determined by multiplying the
Warrant Price in effect immediately prior to the date of such issuance by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on the record date mentioned below plus the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at the Initial
Price, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants, the
Warrant Price shall be readjusted to the Warrant Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Warrant Price
in effect thereafter shall be determined by multiplying the Warrant Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the total number of shares of Common Stock then outstanding multiplied by the
Initial Price, less the fair market value (as determined by the Company's Board
of Directors) of said assets, or evidences of indebtedness so distributed or of
such rights or warrants, and the denominator of which shall be the total number
of shares of Common Stock outstanding multiplied by such Initial Price. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.
(d) Whenever the Warrant Price payable upon exercise of the
Underwriter's Warrant is adjusted pursuant to Subsections (a), (b) or (c) above,
the number of Shares purchasable upon exercise of this Underwriter's Warrant
shall simultaneously be adjusted by multiplying the number of Shares issuable
upon exercise of this Underwriter's Warrant by the Warrant Price in effect on
the date hereof and dividing the product so obtained by the Warrant Price, as
adjusted.
-6-
<PAGE>
(e) Whenever the number of Shares purchasable upon the exercise of the
Warrants is adjusted as herein provided, the Company shall cause to be promptly
mailed to the Warrantholder by first class mail, postage prepaid, notice of such
adjustment and a certificate of the chief financial officer of the Company
setting forth the number of Shares purchasable upon the exercise of the Warrants
after such adjustment, a brief statement of the facts requiring such adjustment
and the computation by which such adjustment was made.
(f) For the purpose of this subsection 8.1 the term "Common Stock"
shall mean (i) the class of stock designated as the Common Stock of the Company
at the date of this Agreement, 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. In the event that at any time, as a result of an adjustment made
pursuant to this Section 8, the Warrantholder shall become entitled to purchase
any securities of the Company other than Common Stock, (i) if the
Warrantholder's right to purchase is on any other basis than that available to
all holders of the Company's Common Stock, the Company shall obtain an opinion
of an independent investment banking firm valuing such other securities and (ii)
thereafter the number of such other securities so purchasable upon exercise of
the Warrants shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Shares contained in this Section 8.
(i) Upon the expiration of any rights, options, warrants or conversion
privileges, if such shall not have been exercised, the number of Shares
purchasable upon exercise of the Warrants, to the extent the Warrants have not
then been exercised, shall, upon such expiration, be readjusted and shall
thereafter be such as they would have been had they been originally adjusted (or
had the original adjustment not been required, as the case may be) on the basis
of (A) the fact that the only shares of Common Stock so issued were the shares
of Common Stock, if any, actually issued or sold upon the exercise of such
rights, options, warrants or conversion privileges, and (B) the fact that such
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the consideration, if
any, actually received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion privileges whether or not
exercised; provided, however, that no such readjustment shall have the effect of
decreasing the number of Shares purchasable upon exercise of the Warrants by an
amount in excess of the amount of the adjustment initially made in respect of
the issuance, sale or grant of such rights, options, warrants or conversion
privileges.
8.2 No Adjustment for Dividends. Except as provided in subsection 8.1, no
adjustment in respect of any dividends or distributions out of earnings shall be
made during the terms of the Warrants or upon the exercise of Warrants.
8.3 No Adjustment in Certain Cases. No adjustment shall be made pursuant to
Sections 3 or 8 hereof in connection with the issuance of Public Shares sold as
part of the public sale and issuance of Shares pursuant to the Underwriting
Agreement or the issuance of Shares upon exercise of the Warrants. No adjustment
in the Warrant Price shall be required if such adjustment is
-7-
<PAGE>
less than $.05; provided, however, that any adjustments which by reason of this
Section 8.3 are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 8
shall be made to the nearest cent or to the nearest one-thousandth of a share,
as the case may be.
8.4 Preservation of Purchase Rights upon Reclassification, Consolidations.
In case of any consolidation of the Company with, or merger of the Company into,
another corporation or in case of any sale or conveyance to another corporation
of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall execute with the Warrantholder an
agreement that the Warrantholder shall have the right thereafter upon payment of
the Warrant Price in effect immediately prior to such action to purchase, upon
exercise of the Warrants, the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale or conveyance had the Warrants
(and each underlying security) been exercised immediately prior to such action.
In the event of a merger described in Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended, in which the Company is the surviving
corporation, the right to purchase Shares under the Warrants shall terminate on
the date of such merger and thereupon the Warrants shall become null and void,
but only if the controlling corporation shall agree to substitute for the
Warrants its warrant which entitles the holder thereof to purchase upon its
exercise the kind and amount of shares and other securities and property which
it would have owned or been entitled to receive had the Warrants been exercised
immediately prior to such merger. Any such agreements referred to in this
subsection 8.4 shall provide for adjustment, which shall be as nearly equivalent
as may be practicable to the adjustments provided for in Section 8 hereof. The
provisions of this subsection 8.4 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
8.5 Par Value of Shares of Common Stock. Before taking any action which
would cause an adjustment effectively reducing the portion of the Warrant Price
allocable to each Share below the then par value per share of the Common Stock
issuable upon exercise of the Warrants, the Company will take any corporate
action which, in the opinion of its counsel, may be necessary in order that the
Company may validly and legally issue fully paid and nonassessable Common Stock
upon exercise of the Warrants.
8.6 Independent Public Accountants. The Company may retain a firm of
independent public accountants of recognized national standing (which may be any
such firm regularly employed by the Company) to make any computation required
under this Section 8, and a certificate signed by such firm shall be conclusive
evidence of the correctness of any computation made under this Section 8.
8.7 Statement on Warrant Certificates. Irrespective of any adjustments in
the number of securities issuable upon exercise of Warrants, Warrant
certificates theretofore or thereafter issued may continue to express the same
number of securities as are stated in the similar Warrant certificates initially
issuable pursuant to this Agreement. However, the Company, at any time in its
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<PAGE>
sole discretion (which shall be conclusive), may make any change in the form of
Warrant certificate that it may deem appropriate and that does not affect the
substance thereof and any Warrant certificate thereafter issued, whether upon
registration of transfer of, or in exchange or substitution for, an outstanding
Warrant certificate, may be in the form so changed.
Section 9. Fractional Interests; Current Market Price. The Company shall
not be required to issue fractional Shares on the exercise of the Warrants. If
any fraction of a Share would, except for the provisions of this Section 9, be
issuable on the exercise of the Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the then Current Market Price
multiplied by such fraction. For purposes of this Agreement, the term "Current
Market Price" shall mean (i) if the Common Stock is traded in the NASDAQ Small
Cap Market and not in the NASDAQ National Market System nor on any national
securities exchange, the average, of the per share closing bid prices of the
Common Stock on the thirty (30) consecutive trading days immediately preceding
the date in question, as reported by NASDAQ or an equivalent generally accepted
reporting service, or (ii) if the Common Stock is traded in the NASDAQ National
Market System or on a national securities exchange, the average for the thirty
(30) consecutive trading days immediately preceding the date in question, of the
daily per share closing prices of the Common Stock in the NASDAQ National Market
System or on the principal stock exchange on which it is listed, as the case may
be. For purposes of clause (i) above, if trading in the Common Stock is not
reported by NASDAQ, the bid price referred to in said clause shall be the lowest
bid price as reported in the "pink sheets" published by National Quotation
Bureau, Incorporated. The closing price referred to in clause (ii) above shall
be the last reported sale price or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked prices, in either
case in the NASDAQ National Market System or on the national securities exchange
on which the Common Stock is then listed.
Section 10. No Rights as Stockholder; Notices to Warrantholder. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder or its transferees any rights as a stockholder of the
Company, including the right to vote, receive dividends, consent or receive
notices as a stockholder in respect of any meeting of stockholders for the
election of directors of the Company or any other matter. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any
one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to Section
8.1; or
(b) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation, merger or sale of its property, assets and
business as an entirety or substantially as an entirety) shall be proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 14 hereof, at least twenty (20) 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 any relevant dividend,
distribution, subscription rights or other rights or for the determination of
stockholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record
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<PAGE>
date or date of closing the transfer books, as the case may be. Failure to mail
or receive such notice or any defect therein shall not affect the validity of
any action taken with respect thereto.
Section 11. Restrictions on Transfer; Registration Rights.
(a) The Warrantholder agrees that prior to making any disposition of
the Warrants or the Shares, other than to persons or entities identified in
clauses (i) through (v), inclusive, of Section 1.3, the Warrantholder shall give
written notice to the Company describing briefly the manner in which any such
proposed disposition is to be made; and no such disposition shall be made if the
Company has notified the Warrantholder that in the opinion of counsel reasonably
satisfactory to the Warrantholder a registration statement or other notification
or post-effective amendment thereto (hereinafter collectively a "Registration
Statement") under the Act is required with respect to such disposition and no
such Registration Statement has been filed by the Company with, and declared
effective, if necessary, by the Securities and Exchange Commission (the
"Commission").
(b) The Company shall be obligated to the owners of the Warrants and
the Shares to file a Registration Statement as follows:
(i) Whenever during the four-year period beginning on
___________, 1997 and ending on ___________, 2001, the Company proposes to file
with the Commission a Registration Statement (other than as to securities issued
pursuant to an employee benefit plan or as to a transaction subject to Rule 145
promulgated under the Act or which a Form S-4 Registration Statement could be
used), it shall, at least twenty (20) days prior to each filing, give written
notice of such proposed filing to the Warrantholder and each holder of Shares,
at their respective addresses as they appear on the records of the Company, and
shall offer to include and shall include in such filing any proposed disposition
of the Shares upon receipt by the Company, not less than ten (10) days prior to
the proposed filing date, of a request therefor setting forth the facts with
respect to such proposed disposition and all other information with respect to
such person reasonably necessary to be included in such Registration Statement.
In the event that the managing underwriter, if any, for said offering advises
the Company in writing that the inclusion of such securities in the offering
would be detrimental to the offering, such securities shall nevertheless be
included in the Registration Statement provided that the Warrantholder and each
holder of Warrants and Shares desiring to have such securities included in the
Registration Statement agrees in writing, for a period of ninety (90) days
following such offering not to sell or otherwise dispose of such securities
pursuant to such Registration Statement, which Registration Statement the
Company shall keep effective for a period of at least nine (9) months following
the expiration of such ninety (90) day period.
(ii) In addition to any Registration Statement pursuant to
subparagraph (i) above, during the four-year period beginning on
_______________, 1997 and ending on ________, 2001, the Company, as promptly as
practicable (but in any event within sixty (60) days), after written request
(the "Request") by H.J. MEYERS & CO., INC., or by a person or persons holding
(or having the right to acquire by virtue of holding the Warrants) at least 50%
of the shares of Common Stock which have been (or may be) issued upon exercise
of the Warrants, will prepare
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and file at its own expense a Registration Statement with the Commission and
appropriate Blue Sky authorities sufficient to permit the public offering of the
Shares, and will use its best efforts at its own expense through its officers,
directors, auditors and counsel, in all matters necessary or advisable, to cause
such Registration Statement to become effective as promptly as practicable and
to maintain such effectiveness so as to permit resale of the Shares covered by
the Request until the earlier of the time that all such securities have been
sold or the expiration of ninety (90) days from the effective date of the
Registration Statement; provided, however, that the Company shall only be
obligated to file a Registration Statement under this Section 11(b)(ii) on two
occasions.
(c) Except as set forth in the last sentence of this paragraph, all
fees, disbursements and out-of-pocket expenses (other than Warrantholder's
brokerage fees and commissions and legal fees of counsel to the Warrantholder,
if any) in connection with the filing of any Registration Statement under
Section 11) (or obtaining the opinion of counsel and any no-action position of
the Commission with respect to sales under Rule 144) and in complying with
applicable securities and Blue Sky laws shall be borne by the Company. The
Company at its expense will supply any Warrantholder and any holder of Shares
with copies of such Registration Statement and the prospectus included therein
and other related documents and opinions and no-action letters in such
quantities as may be reasonably requested by the Warrantholder or holder of
Shares. Notwithstanding the foregoing, all costs and expenses of a second
Registration Statement filed pursuant to Section 11(b)(ii) shall be borne by the
holders of the securities included therein.
(d) The Company shall not be required by this Section 11 to file such
Registration Statement if, in the opinion of counsel for the Warrantholders and
holders of Shares, and the Company (or, should they not agree, in the opinion of
another counsel experienced in securities law matters acceptable to counsel for
such holders and the Company), the proposed public offering or other transfer as
to which such Registration Statement is requested is exempt from applicable
federal and state securities laws and would result in all purchasers or
transferees obtaining securities which are not "restricted securities," as
defined in Rule 144 under the Act.
(e) The Company agrees that until all Shares have been sold under a
Registration Statement or pursuant to Rule 144 under the Act, it will keep
current in filing all materials required to be filed with the Commission in
order to permit the holders of such securities to sell the same under Rule 144.
Section 12. Indemnification.
(a) In the event of the filing of any Registration Statement with
respect to Warrants or Shares pursuant to Section 11 hereof, the Company agrees
to indemnify and hold harmless the Warrantholder or any holder of such Shares
and each person, if any, who controls the Warrantholder or any holder of any
Shares, within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorneys' fees), to which the Warrantholder or any holder of such
Shares or such controlling person may become subject,
-11-
<PAGE>
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such Registration Statement, or any related preliminary prospectus, final
prospectus, or amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances in which they were made; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such Registration Statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Warrantholder or the holder
of such Shares specifically for use in the preparation thereof. This indemnity
will be in addition to any liability which the Company may otherwise have.
(b) The Warrantholders and the holder of the Shares agree that they
will indemnify and hold harmless the Company, each other person referred to in
subparts (1), (2) and (3) of Section 11(a) of the Act in respect of the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include but not be limited to,
all costs of defense and investigation and all attorneys' fees) to which the
Company or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement, or any related preliminary prospectus, final
prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances in which they were made, but in each case only to
the extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such Registration Statement, preliminary
prospectus, final prospectus or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
the Warrantholder or such holder of Shares specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Warrantholder or such holder of Shares may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
12 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 12, notify the indemnifying party of the commencement thereof, but
the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section 12. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, reasonably assume the defense thereof, subject to the
provisions herein stated, and upon a notice from the
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<PAGE>
indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 12 for any legal or other expenses, subsequently
incurred by such indemnified party in connection with the defense thereof, other
than reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party shall have been advised by its
counsel that there may be one or more legal defenses available to the
indemnifying party which differ from those available to the indemnified party
the indemnifying party shall be liable for reasonable legal and other expense
incurred by the indemnified party in connection with the defense of the action
(in which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of the indemnified party, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for the indemnified party, which firm shall be designated in writing
by a majority in interest of such holders and controlling persons based upon the
value of the securities included in the Registration Statement. No settlement of
any action against an indemnified party shall be made without the consent of the
indemnified and the indemnifying parties, which shall not be unreasonably
withheld in light of all factors of importance to such parties.
Section 13. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which 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
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of Section 12 hereof provide for indemnification in such
case or (ii) contribution under the Act may be required on the part of any
Warrantholder or any holder of the Shares or controlling person, then the
Company and any Warrantholder or any such holder of Shares or controlling person
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The 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 related to information
supplied by the Company on the one hand or a Warrantholder or holder of Shares
or controlling person on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and such holders of such securities and such
controlling persons agree that it would not be just and equitable if
contribution pursuant to this Section 13 were determined by pro rata allocation
or by any other method which does not take account of the equitable
considerations referred to in this Section 13. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Section 13 shall be deemed
to include
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<PAGE>
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. 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.
Section 14. Notices. Any notice pursuant to this Agreement by the Company
or by a Warrantholder or a holder of Shares shall be in writing and shall be
deemed to have been duly given if delivered or mailed by certified mail, return
receipt requested:
(a) If to a Warrantholder or a holder of Shares, addressed to H.J.
MEYERS & CO., INC., 1895 Mt. Hope Street, Rochester, New York 14620; Attention:
Corporate Finance Department.
(b) If to the Company addressed to it at 1850 McDonald Avenue,
Brooklyn, New York 11223, Attention: Chief Executive Officer.
Each party may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Section 15. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Warrantholders or the holders of the
Shares shall bind and inure to the benefit of their respective successors and
assigns hereunder.
Section 16. Merger or Consolidation of the Company. The Company will not
merge or consolidate with or any other corporation or sell all or substantially
all of its property to another corporation, unless the provisions of Section 8.4
are complied with.
Section 17. Survival of Representations and Warranties. All statements
contained in any schedule, exhibit, certificate or other instrument delivered by
or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
Section 18. Applicable Law. This Agreement 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.
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<PAGE>
Section 19. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrantholders and the holders of Shares any legal or equitable right, remedy or
claim under this Agreement. This Agreement shall be for the sole and exclusive
benefit of the Company, the Warrantholders and the holders of Shares.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the date and year first above written.
NEW YORK HEALTH CARE, INC.
By:_______________________________
Chief Executive Officer
H.J. MEYERS & CO., INC.
By:_______________________________
-15-
<PAGE>
EXHIBIT A
Warrant Certificate No. HJ-1
UNDERWRITER'S WARRANTS TO PURCHASE
125,000 SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON _______________, 2001
NEW YORK HEALTH CARE, INC.
This certifies that, for value received, H.J. MEYERS & CO., INC. the
registered holder hereof or its assigns (the "Warrantholder"), is entitled to
purchase from NEW YORK HEALTH CARE, INC. (the "Company"), at any time during the
period commencing at 9:00 a.m., Eastern Standard Time, on ____________, 1997,
and before 5:00 p.m., Eastern Standard Time, on ____________, 2001, at the
purchase price per Share of $_____ (the "Warrant Price"), the number of Shares
of the Company set forth above (the "Shares"). The number of shares of Common
Stock of the Company purchasable upon exercise of each Warrant evidenced hereby
shall be subject to adjustment from time to time as set forth in the
Underwriter's Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided thereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder in cash, by check or
as provided for in Section 3(c) of the Underwriter's Warrant Agreement.
The Warrants evidenced hereby are one of a series representing the right to
purchase an aggregate of up to 125,000 Shares and are issued under and in
accordance with a Underwriter's Warrant Agreement, dated as of ___________ ___,
1996 (the "Underwriter's Warrant Agreement"), between the Company and H.J.
MEYERS & CO., INC., and are subject to the terms and provisions contained in the
Underwriter's Warrant Agreement, to all of which the Warrantholder by acceptance
hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Warrantholder a new Warrant Certificate in respect of
the Shares as to which the Warrants evidenced hereby shall not have been
exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Shares as here evidenced by the Warrant
or Warrants exchanged. No fractional Shares will be issued upon the exercise of
rights to purchase hereunder, but the Company shall pay the cash value of any
fraction upon the exercise of one or more Warrants. These Warrants are
transferable at the office of the Company in the manner and subject to the
limitations set forth in the Underwriter's Warrant Agreement.
-16-
<PAGE>
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Company.
NEW YORK HEALTH CARE, INC.
By:_______________________________
Dated: ___________ ___, 1996
ATTEST:
- --------------------------------
________________, Secretary
[Corporate Seal]
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<PAGE>
PURCHASE FORM
NEW YORK HEALTH CARE, INC.
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
__ __ Shares (the "Shares") provided for therein, and requests that certificates
for the Shares be issued in the name of:
------------------------------------------------
(Please Print or Type Name, Address and Social Security Number)
-----------------------------------------------
-----------------------------------------------
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant Certificate for the balance of the Shares purchasable under
the within Warrant Certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and delivered to the address
stated below.
Dated: ______________
Name of Warrantholder
or Assignee:________________________________________
(Please Print)
Address:____________________________________________
____________________________________________
Signature:__________________________________________
__________________________________________
Note: The above signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:_______________________________________
(Signature must be guaranteed by a member of the Medallion Stamp Program)
-18-
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
The within Warrants, hereby irrevocably constituting and appointing
_________________ Attorney to transfer said Warrants on the books of the
Company, with full power of substitution in the premises.
Dated:________ ____________________________________________
Signature or Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever
Signature Guaranteed:___________________________________________
(Signature must be guaranteed by a member of the Medallion Stamp Program)
-19-
Scheichet & Davis, P.C.
Counselors at Law
505 Park Avenue
New York, NY 10022
(212) 688-3200
Fax: (212) 371-7634
December 9, 1996
New York Health Care, Inc.
1850 McDonald Avenue
Brooklyn, NY 11223
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. Underwriter's Warrants entitling the Underwriter to purchase 125,000
shares of Common Stock from the Company; and
<PAGE>
New York Health Care, Inc.
December 9, 1996
Page 2
3. 125,000 shares of Common Stock issuable 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 Underwriter'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
4. The shares of Common Stock which are to be issued upon the exercise of
the Underwriter's Warrants have been duly and validly authorized and, when
issued and paid for as described in the Registration Statement and the
Underwriter's Warrants, will be duly and validly issued, fully paid and
non-assessable;
<PAGE>
New York Health Care, Inc.
December 9, 1996
Page 3
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
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
Agreement of Lease, made as of this_____ day of_________ 19__, between
see Rider "A"
party of the first part, hereinafter referred to as OWNER, and
______________________________________party of the second part, hereinafter
refered to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner
in the building known as ________________ in the Borough of _______________,City
of New York, for the term of _______________ (or until such term shall sooner
cease and expire as hereinafter provided) to commence on the ____ day of
___________ nineteen hundred and ____________, and to end on the __________ day
of __________ nineteen hundred and __________ both dates inclusive, at an annual
rental rate of _________________
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first_____ monthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent:
1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy:
2. Tenant shall use and occupy demised premises for offices.
Tenant Alterations:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written constant. Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant, at Tenant's expense, may
make alterations, installations, additions or improvements which are
nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved in each instance by Owner. Tenant shall,
before making any alterations, additions, installations or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner and Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty days thereafter at
Tenant's expense, by payment or filing the bond required by law. All fixtures
and all paneling, partitions, railings and like installations, installed in the
premises at any time, either by Tenant or by Owner on Tenant's behalf, shall,
upon installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises unless Owner, by notice to Tenant no later
than twenty days prior to the date fixed as the termination of this lease,
elects to relinquish Owner's right thereto and to have them removed by Tenant,
in which event the same shall be removed from the premises by Tenant prior to
the expiration of the lease at the Tenant's expense. Nothing in this Article
shall be construed to give Owner title to or to prevent Tenant's removal of
trade fixtures, moveable office furniture and equipment, but upon removal of any
such from the premises or upon removal of other installations as may be required
by Owner, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the building due to such removal. All property
permitted or required to be removed by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed from
the premises by Owner, at Tenant's expense.
Maintenance and Repairs:
4. Tenant shall, throughout the term of this lease, take good care of the
demised premises and the fixtures and appurtenances therein. Tenant shall be
responsible for all damage or injury to the demised premises or any other part
of the building and the systems and equipment thereof, whether requiring
structural or nonstructural repairs caused by or resulting from carelessness,
omission, neglect or improper conduct of Tenant, Tenant's subtenants, agents,
employees, invitees or licensees, or which arise out of any work, labor, service
or equipment done for or supplied to Tenant or any subtenant or arising out of
the installation, use or operation of the property or equipment of Tenant or any
subtenant. Tenant shall also repair all damages to the building and the demised
premises caused by the moving of Tenant's fixtures, furniture and equipment.
Tenant shall promptly make, at Tenant's expense, all repairs in and to the
demised premises for which Tenant is responsible, using only the contractor for
the trade or trades in question, selected from a list of at least two
contractors per trade submitted by Owner. Any other repairs in or to the
building or the facilities and systems thereof for which Tenant is responsible
shall be performed by Owner at the Tenant's expense. Owner shall maintain in
good working order and repair the exterior and the structural portions of the
building, including the structural portions of its demised premises and the
public portions of the building interior and the building plumbing, electrical,
heating and ventilating systems (to the extent such systems presently exist)
serving the demised premises. Tenant agrees to give prompt notice of any
defective condition in the premises for which Owner may be responsible
hereunder. There shall be no allowance to Tenant for diminution of rental value
and no liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner or others making repairs, alterations,
additions or improvements in or to any portion of the building or the demised
premises or in and to the fixtures, appurtenances or equipment thereof. It is
specifically agreed that Tenant shall not be entitled to any setoff or reduction
of rent by reason of any failure of Owner to comply with the covenants of this
or any other article of this Lease. Tenant agrees that Tenant's sole remedy at
law in such instance will be by way of an action for damages for breach of
contract. The provisions of this Article 4 shall not apply in the case of fire
or other casualty which are dealt with in Article 9 hereof.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any window in the
demised premises to be cleaned from the outside in violation of Section 202 of
the Labor Law or any other applicable law or of the Rules of the Board of
Standards and Appeals, or of any other Board or body having or asserting
jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads:
6. Prior to the commencement of the lease term, if Tenant is then in possession,
and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall
promptly comply with all present and future laws, orders and regulations of all
state, federal, municipal and local governments, departments, commissions and
boards and any direction of any public officer pursuant to law, and all orders,
rules, and regulations of the New York Board of Fire Underwriters, Insurance
Services Office, or any similar body which shall impose any violation, order, or
duty upon Owner or Tenant with respect to the demised premises, whether or not
arising out of Tenant's permitted use or, with respect to the building if
arising out of Tenant's
<PAGE>
use or manner of use of the premises or the building (including the use
permitted under the lease). Nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has, by its manner of use of the
demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant may, after securing Owner to Owner's satisfaction against all damages,
interest, penalties and expenses, including but not limited to, reasonable
attorney's fees, by cash deposit or by surety bond in an amount and in a company
satisfactory to Owner, contest and appeal any such laws, ordinances, orders,
rules, regulations or requirements provided same is done with all reasonable
promptness and provided such appeal shall not subject Owner to prosecution for a
criminal offense or constitute a default under any lease or mortgage under which
Owner may be obligated or cause the demised premises or any part thereof to be
condemned or vacated. Tenant shall not do or permit any act or thing to be done
in or to the demised premises which is contrary to law, or which will invalidate
or be in conflict with public liability, fire or other policies of insurance at
any time carried by or for the benefit of Owner with respect to the demised
premises or the building of which the demised premises form a part, or which
shall or might subject Owner to any liability or responsibility to any person or
for property damage. Tenant shall not keep anything in the demised premises
except as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization or other authority having
jurisdiction and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in any manner which will increase the insurance rate for the building
or any property located therein over that in effect prior to the commencement of
Tenant's occupancy. Tenant shall pay all costs, expenses, fines, penalties, or
damages which may be imposed upon Owner by reason of Tenant's failure to comply
with the provisions of this article and if by reason of such failure the fire
insurance rate shall, at the beginning of this lease or at any time thereafter,
be higher than it otherwise would be, then Tenant shall reimburse Owner, as
additional rent hereunder, for that portion of all fire insurance premiums
thereafter paid by Owner which shall have been charged because of such failure
by Tenant. In any action or proceeding wherein Owner and Tenant are parties, a
schedule or "make-up" of rate for the building or demised premises issued by the
New York Fire Insurance Exchange, or other body making fire insurance rates
applicable to said premises shall be conclusive evidence of the facts therein
stated and of the several items and charges in the fire insurance rates then
applicable to said premises. Tenant shall not place a load upon any floor of the
demised premises exceeding the floor load per square foot area which it was
designed to carry and which is allowed by law. Owner reserves the right to
prescribe the weight and position of all safes, business machines and mechanical
equipment. Such installations shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Owner's judgment, to absorb and
prevent vibration, noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying leases and
to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
Property Loss, Damage Reimbursement Indemnity:
8: Owner or its agents shall not be liable for any damage to property of Tenant
or of others entrusted to employees of the building, nor for loss of or damage
to any property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to negligence of Owner, its agents, servants or employees. Owner or
its agents will not be liable for any such damage caused by other tenants or
persons in, upon or about said building or caused by operations in construction
of any private, public or quasi public work. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever,
including, but not limited to, Owner's own acts, Owner shall not be liable for
any damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall indemnify and save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Owner
shall not be reimbursed by insurance, including reasonable attorneys fees, paid,
suffered, or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licensees, of any covenant or condition of
this lease, or the carelessness, negligence or improper conduct of the Tenant,
Tenant's agents, contractors, employees, invitees or licensees. Tenant's
liability under this lease extends to the acts and omissions of any sub-tenant,
and any agent, contractor, employee, invitees or licensee of any sub-tenant. In
case any action or proceeding is brought against Owner by reason of any such
claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist
or defend such action or proceeding by counsel approved by Owner in writing,
such approval not to be unreasonably withheld.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent and other items of additional rent, until such
repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premise which is usable. (c)
If the demised premises are totally damaged or rendered wholly unusable by fire
or other casualty, then the rent and other items of additional rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied in part by Tenant
then rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90 days after such fire or casualty, or 30 days after adjustment of
the insurance claim for such fire or casualty, whichever is sooner, specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender, and vacate the premises without prejudice however, to
Landlord's rights and remedies against Tenant under the lease provisions in
effect prior to such termination, and any rent owing shall be paid up to such
date and any payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve a
termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
moveable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice from Owner that the premises are
substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Not withstanding the foregoing, including Owner's
obligation to restore under subparagraph (b) above, each party shall look first
to any insurance in its favor before making any claim against the other party
for recovery for loss or damage resulting from fire or other casualty and to the
extent that such insurance is in force and collectible and to the extent
permitted by law, Owner and Tenant each hereby releases and waives all right of
recovery with respect to subparagraphs (b), (d), and (e) above, against the
other or any one claiming through or under each of them by way of subrogation or
otherwise. The release and waiver herein referred to shall be deemed to include
any loss or damage to the demised premises and/or to any personal property,
equipment, trade fixtures, goods and merchandise located therein. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums, then the party benefiting from the waiver
shall pay such premium within ten days after written demand or shall be deemed
to have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease and assigns to Owner, Tenant's entire
interest in any such award. Tenant shall have the right to make an independent
claim to the condemning authority for the value of Tenant's moving expenses and
personal property, trade fixtures and equipment, provided Tenant is entitled
pursuant to the terms of the lease to remove such property, trade fixtures and
equipment at the end of the term and provided further such claim does not reduce
Owner's award.
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representative, successor and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
the prior written consent of Owner in each instance. Transfer of the majority of
the stock of a corporate Tenant or the majority partnership interest of a
partnership Tenant shall be deemed an assignment. If this lease be assigned, or
if the demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner may, after default by Tenant, collect rent from the
assignee, under-tenant or occupant and apply the net amount collected to the
rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
Electric Current: [GRAPHIC OF POINTING HAND]
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER, attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall not exceed the capacity of
existing feeders to the building or the risers or wiring installation and Tenant
may not use any electrical equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or interfere with the use thereof by
other tenants of the building. The change at any time of the character of
electric service shall in no wise make Owner liable or responsible to Tenant,
for any loss, damages, or expenses which Tenant may sustain.
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be obligated) to
enter the demised premises in any emergency at any time, and at other reasonable
times, to examine the same and to make such repairs, replacements and
improvements as Owner may deem necessary and reasonably desirable to the demised
premises or to any other portion of the building on which Owner may elect to
perform. Tenant shall permit Owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein provided they are concealed within the walls, floor, or ceiling. Owner
may, during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof Owner shall have the right to
enter the demised premises at reasonable hours for the purpose of showing the
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the
- ----------
[GRAPHIC OF POINTING HAND] Rider to be added if necessary.
<PAGE>
same to prospective tenants. If Tenant is not present to open and permit an
entry into the demised premises, Owner or Owner's agents may enter the same
whenever such entry may be necessary or permissible by master key or forcibly
and provided reasonable care is exercised to safeguard Tenant's property, such
entry shall not render Owner or its agents liable therefor, nor in any event
shall the obligations of Tenant hereunder be affected. If during the last month
of the term Tenant shall have removed all or substantially all of Tenant's
property therefrom Owner may immediately enter, alter, renovate or redecorate
the demised premises without limitation or abatement of rent or incurring
liability to Tenant for any compensation and such act shall have no effect on
this lease or Tenant's obligations hereunder.
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder, anything contained
in or indicated on any sketch, blueprint or plan, or anything contained
elsewhere in this lease to the contrary notwithstanding. Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent nor shall such revocation, diminution or requisition be deemed
constructive or actual eviction. Any tax, fee or charge of municipal authorities
for such vault or area shall be paid by Tenant.
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in violation
of the certificate of occupancy issued for the building of which the demised
premises are a part. Tenant has inspected the premises and accepts them as is,
subject to the riders annexed hereto with respect to Owner's work, if any. In
any event, Owner makes no representation as to the condition of the premises and
Tenant agrees to accept the same subject to violations, whether or not of
record.
Bankruptcy:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this
lease may be cancelled by Owner by the sending of a written notice to Tenant
within a reasonable time after the happening of any one or more the of the
following events: (1) the commencement of a case in bankruptcy or under the laws
of any state naming Tenant as the debtor; or (2) the making by Tenant of an
assignment or any other arrangement for the benefit of creditors under any state
statute. Neither Tenant nor any person claiming through or under Tenant, or by
reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises to be re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default:
17. (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; or if the
demised premises become vacant or deserted; or if any execution or attachment
shall be issued against Tenant or any of Tenant's property whereupon the demised
premises shall be taken or occupied by someone other than Tenant; or if this
lease be rejected under ss.235 of Title 11 of the U.S. Code (bankruptcy code);
or if Tenant shall fail to move into or take possession of the premises within
thirty (30) days after the commencement of the term of this lease, then, in any
one or more of such events, upon Owner serving a written fifteen (15) days
notice upon Tenant specifying the nature of said default and upon the expiration
of said fifteen (15) days, if Tenant shall have failed to comply with or remedy
such default, or if the said default or omission complained or shall be of a
nature that the same cannot be completely cured or remedied within said fifteen
(15) day period, and if Tenant shall not have diligently commenced curing such
default within such fifteen (15) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such default,
then Owner may serve a written five (5) days, notice of cancellation of this
lease upon Tenant, and upon the expiration of said five (5) days this lease and
the terms thereunder shall end and expire as fully and completely as if the
expiration of such five (5) day period were the day herein definitely fixed for
the end and expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall remain liable
as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given and the
term shall expire as aforesaid; or if Tenant shall make default in the payment
of the rent reserved herein or any item of additional rent herein mentioned or
any part of either or in making any other payment herein required; then and in
any of such events Owner may without notice, re-enter the demised premises
either by force or otherwise, and dispossess Tenant by summary proceedings or
otherwise, and the legal representative of Tenant or other occupant of demised
premises and remove their effects and hold the premises as if this lease had not
been made, and Tenant hereby waives the service of notice of intention to
re-enter or to institute legal proceedings to that end. If Tenant shall make
default hereunder prior to the date fixed as the commencement of any renewal or
extension of this lease, Owner may cancel and terminate such renewal or
extension agreement by written notice.
Remedies of Owner and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent shall become due thereupon and be
paid up to the time of such re-entry, dispossess and/or expiration, (b) Owner
may re-let the premises or any part or parts thereof either in the name of Owner
or otherwise, for a term or terms, which may at Owner's option be less than or
exceed the period which would otherwise have constituted the balance of the term
of this lease and may grant concessions or free rent or charge a higher rental
than that in this lease, and/or (c) Tenant or the legal representatives of
Tenant shall also pay Owner as liquidated damages for the failure of Tenant to
observe and perform said Tenant's covenants herein contained, any deficiency
between the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the lease or leases of the
demised premises for each month of the period which would otherwise have
constituted the balance of the term of this lease. The failure of Owner to
re-let the premises or any part or parts thereof shall not release or affect
Tenant's liability for damages. In computing such liquidated damages there shall
be added to the said deficiency such expenses as Owner may incur in connection
with re-letting, such as legal expenses, reasonable attorneys' fees, brokerage,
advertising, and for keeping the demised premises in good order or for preparing
the same for re-letting. Any such liquidated damages shall be paid in monthly
installments by Tenant on the rent day specified in this lease and any suit
brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Owner to collect the deficiency for any
subsequent month by a similar proceeding. Owner, in putting the demised premises
in good order or preparing the same for re-rental may, at Owner's option, make
such alterations, repairs, replacements and/or decorations in the demised
premises as Owner, in Owner's sole judgment, considers advisable and necessary
for the purpose of re-letting the demised premises, and the making of such
alterations, repairs, replacements, and/or decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Owner shall
in no event be liable in any way whatsoever for failure to re-let the demised
premises, or in the event that the demised premises are re-let, for failure to
collect the rent thereof under such re-letting, and in no event shall Tenant be
entitled to receive any excess, if any, of such net rents collected over the
sums payable by Tenant to Owner hereunder. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof, Owner
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if re-entry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present or future laws in the event of Tenant being evicted or dispossessed for
any cause, or in the event of Owner obtaining possession of demised premises, by
reason of the violation by Tenant of any of the covenants and conditions of this
lease, or otherwise.
Fees and Expenses:
19. If Tenant shall default in the observance or performance of any term or
covenant on Tenant's part to be observed or performed under or by virtue of any
of the terms or provisions in any article of this lease, after notice if
required and upon expiration of any applicable grace period if any, (except in
an emergency), then, unless otherwise provided elsewhere in this lease, Owner
may immediately or at any time thereafter and without notice perform the
obligation of Tenant thereunder. If Owner, in connection with the foregoing or
in connection with any default by Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to reasonable attorneys' fees, in instituting,
prosecuting, or defending any action or proceeding, and prevails in any such
action or proceeding then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within ten (10) days of rendition of any bill
or statement to Tenant therefor. If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner, as damages.
Building Alterations and Management:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner or other Tenants making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
such controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
No Representations by Owner:
21. Neither Owner nor Owner's agents have made any representations or promises
with respect to the physical condition of the building, the land upon which
<PAGE>
it is erected, or the demised premises, the rents, leases, expenses of operation
or any other matter or thing affecting or related to the premises except as
herein expressly set forth and no rights, easements or licenses are acquired by
Tenant by implication or otherwise except as expressly set forth in the
provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" and acknowledges that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
End of Term:
22. Upon the expiration or other termination of the term of this lease, Tenant
shall quit and surrender to Owner the demised premises, broom clean, in good
order and condition, ordinary wear and damages which Tenant is not required to
repair as provided elsewhere in this lease excepted and Tenant shall remove all
its property. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of this lease. If the last day of
the term of this Lease or any renewal thereof, falls on Sunday, this lease shall
expire at noon on the preceding Saturday unless it be a legal holiday in which
case it shall expire at noon on the preceding business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and
additional rent and observing and performing all terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised, subject, nevertheless, to the
terms and conditions of this lease including, but not limited to, Article 31
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
Failure to Give Possession:
24. If Owner is unable to give possession of the demised premised on the date of
the commencement of the term hereof, because of the holding-over or retention of
possession of any tenant, undertenant or occupants or if the demised premises
are located in a building being constructed, because such building has not been
sufficiently completed to make the premises ready for occupancy or because of
the fact that a certificate of occupancy has not been procured or for any other
reason, Owner shall not be subject to any liability for failure to give
possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any wise to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to obtain possession or complete
construction) until after Owner shall have given Tenant written notice that the
Owner is able to deliver possession in condition required by this lease. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the date
specified as the commencement of the term of this lease, Tenant covenants and
agrees that such possession and/or occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this lease except the obligation
to pay the fixed annual rent set forth in the preamble to this lease. The
provisions of this article are intended to constitute "an express provision to
the contrary" within the meaning of Section 223-a of the New York Real Property
Law.
No Waiver:
25. The failure of Owner to seek redress for violation of, or to insist upon the
strict performance of any covenant or condition of this lease or of any of the
Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent
a subsequent act which would have originally constituted a violation from having
all the force and effect of an original violation. The receipt by Owner of rent
and/or additional rent with knowledge of the breach of any covenant of this
lease shall be deemed to have been waived by Owner unless such waiver be in
writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser
amount than the monthly rent herein stipulated shall be deemed to be other than
on account of the earliest stipulated rent, nor shall any endorsement or
statement of any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Owner may accept such check or payment
without prejudice to Owner's right to recover the balance of such rent or pursue
any other remedy in this lease provided. No act or thing done by Owner or
Owner's agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises, and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the respective
parties hereto shall and they hereby do waive trial by jury in any action
proceeding or counterclaim brought by either of the parties hereto against the
other (except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further mutually agreed
that in the event Owner commences any proceeding or action for possession
including a summary proceeding for possession of the premises, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding including a counterclaim under Article 4 except for statutory
mandatory counterclaims.
Inability to Perform:
27. This Lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures, or other materials if Owner is prevented or delayed from so doing by
reason of strike or labor troubles or any cause whatsoever including, but not
limited to, government preemption or restrictions or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions which have been or are affected, either
directly or indirectly, by war or other emergency.
Bills and Notices
28. Except as otherwise in this lease provided, a bill, statement, notice or
communication which Owner may desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
Services Provided by Owners:
29. As long as Tenant is not in default under any of the covenants of this lease
beyond the applicable grace period provided in this lease for the curing of such
defaults, Owner shall provide: (a) necessary elevator facilities on business
days from 8 a.m. to 6 p.m. and have one elevator subject to call at all other
times; (b) heat to the demised premises when and as required by law, on business
days from 8 a.m. to 6 p.m.; (c) water for ordinary lavatory purposes, but if
Tenant uses or consumes water for any other purposes or in unusual quantities
(of which fact Owner shall be the sole judge), Owner may install a water meter
at Tenant's expense which Tenant shall thereafter maintain at Tenant's expense
in good working order and repair to register such water consumption and Tenant
shall pay for water consumed as shown on said meter as additional rent as and
when bills are rendered; (d) cleaning service for the demised premises on
business days at Owner's expense provided that the same are kept in order by
Tenant. If, however, said premises are to be kept clean by Tenant, it shall be
done at Tenant's sole expense, in a manner reasonably satisfactory to Owner and
no one other than persons approved by Owner shall be permitted to enter said
premises of the building of which they are a part for such purpose. Tenant shall
pay Owner the cost of removal of any of Tenant's refuse and rubbish from the
building; (e) If the demised premises are serviced by Owner's air
conditioning/cooling and ventilating system, air conditioning/cooling will be
furnished to tenant from May 15th through September 30th on business days
(Mondays through Fridays, holidays excepted) from 8:00 a.m. to __:00 p.m., and
ventilation will be furnished on business days during the aforesaid hours except
when air conditioning/cooling is being furnished as aforesaid.
(f) Owner reserves the right to stop services of the heating, elevators,
plumbing, air-conditioning, electric power systems or cleaning or other
services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the judgment
of Owner for as long as may be reasonably required by reason thereof. If the
building of which the demised premises are a part supplies manually operated
elevator service, Owner at any time may substitute automatic control elevator
service and proceed diligently with alterations necessary therefor without in
any wise affecting this lease or the obligation of Tenant hereunder.
Captions:
30. The Captions are inserted only as a matter of convenience and for reference
and in no way define, limit or describe the scope of this lease nor the intent
of any provisions thereof.
Definitions:
31. The term "office" or "offices", wherever used in this lease, shall not be
construed to mean premises used as a store or stores, for the sale or display,
at any time, of goods, wares or merchandise, of any kind, or as a restaurant,
shop, booth, bootblack or other stand, barber shop, or for other similar
purposes or for manufacturing. The term "Owner" means a landlord or lessor, and
as used in this lease means only the owner, or the mortgagee in possession, for
the time being of the land and building (or the owner of a lease of the building
or of the land the building) of which the demised premises form a part, so that
in the event of any sale or sales of said land and building or of said lease, or
in the event of a lease of said building, or of the land and building; the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the building, or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner, hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term
"business days" as used in this lease shall exclude Saturdays, Sundays and all
days as observed by the State or Federal Government as legal holidays and those
designated as holidays by the applicable building service union employees
service contract or by the applicable Operating Engineers contract with respect
to HVAC service.
<PAGE>
Adjacent Excavation-Shoring:
32. If any excavation shall be made upon land adjacent to the demised premises,
or shall be authorized to be made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the demised premises
for the purpose of doing such work as said person shall deem necessary to
preserve the wall or the building of which demised premises form a part from
injury or damage and to support the same by proper foundations without any claim
for damages or indemnity against Owner, or diminution or abatement of rent.
Rules and Regulations:
33. Tenant and Tenant's servants, employees, agents, visitors and licensees
shall observe faithfully, and comply strictly with, the Rules and Regulations
and such other and further reasonable Rules and Regulations as Owner or Owner's
agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manner as Owner may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision to the
New York office of the American Arbitration Association, whose determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon owner within fifteen (15) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
Security:
34. Tenant has deposited with Owner the sum of [GRAPHIC OF POINTING HAND]
* as security for the faithful performance and observance by Tenant of
the terms, provisions and conditions of this lease; it is agreed that in the
event Tenant defaults in respect of any of the terms, provisions and conditions
of this lease, including, but not limited to, the payment of rent and additional
rent, Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Owner may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency in the re-letting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event the Tenant shall fully and faithfuly comply with
all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to Owner.
In the event of a sale of the land and building or leasing of the building, of
which the demised premises form a part, Owner shall have the right to transfer
the security to the vendee or lessee and Owner shall thereupon be released by
Tenant from all liability for the return of such security; and Tenant agrees to
look to the new Owner solely for the return of said security, and it is agreed
that the provisions hereof shall apply to every transfer or assignment made of
the security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be found by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
Estoppel Certificate:
35. Tenant, at any time, and from time to time, upon at least 10 days' prior
notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any
other person, firm or corporation specified by Owner, a statement certifying
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications), stating the dates to which the rent and additional
rent have been paid, and stating whether or not there exists any default by
Owner under this Lease, and, if so, specifying each such default.
Successors and Assigns:
36. The covenants, conditions and agreements contained in this lease shall bind
and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns. Tenant shall look only to Owner's estate
and interest in the land and building, for the satisfaction of Tenant's remedies
for the collection of a judgment (or other judicial process) against Owner in
the event of any default by Owner hereunder, and no other property or assets of
such Owner (or any partner, member, officer or director thereof, disclosed or
undisclosed), shall be subject to levy, execution or other enforcement procedure
for the satisfaction of Tenant's remedies under or with respect to this lease,
the relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of
the demised premises.
- ----------
[GRAPHIC OF POINTING HAND] Space to be filled in or deleted.
* See Rider to Lease - Paragraph 34B
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
6 Gramatan Avenue Corp.
---------------------------
Witness for Owner:
/s/ Signature on File
- --------------------------- ---------------------------
NEW YORK HEALTH CARE, INC.
---------------------------
Witness for Tenant:
[STAMP] /s/ Jerry Braun
- --------------------------- SIGN HERE ---------------------------
ACKNOWLEDGEMENTS
CORPORATE OWNER
STATE OF NEW YORK, ss:
County of
On this __ day of ______________, 19 , before me personally came
_____________________ to me known, who being by me duly sworn, did depose and
say that he resides in __________ ; that he is the _____________________of
__________________ the corporation described in and which executed the foregoing
instrument, as OWNER; that he knows the seal of said corporation; the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation, and that he signed his name
thereto by like order.
---------------------------
CORPORATE TENANT
STATE OF NEW YORK,
County of
On this __ day of ______________, 19 , before me personally came
_____________________ to me known, who being my me duly sworn, did depose and
say that he resides in __________ ; that he is the _____________________of
__________________ the corporation described in and which executed the foregoing
instrument, as TENANT; that he knows the seal of said corporation; the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation, and that he signed his name
thereto by like order.
---------------------------
INDIVIDUAL OWNER
STATE OF NEW YORK, ss:
County of
On this __ day of ________________, 19 , before me personally came to be known
and known to me to be the individual __________________ described in and who, as
OWNER, executed the foregoing instrument and acknowledged to me that
______________________ he executed the same.
---------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK,
County of
On this __ day of ________________, 19 , before me personally came to be
known and known to me to be the individual __________________ described in and
who, as TENANT, executed the foregoing instrument and acknowledged to me that
_______________________ he executed the same.
---------------------------
<PAGE>
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to Owner
making the within lease with Tenant, the undersigned guarantees to Owner,
Owner's successors and assigns, the full performance and observance of all the
covenants, conditions and agreements, therein provided to be performed and
observed by Tenant, including the "Rules and Regulations" as therein provided,
without requiring any notice of non-payment, non-performance, or non-observance,
or proof, or notice, or demand, whereby to charge the undersigned therefor, all
of which the undersigned hereby expressly waives and expressly agrees that the
validity of this agreement and the obligations of the guarantor hereunder shall
in no wise be terminated, affected or impaired by reason of the assertion by
Owner against Tenant of any of the rights or remedies reserved to Owner pursuant
to the provisions of the within lease. The undersigned further covenants and
agrees that this guaranty shall remain and continue in full force and effect as
to any renewal, modification or extension of this lease and during any period
when Tenant is occupying the premises as a "statutory tenant." As a further
inducement to Owner to make this lease and in consideration thereof, Owner and
the undersigned covenant and agree that in any action or proceeding brought by
either Owner or the undersigned against the other on any matters whatsoever
arising out of, under, or by virtue of the terms of this lease or of this
guarantee that Owner and the undersigned shall and do hereby waive trial by
jury.
Dated: ........................... .................19.....
Guarantor ........................ ..................
Witness.......................... ...................
Guarantor's Residence.............. .................
Business Address.....................................
Firm Name............................................
STATE OF NEW YORK) ss:
COUNTY OF )
On this __ day of _____________ , 19 __, before me personally came __________ to
me known and known to me to be the individual described in, and who executed the
foregoing Guaranty and acknowledged to me that he executed the same.
---------------------------
Notary
[GRAPHIC OF POINTING HAND] IMPORTANT - PLEASE READ [GRAPHIC OF POINTING HAND]
RULES AND REGULATIONS
ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
Tenant or used for any purpose other than for ingress or egress from the demised
premises and for delivery of merchandise and equipment in a prompt and efficient
manner using elevators and passageways designated for such delivery by Owner.
There shall not be used in any space, or in the public hall of the building,
either by any Tenant or by jobbers or others in the delivery or receipt of
merchandise, any hand trucks, except those equipped with rubber tires and
sideguards. If said premises are situated on the ground floor of the building,
Tenant thereof shall further, at Tenant's expense, keep the sidewalk and curb in
front of said premises clean and free from ice, snow, dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rugs, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window of
the building and no Tenant shall sweep or throw or permit to be swept or thrown
from the demised premises any dirt or other substances into any of the corridors
of halls, elevators, or out of the doors or windows or stairways of the building
and Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the demised p[remises, or permit or suffer the demised
premises to be occupied or used in a manner offensive or objectionable to Owner
or other occupants of the building by reason of noise, odors, and/or vibrations,
or interfere in any way with other Tenants or those having business therein, nor
shall any bicycles, vehicles, animals, fish, or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of the
building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premise if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability, and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablets shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part of the
demised premises or the building of which they form a part. No boring, cutting
or stringing of wires shall be permitted, except with the prior written consent
of Owner, and as Owner may direct. No Tenant shall lay linoleum, or other
similar floor covering, so that the same shall come in direct contact with the
floor of the demised premises, and, if linoleum or other similar floor covering
is desired to be used an interlining of builder's deadening felt shall be first
affixed to the floor, by a paste or other material, soluble in water, the use of
cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of any
description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and each
Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building all persons who do not
present a pass to the building signed by Owner. Owner will furnish passes to
persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Tenant shall not have a claim against
Owner by reason of Owner excluding any person who does not present such pass.
11. Owner shall have the right to prohibit any advertising by any Tenant which
in Owner's opinion, tends to impair the reputation of the building or its
desirability as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the demised
premises, any inflammable, combustible, explosive, or hazardous fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odor to permeate in or emanate
from the demised premises.
13. If the building contains central air conditioning and ventilation, Tenant
agrees to keep all windows closed at all times and to abide by all rules and
regulations issued by Owner with respect to such services.
If Tenant requires air conditioning or ventilation after the usual hours,
Tenant shall give notice in writing to the building superintendant prior to 3:00
p.m. in the case of services required on weekdays and prior to 3:00 p.m. on the
day prior in the case of after hour service required on weekdays or on holidays.
14. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or features into or out of the building without Owner's prior written
consent. If such safe, machinery, equipment, bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto.
[STAMP] INITIAL HERE /s/ JB
Address 91-31 Queens Blvd.
Premises Suite 210
================================================
EXPRESSWAY REALTY CO.
TO
NEW YORK HEALTH CARE, INC.
================================================
STANDARD FORM OF
[LOGO] Office [LOGO]
Lease
The Real Estate Board of New York, Inc.
(C) Copyright 1994. All rights Reserved.
Reproduction in whole or in part prohibited.
================================================
Dated September 14, 1995
Rent Per Year $17,400.00
Rent Per Month $1,450.00
Term Two (2) Years
From October 1, 1995
To September 30, 1997
Drawn by ............
Checked by...........
Entered by...........
Approved by..........
================================================
<PAGE>
RIDER "A" TO LEASE
THIS RIDER INCORPORATES ALL THE TERMS AND CONDITIONS OF THE ATTACHED FORM LEASE,
RIDER "B" AND SPECIAL CONDITIONS PAGE.
DATE: 10/09/96
PREMISES: 6 Gramatan Ave. Suite #201
LANDLORD: 6 Gramatan Ave. Corp.
TENANT: New York Health Care Inc.
1667 Flatbush Avenue, Brooklyn N.Y. 11210
TENANT SPACE: THE RENTAL AREA UNDER THIS LEASE AS
SHOWN ON PLAN "A" ATTACHED TO THIS LEASE.
TENANT TO BE CALLED PRIOR TO CONSTRUCTION. initialed:
JB, RW
LEASE TERM: 5 YEARS FROM DATE DELIVERY
RENTAL OPTIONS: 1 OPTION PERIODS OF 5 YEARS EACH.
DATE OF RENT
COMMENCEMENT: December 1, 1996 Rent starts January 1st 1997
BASE RENT: 2,100.00 PER MONTH PAID MONTHLY FOR THE FIRST YEAR.
RENT ESCALATION: TENANT RENT SHALL INCREASE BY CPI Max 4%
PERCENT YEARLY COMPOUNDED. No increase 2nd Year initialed:
JB, RW
ADDITIONAL CHARGES: TENANT SHALL PAY 4% OF ALL INCREASES IN
COMMON AREA CHARGES AND TAXES OVER THE
BASE YEAR. No increase 2nd Year
DEPOSIT: 2 MONTHS SECURITY AND THE FIRST MONTH'S
RENTAL IS TO BE PAID UPON EXECUTION OF THIS
LEASE IN THE AMOUNT OF $4,000.00 Deposit
---------
2,100.00 First Month Rent
---------
PERMITTED USE: Offices 6,300.00
TENANT:
By: /s/ [illegible] By: /s/ Jerry Braun
- ------------------- ----------------------
6 Gramatan Ave. Corp. Jerry Braun
President
<PAGE>
RIDER "B" TO LEASE
The provisions of this Rider shall supersede any conflicting or ambiguous
provisions contained in the printed portions of the lease or Rider "A": to which
this Rider is made a part.
1. RENT: (a) All rent is to be paid on the first day of each and every calendar
month during the said term. If tenant shall fail to pay any rent, charges or
other sums payable hereunder within TEN (10)[initialed: JB,RW] days after same
become due and payable, then Tenant shall also pay to Landlord additional rent
in the amount of $25 per day, as and for liquidated damages for failure to make
prompt payment.
(b) In the event the Tenant shall fail to pay the rent provided for herein, and
as a result thereof, the Landlord shall commence summary proceedings for the
eviction of the Tenant for non-payment for rent, then and in such event, the
Tenant agrees to pay the sum of $500.00. Said sum of $500.00 shall immediately
become due and payable similar to debt upon the issuance and service of the
same. Said sum shall be in payment of the legal fees for the preparation,
service and placing of said proceeding on the court calendar (exclusive of
disbursements) and the Tenant agrees to pay reasonable legal fees for the
services rendered in addition thereto, should the same be necessary.
2. TAX INCREASES: The Tenant agrees to pay to the Landlord, each year, as
additional rent hereunder, a sum equal to the percentage, specified in Rider
"A"; of the total amount of any increases in real estate taxes imposed by the
City of Mount Vernon, the County of Westchester or any other governmental
authority having jurisdiction, including garbage and sewer taxing districts, for
the property of which the Demised Premises form a part over and above the taxes
applicable and affecting the said Premises for the 1996 City and County taxes,
imposed on a calendar year basis, and the 1995/96 School taxes imposed on a
fiscal year basis, whether such increase be occasioned by increased in a
assessed valuation, and/or increase in the applicable tax rate or charge, or by
the imposition of new taxes or charges or taxes of any kind.
3. COMMON AREA CHARGES: The tenant agrees to pay to the landlord, each year, as
additional rent hereunder, a sum equal to the percentage, specified in Rider
"A", of the total amount of any increases over the base year of expenses in
common area maintenance and operations to the building, including but not
limited to: *electric and gas for elevator operations, HVAC and lighting of
common areas and the exterior; cleaning services including windows; snow removal
and landscaping; non-structural repairs to the hallway and lobby areas; elevator
and HVAC maintenance and repair; building operating and maintenance staff.
*water
initialed:
JB
RW
<PAGE>
4. UTILITY CHARGES: Tenant agrees that all utility charges to its space,
including but not limited to electric and gas for heating, air conditioning and
light shall be separately metered to it, and paid directly by Tenant.
5. LEASE RENEWAL: Tenant is granted the option to renew this lease in accordance
with the terms in Rider "A", under the same terms and conditions, provided
Tenant notifies the Landlord in writing, by certified mail, return receipt
requested, of their election to so renew; said notice to be posted 6 months
prior to the expiration of the then current lease term.
6. PURPOSE AND USE: The tenant shall use the Premises solely for the purposes
set forth in Rider "A", and shall not use or permit the Premises to be used for
any other purpose without written consent of landlord.
Premises shall be designed and furnished to a level of quality equivalent to the
building, and shall be well maintained and clean at all times.
All fixtures, furnishings and equipment shall be of good quality, commercial
grade; and shall be maintained in good working condition and repair at all
times.
The tenant is expressly prohibited from doing anything which will: increase the
insurance premiums or rates for the building; cause any unusual or objectionable
odors or smoke; allow the installation of video games; involve the display or
sale of pornographic material; use loudspeakers to be heard outside the
Premises; create any kind of nuisance;
7. MAINTENANCE: Tenant will pay for service contract and be responsible for all
damage due to negligence.[initialed: JB,RW]
8. INSURANCE: The Tenant shall furnish to the Landlord at Tenant's expense
public liability insurance, by an A+ rated company in New York State, insuring
the Landlord in amounts of not less than $1,000,000/$2,000,000 for personal
injuries and not less than $200,000 for property damage. In the event that such
insurance is not furnished and maintained by the Tenant as herein required, the
Landlord may obtain such insurance coverage and pay the premium therefor, and
the Tenant shall reimburse the Landlord.
<PAGE>
the Landlord shall have all remedies for enforcement or collection of same, as
Landlord has with respect to the fixed rent or any other items of rent or
additional rent hereunder, and the Landlord shall have all remedies for
enforcement or collection of same, as Landlord has with respect to the fixed
rent or any other items of rent or additional rend hereunder. The Tenant shall
add the Landlord as a named insured to Tenant's liability insurance policy, and
the same shall constitute compliance with the requirements of this paragraph,
provided that the amounts of insurance are as stated herein, and the Landlord
shall receive a certificate of insurance.
9. ALTERATIONS: (a) No alterations shall be made by the Tenant before the Tenant
shall have first secured from the Landlord written approval of all plans and
specifications covering the alterations; all such alterations shall be made and
installed in accordance with rules, regulations, ordinances and requirements of
the City of Mount Vernon, State of New York and Federal Departments, Boards and
Commissions having jurisdiction, it being the responsibility and obligation of
the Tenant to secure necessary permits for any and all alterations being made.
It is understood that the consent of the Landlord shall not be unreasonably
withheld or delayed. [initialed: JB,RW]
(b) All alterations, changes, additions, of whatever kind and whether or not
deemed permanently affixed to the realty, including, without limitation, heating
and air-conditioning equipment, lighting fixtures, floor covering, ceilings and
partitions, plumbing, electric wiring, and any other improvements and betterment
(but excluding moveable trade fixtures) made by or on behalf of the Tenant, and
whether made at Tenant's expense or otherwise, shall be and become immediately
upon installation the sole and absolute property of the Landlord, and they shall
remain upon and be surrendered with the demised premises at the expiration or
other termination of this lease unless the Landlord shall have elected to
relinquish his rights therefor, in which event any such alterations, changes and
additions shall be removed and the premises restored to the condition existing
prior to installation and repair made to any damage to the demised premises or
the building due to such removal, all at Tenant's expense.
10. ASSIGNMENT: Tenant shall have the right to assign or sublet this lease only
after obtaining Landlord's written consent. Not to be unreasonably delayed or
withheld.[initialed: JB,RW]
11. ABANDONMENT: It is expressly understood and agreed that in the event that
the Tenant shall vacate, surrender, abandon or be removed from the demised
premises, or shall remove all or a substantial part of the Tenant's merchandise
and/or equipment therefrom, or in the event that Tenant shall cease to actively
conduct in the demised premises the business provided for in this lease, or
should the Tenant indicate by any other means that the Tenant has vacated or
abandoned the premises of the business conducted therein, then, and in any of
such events, the Landlord
<PAGE>
conducted therin, then, and in any of such events, the Landlord may re-enter the
premises and resume possession thereof, and it shall be conclusively presumed
that any and all furniture, fixtures, equipment, goods, wares, merchandise and
any property of every kind and nature remaining in the demised premises have
been abandoned by the Tenant, and the Landlord, without liability whatsoever or
notice to anyone, may enter the demised premises and remove therefrom any such
furniture, fixtures, equipment, merchandise and property of every kind and
nature and dispose of the same in such manner and upon such basis as the
Landlord may deem proper or advisable without any duty to account therefor to
the Tenant. The above only, if Tenant has stopped paying rent [initialed: JB,RW]
13. SIGNAGE: Tenant may install signs on demised premises in close consultation
with owner provided all signs are in conformity with municipal law and are
designed, manufactured and installed to a quality equivalent to that of the
buildings. Tenant shall be responsible for maintaining said signs in good repair
at all times.
15. BROKERAGE: The parties agree and represent the sole broker involved in this
transaction, if any, has been named in Rider "A". It is understood that any and
all broker's fees are to be paid in accordance with the terms in Rider "A".
16. Garbage Removal: Tenant will be responsible for the removal of all their own
garbage.
6 Gramatan Ave.
By: /s/ [illegible]
---------------------
6 Gramatan Ave
TENANT
BY: /s/ Jerry Braun
---------------------
New York Health Care Inc.
FINANCIAL CONSULTING AGREEMENT
------------------------------
This Agreement made ____________, 1996, by and between NEW YORK HEALTH
CARE, INC., a New York corporation, having its business address at 1850 McDonald
Avenue, Brooklyn, New York 11223 (hereinafter the "Company") and H.J. Meyers &
Co., Inc., a New York corporation, having its principal place of business at
1895 Mt. Hope Avenue, Rochester, New York 14620 (hereinafter "Consultant").
In consideration of the mutual promises contained herein and on the terms
and conditions hereinafter set forth, the Company and Consultant agree as
follows:
1. Provision of Services.
(a) Consultant agrees, to the extent reasonably required in the conduct of
the business of the Company, to place at the disposal of the Company its
judgment and experience and to provide business development services to the
Company including the following:
(i) evaluate the Company's managerial and financial requirements and
assist in financial arrangements;
(ii) assist when requested by the Company in recruiting, screening,
evaluating and recommending key personnel, directors, accountants,
commercial and investment bankers, underwriters, attorneys, and other
professional consultants;
(iii) assist in preparation of budgets and business plans;
(iv) advise with regard to sales planning and sales activities; and
(v) advise with regard to shareholder relations and public relations
matters.
All such services shall at all times be at the request of the Company.
(b) Consultant agrees to use its best efforts in the furnishing of advice
and recommendations, and for this purpose Consultant shall at all times maintain
or keep available an adequate organization of personnel or a network of outside
professionals for the performance of its obligations under this Agreement.
2. Compensation. In consideration of Consultant's services, the Company
agrees to pay Consultant a non-refundable consulting fee of $72,000 payable in
advance, on the date hereof.
Consultant hereby accepts such compensation. The Company agrees to
reimburse Consultant for reasonable and necessary expenses incurred by the
Consultant in connection with services hereunder. All expenses in excess of
$1,000.00 shall be approved in advance by the Company in writing.
3. Liability of Consultant. In furnishing the Company with management
advice and other services as herein provided, neither Consultant nor any
officer, director or agent thereof shall be liable to the Company or its
creditors for errors of judgment or for anything except willful malfeasance, bad
faith or gross negligence in the performance of its duties or reckless disregard
of its obligations and duties under the terms of this Agreement.
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<PAGE>
It is further understood and agreed that Consultant may rely upon
information furnished to it reasonably believed to be accurate and reliable and
that, except as herein provided, Consultant shall not be accountable for any
loss suffered by the Company by reason of the Company's action or non-action on
the basis of any advice, recommendation or approval of Consultant, its partners,
employees or agents.
4. Status of Consultant. Consultant shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this Agreement,
shall have no authority to act or represent the Company.
5. Other Activities of Consultant. The Company recognizes that Consultant
now renders and may continue to render management and other services to other
companies which may or may not have policies and conduct activities similar to
those of the Company. Consultant shall be free to render such advice and other
services and the Company hereby consents thereto. Consultant shall not be
required to devote its full time and attention to the performance of its duties
under this Agreement, but shall devote only so much of its time and attention as
it deems reasonable or necessary for such purposes.
6. Control. Nothing contained herein shall be deemed to require the Company
to take any action contrary to its Certificate of Incorporation or By-Laws, or
any applicable statute or regulation, or to deprive its Board of Directors of
their responsibility for any control of the conduct or the affairs of the
Company.
7. Term. Consultant's retention hereunder shall be for a term of two years
commencing on the date hereof.
8. Miscellaneous. This Agreement sets forth the entire agreement and
understanding between the parties and supersedes all prior discussions,
agreements and understandings of every and any nature between them. This
Agreement is executed in and shall be construed and interpreted according to the
laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Financial Consulting
Agreement to be signed by their respective officers or representatives duly
authorized the day and year first above written.
NEW YORK HEALTH CARE, INC.
By: _____________________________________
H.J. MEYERS & CO., INC.
By:______________________________________
Authorized Officer
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H.J. MEYERS & CO., INC.
1895 Mt. Hope Avenue
Rochester, New York 14620
Merger & Acquisition Agreement
------------------------------
___________, 1996
New York Health Care, Inc.
1850 McDonald Avenue
Brooklyn, New York 11223
Attn:
Gentlemen:
This will confirm the understanding and agreement (the "Agreement") between
H.J. Meyers & Co., Inc. ("Meyers") and New York Health Care, Inc. (the
"Company") as follows:
1. The Company hereby engages Meyers, and Meyers hereby accepts such
engagement, as the Company's agent for the purpose of (a) identifying
opportunities for a transaction involving the Company including, without
limitation, the sale of the Company, or any of its businesses, assets, or
properties, or the purchase by the Company of other companies, or any of
their businesses, assets, or properties, (b) advising the Company
concerning opportunities for such a transaction, whether or not identified
by Meyers, and (c) as requested by the Company, participating on the
Company's behalf in negotiations concerning such a transaction or assisting
the Company in structuring such transaction.
2. For the purpose of this Agreement:
(a) A "Transaction" shall mean any transaction or series or combination of
transactions involving the Company, other than in the ordinary course of
trade or business, whereby, directly or indirectly, control of, or a
material interest in any businesses, assets or properties, is sold,
purchased, leased or otherwise transferred, including, without limitation,
a sale, purchase or exchange of capital stock or assets, a lease of assets
with or without a purchase option, a merger or consolidation, a tender or
exchange offer, a leveraged buy-out, a restructuring, a recapitalization, a
repurchase of capital stock, an extraordinary dividend or distribution
(whether cash, property, securities or a combination thereof), a
liquidation, the formation of a joint venture or partnership, a minority
investment or any other similar transaction.
-1-
<PAGE>
(b) "Consideration" shall mean the total value of all cash, securities,
other properly and any other consideration, including, without limitation,
any contingent, earned or other consideration paid or payable, directly or
indirectly, in connection with a Transaction and consideration shall be
determined at the closing. The value of any such securities (whether debt
or equity) or other property shall be determined as follows: (1) the value
of securities that are freely tradable in an established public market
shall be the last closing market price of such securities prior to the
public announcement of the Transaction; and (2) the value of securities
which are not freely tradable or which have no established public market,
or if the consideration consists of property other than securities, the
value of such securities or other property shall be the fair market value
thereof as mutually agreed by the Company and Meyers. Consideration shall
also be deemed to include any indebtedness, including, without limitation,
pension liabilities, guarantees and other obligations assumed, directly or
indirectly, in connection with, or which survives the closing of, a
Transaction. If the consideration to be paid is computed or payable in any
foreign currency, the value of such foreign currency shall, for the
purposes hereof, be converted into U.S. Dollars at the prevailing exchange
rate on the dates on which such consideration is payable.
3. The term of Meyers' engagement hereunder shall extend for two years from
the date hereof.
4. As compensation for the services rendered by Meyers hereunder, the
Company shall pay Meyers as follows:
(a) If the Company announces or enters into an agreement with respect to a
Transaction either during the term of Meyers' engagement hereunder or at
any time during a period of 36 months following the date hereof, and, if
during the term hereof either the party or parties to the Transaction were
identified by Meyers or Meyers renders advice concerning the Transaction,
and such Transaction is thereafter consummated, then the Company shall pay
to Meyers the following percentages of the total consideration paid in each
of such Transactions:
Percent Total Consideration
------- -------------------
5.0% on amounts up to $3,000,000 plus
3.5% on amounts between $3,000,001 and $5,000,000 plus
2.0% on amounts over $5,000,000
(b) For the purposes of subparagraph (a), Meyers shall be deemed to have
identified the party or parties to a Transaction only if the opportunity is
at least briefly specifically described in a writing (which need not
identify the other parties) signed by Meyers and received (with receipt
acknowledged in writing by the Company) prior
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<PAGE>
to any negotiations between representatives of the Company and
representatives of the other party or parties to such Transaction and such
writing signed by Meyers refers to the Company's obligations under this
Agreement.
(c) Compensation which is payable to Meyers pursuant to subparagraph 4(a)
shall be paid by the Company to Meyers.
5. The Company shall reimburse Meyers for its pre-approved out-of-pocket
and incidental expenses incurred in connection with its engagement hereunder
promptly as requested, including the fees and expenses of its legal counsel and
those of any advisor retained by Meyers.
6. Because Meyers will be acting on behalf of the Company in connection
with this engagement, the Company agrees to indemnify Meyers as set forth in a
separate letter agreement dated the date hereof between Meyers and the Company.
7. Meyers shall have the right to place advertisements in financial and
other newspapers and journals at its own expense describing its services to the
Company hereunder.
8. Any advice, either oral or written, provided to the Company by Meyers
hereunder shall not be publicly disclosed or made available to third parties
without the prior written consent of Meyers, until otherwise required by law. In
addition, Meyers may not be otherwise publicly referred to without its prior
consent.
9. In connection with Meyers' engagement, the Company will furnish Meyers
with all information concerning the Company which Meyers reasonably deems
appropriate and will provide Meyers with reasonable access to the Company's
officers, directors, accountants, counsel and other advisors. The Company
represents and warrants to Meyers that all such information concerning the
Company and its affiliates is and will be true and accurate in all material
respects and does not and will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstance under which such statements are made not
misleading. The Company acknowledges and agrees that Meyers will be using and
relying upon such information supplied by the Company and its officers, agents
and others and any other publicly available information concerning the Company
and its affiliates and any prospective acquiror of the Company, its businesses
or assets without any independent investigation or verification thereof or
independent appraisal by Meyers of the Company and businesses or assets.
-3-
<PAGE>
10. The Company represents and warrants to Meyers that there are no
brokers, representatives or other persons which have an interest in compensation
due to Meyers from any Transaction contemplated herein.
11. The benefits of this Agreement, together with the separate indemnity
letter, shall inure to the respective successors and assigns of the parties
hereto and of the indemnified parties hereunder and their successors, assigns
and representatives, and the obligations and liabilities assumed in this
Agreement by the parties hereto shall be binding upon their respective
successors and assigns.
12. This Agreement may not be amended or modified except in writing and
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to principles of conflicts of laws.
Meyers is delighted to accept this engagement and looks forward to working
with you on this assignment. Please sign this letter at the place indicated
below, whereupon it will constitute a binding agreement with respect to the
matters contained herein.
NEW YORK HEALTH CARE, INC.
By:____________________________
Authorized Officer
AGREED TO AND ACCEPTED:
H.J. MEYERS & CO., INC.
By:____________________________
-4-
<PAGE>
Indemnification Agreement
_______________, 1996
H.J. Meyers & Co., Inc.
1895 Mt. Hope Avenue
Rochester, New York 14620-4596
In connection with the engagement pursuant to the Merger and Acquisition
Agreement between H.J. Meyers & Co., Inc. (" Meyers") and New York Health Care,
Inc. (the "Company") dated ____________, 1996, the Company hereby agrees to
indemnify and hold harmless Meyers, its respective directors, officers,
controlling persons (within the meaning of Section 15 of the Securities Act of
1933 or Section 20(a) of the Securities Exchange Act of 1934), if any,
(collectively, "Indemnified Persons" and individually, an "Indemnified Person")
from and against any and all claims, liabilities, losses, damages and expenses
incurred by any Indemnified Person (including fees and disbursements of Meyers'
and any Indemnified Person's counsel) which (A) are related to or arise out of
(i) actions taken or omitted to be taken (including any untrue statements made
or any statements omitted to be made) by the Company or (ii) actions taken or
omitted to be taken by an Indemnified Person with the Company's consent or in
conformity with the Company's instructions or the Company's actions or omissions
or (B) are otherwise related to or arise out of Meyers' engagement, and will
reimburse Meyers and any other Indemnified Person for all costs and expenses,
including reasonable fees of Meyers' or any Indemnified Person's counsel, as
they are incurred, in connection with investigating, preparing for, or defending
any action, formal or informal claim, investigation, inquiry or other
proceeding, whether or not in connection with pending or threatened litigation,
caused by or arising out of or in connection with Meyers acting pursuant to the
engagement, whether or not Meyers or any Indemnified Person is named as a party
thereto and whether or not any liability results therefrom. The Company will
not, however, be responsible for any claims, liabilities, losses, damages, or
expenses pursuant to clause (B) of the preceding sentence which are finally
judicially determined to have resulted primarily from Meyers' bad faith or gross
negligence. The Company also agrees that neither Meyers nor any other
Indemnified Person shall have any liability to the Company for or in connection
with such engagement except for any such liability for claims, liabilities,
losses, damages, or expenses incurred by the Company which are finally
judicially determined to have resulted primarily from Meyers' bad faith or gross
negligence.
Promptly after receipt by an Indemnified Person under this Agreement of
notice of the commencement of any action, such Indemnified Person will, if a
claim in respect thereof is to be made against the Company under this Agreement,
notify the Company of the commencement thereof, but the omission so to notify
the Company will not relieve the Company from any liability
-1-
<PAGE>
which it may have to any Indemnified Person. In case any such action is brought
against any Indemnified Person, and it notifies the Company of the commencement
thereof, the Company will be entitled to participate in, and, to the extent that
it may wish, reasonably assume the defense thereof, subject to the provisions
herein stated, and upon a notice from the Company to such Indemnified Person of
its election to assume the defense thereof, the Company will not be liable to
such Indemnified Person under this Agreement for any legal or other expenses,
subsequently incurred by such Indemnified Person in connection with the defense
thereof, other than reasonable costs of investigation, unless the Company shall
not pursue the action to its final conclusion. The Indemnified Person shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall not be at
the expense of the Company if the Company has assumed the defense of the action
with counsel reasonably satisfactory to the; provided that if the Indemnified
Person shall have been advised by its counsel that there may be one or more
legal defenses available to the Indemnified Person which differ from those
available to the Company the Company shall be liable for any legal and other
expense incurred by the Indemnified Person in connection with the defense of the
action (in which case the Company shall not have the right to assume the defense
of such action on behalf of the Indemnified Person, it being understood,
however, that the Company shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
Indemnified Persons.) The Company agrees that the Company will not, without the
prior written consent of Meyers, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not Meyers
or any Indemnified Person is an actual or potential party to such claim, action,
suit or proceeding) unless such settlement, compromise or consent includes an
unconditional release of Meyers and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit or proceeding.
In order to provide for just and equitable contribution, if a claim for
indemnification is made pursuant to these provisions but is found in a final
judgment by a court of competent jurisdiction (not subject to further appeal)
that such indemnification is not available for any reason (except, with respect
to indemnification sought solely pursuant to clause (B) of the first paragraph
hereof, for the reasons specified in the second sentence thereof), even though
the express provisions hereof provide for indemnification in such case, then the
Company, on one hand, and Meyers, on the other hand, shall contribute to such
claim, liability, loss, damage or expense for which such indemnification or
reimbursement is held unavailable in such proportion as is appropriate to
reflect the relative benefits to the Company, on one hand, and Meyers, on the
other hand, in connection with the transactions contemplated by the engagement,
subject to the limitation that in any event Meyers' aggregate contribution to
all losses, claims, damages, liabilities and expenses to which contribution is
available hereunder shall not exceed the amount of fees actually received by
Meyers pursuant to the engagement.
The foregoing right to indemnity and contribution shall be in addition to
any rights that Meyers and/or any other Indemnified Person may have at common
law or otherwise and shall
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<PAGE>
remain in full force and effect following the completion or any termination of
your engagement. The Company hereby consents to personal jurisdiction and to
service and venue in any court in which any claim which is subject to this
agreement is' brought against Meyers or any other Indemnified Person.
It is understood that, in connection with Meyers' engagement, Meyers may
also be engaged to act for the Company in one or more additional capacities,
embodied in one or more separate written agreements. This indemnification shall
apply to said engagement, any such additional engagement(s) (whether written or
oral) and any modification of said engagement or such additional engagement(s)
and shall remain in full force and effect following the completion or
termination of said engagement or such additional engagements.
The Company further understands that if Meyers is asked to act for the
Company as dealer manager in an exchange or tender offer or as an underwriter in
connection with the issuance of securities by the Company or to furnish the
Company a financial opinion letter or in any other formal capacity, such further
action may be subject to a separate agreement containing provisions and terms to
be mutually agreed upon.
Very truly yours,
NEW YORK HEALTH CARE, INC.
By: _______________________________
AGREED TO AND ACCEPTED:
H. J. MEYERS & CO., INC.
By:____________________________
Authorized Officer
-3-
CONSENT OF ATTORNEYS FOR THE REGISTRANT
We hereby consent to all references to our firm included in or made a part
of this Amendment No. 4 to the Form SB-2 Registration Statement.
Dated: New York, New York
December 9, 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 December 4, 1996, Note 12, which is as of December 5, 1996, and Note 15,
which is as of October 8, 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
December 5, 1996
